<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1997
REGISTRATION NOS.: 33-16177
811-07927
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 1 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
AMENDMENT NO. 2 [X]
DEAN WITTER FINANCIAL SERVICES TRUST
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID M. BUTOWSKY, Esq.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
____ immediately upon filing pursuant to paragraph (b)
X on July 28, 1997 pursuant to paragraph (b)
____
____ 60 days after filing pursuant to paragraph (a)
____ on (date) pursuant to paragraph (a) of rule 485.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO SECTION (A)(1) OF RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE REGISTRANT HAS FILED THE RULE 24F-2
NOTICE FOR ITS FISCAL YEAR ENDED MAY 31, 1997 WITH THE SECURITIES AND
EXCHANGE COMMISSION ON JULY 3, 1997.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
- ------------ ---------------------------------------------------
PART A PROSPECTUS
- ------------ ---------------------------------------------------
<S> <C> <C>
1. .....Cover Page
2. .....Summary of Fund Expenses; Prospectus Summary
3. .....Financial Highlights; Performance Information
Investment Objective and Policies; Risk
Considerations; The Fund and Its Management; Cover
4. ..... Page; Investment Restrictions; Prospectus Summary
The Fund and Its Management; Back Cover; Investment
5. ..... Objective and Policies
Dividends, Distributions and Taxes; Additional
6. ..... Information
Purchase of Fund Shares; Shareholder Services;
7. ..... Redemptions and Repurchases
Purchase of Fund Shares; Redemptions and
8. ..... Repurchases; Shareholder Services
9. .....Not Applicable
</TABLE>
<TABLE>
<CAPTION>
PART B STATEMENT OF ADDITIONAL INFORMATION
- ---------- -------------------------------------------------------
<S> <C> <C>
10. .....Cover Page
11. .....Table of Contents
12. .....The Fund and Its Management
Investment Practices and Policies; Investment
13. ..... Restrictions; Portfolio Transactions and Brokerage
14. .....The Fund and Its Management; Trustees and Officers
15. .....Trustees and Officers
The Fund and Its Management; Purchase of Fund Shares;
16. ..... Custodian and Transfer Agent; Independent Accountants
17. .....Portfolio Transactions and Brokerage
18. .....Description of Shares
Purchase of Fund Shares; Repurchase of Fund Shares;
19. ..... Redemptions and Repurchases; Shareholder Services
20. .....The Distributor; Dividends, Distributions and Taxes
21. .....Purchase of Fund Shares
22. .....Dividends, Distributions and Taxes
23. .....Performance Information
24. .....Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS
JULY 28, 1997
Dean Witter Financial Services Trust (the "Fund") is an open-end,
diversified management investment company, whose investment objective is
long-term capital appreciation. The Fund seeks to achieve its investment
objective by investing at least 65% of its total assets in the equity
securities of companies in the financial services and financial services
related industries. Issuers in these industries provide financial services or
financial products to companies and individuals or to other financial
services providers. 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. Shares of the Fund held
prior to July 28, 1997 have been designated Class B shares. See "Purchase of
Fund Shares--Alternative Purchase Arrangements."
This Prospectus sets forth concisely the information you should know
before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the
Statement of Additional Information, dated July 28, 1997, which has been
filed with the Securities and Exchange Commission, and which is available at
no charge upon request of the Fund at the address or telephone numbers listed
on this page. The Statement of Additional Information is incorporated herein
by reference.
Dean Witter Financial Services Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
TABLE OF CONTENTS
Prospectus Summary 2
Summary of Fund Expenses 5
Financial Highlights 7
The Fund and its Management 8
Investment Objective and Policies 8
Risk Considerations 10
Investment Restrictions 18
Purchase of Fund Shares 18
Shareholder Services 29
Repurchases and Redemptions 32
Dividends, Distributions and Taxes 33
Performance Information 34
Additional Information 34
Financial Statements--May 31, 1997 36
Report of Independent Accountants 47
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
DEAN WITTER DISTRIBUTORS INC.,
DISTRIBUTOR
<PAGE>
PROSPECTUS SUMMARY
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
--------------- -----------------------------------------------------------------------
THE The Fund is organized as a Trust, commonly known as a Massachusetts
FUND business trust, and is an open-end, diversified management investment
company investing at least 65% of its total assets in the equity
securities of companies in the financial services and financial
services related industries.
- --------------- -----------------------------------------------------------------------
SHARES OFFERED Shares of beneficial interest with $0.01 par value (see page 34). The
Fund offers four Classes of shares, each with a different combination
of sales charges, ongoing fees and other features (see pages 18-28).
- --------------- -----------------------------------------------------------------------
MINIMUM The minimum initial investment for each Class is $1,000 ($100 if the
PURCHASE account is opened through EasyInvest (Service Mark) ). Class D shares
are only available to persons investing $5 million or more and to
certain other limited categories of investors. For the purpose of
meeting the minimum $5 million investment for Class D shares, and
subject to the $1,000 minimum initial investment for each Class of the
Fund, an investor's existing holdings of Class A shares and shares of
funds for which Dean Witter InterCapital Inc. serves as investment
manager ("Dean Witter Funds") that are sold with a front-end sales
charge, and concurrent investments in Class D shares of the Fund and
other Dean Witter Funds that are multiple class funds, will be
aggregated. The minimum subsequent investment is $100 (see page 18).
- --------------- -----------------------------------------------------------------------
INVESTMENT The investment objective of the Fund is long-term capital appreciation.
OBJECTIVE
- --------------- -----------------------------------------------------------------------
INVESTMENT Dean Witter InterCapital Inc., the Investment Manager of the Fund, and
MANAGER its wholly-owned subsidiary, Dean Witter Services Company Inc., serve
in various investment management, advisory, management and
administrative capacities to 100 investment companies and other
portfolios with net assets under management of approximately $96.6
billion at June 30, 1997 (see page 8).
- --------------- -----------------------------------------------------------------------
MANAGEMENT The Investment Manager receives a monthly fee at the annual rate of
FEE 0.75% of daily net assets (see page 4).
- --------------- -----------------------------------------------------------------------
DISTRIBUTOR AND Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted
DISTRIBUTION a distribution plan pursuant to Rule 12b-1 under the Investment Company
FEE Act (the "12b-1 Plan") with respect to the distribution fees paid by
the Class A, Class B and Class C shares of the Fund to the Distributor.
The entire 12b-1 fee payable by Class A and a portion of the 12b-1 fee
payable by each of Class B and Class C equal to 0.25% of the average
daily net assets of the Class are currently each characterized as a
service fee within the meaning of the National Association of
Securities Dealers, Inc. guidelines. The remaining portion of the 12b-1
fee, if any, is characterized as an asset-based sales charge (see pages
18 and 27).
- --------------- -----------------------------------------------------------------------
ALTERNATIVE Four classes of shares are offered: o Class A shares are offered with a
PURCHASE front-end sales charge, starting at 5.25% and reduced for larger
ARRANGEMENTS 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
2
<PAGE>
- --------------- -----------------------------------------------------------------------
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 18,21
and 27). o Class B shares are offered without a front-end sales charge,
but will in most cases be subject to a CDSC (scaled down from 5.0% to
1.0%) if redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the
aggregate current value of a Class B account with the Fund falls below
the aggregate amount of the investor's purchase payments made during
the six years preceding the redemption. A different CDSC schedule
applies to investments by certain qualified plans. Class B shares are
also subject to a 12b-1 fee assessed at the annual rate of 1.0% of the
average daily net assets of Class B. 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 18, 24 and
27). o Class C shares are offered without a front-end sales charge, but
will in most cases be subject to a CDSC of 1.0% if redeemed within one
year after purchase. The Fund is authorized to reimburse the
Distributor for specific expenses incurred in promoting the
distribution of the Fund's Class C shares and servicing shareholder
accounts pursuant to the Fund's 12b-1 Plan. Reimbursement may in no
event exceed an amount equal to payments at an annual rate of 1.0% of
average daily net assets of the Class (see pages 26 and 27). o Class D
shares are offered only to investors meeting an initial investment
minimum of $5 million and to certain other limited categories of
investors. Class D shares are offered without a front-end sales charge
or CDSC and are not subject to any 12b-1 fee (see pages 26 and 27).
- --------------- -----------------------------------------------------------------------
DIVIDENDS AND Dividends and capital gains, if any, will be distributed at least
CAPITAL GAINS annually. The Fund may, however, determine to retain all or part of any
DISTRIBUTIONS net long-term capital gains in any year for reinvestment. Dividends and
capital gains distributions paid on shares of a Class are automatically
reinvested in additional shares of the same Class at net asset value
unless the shareholder elects to receive cash (see page 29). Shares
acquired by dividend and distribution reinvestment will not be subject
to any sales charge or CDSC (see pages 29 and 33).
- --------------- -----------------------------------------------------------------------
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 pages 32).
3
<PAGE>
- --------------- -----------------------------------------------------------------------
RISK The net asset value of the Fund's shares will fluctuate with changes in
CONSIDERATIONS the market value of the Fund's portfolio securities. The market value
of the Fund's portfolio securities will increase or decrease due to
economic or market factors affecting companies and/or industries in
which the Fund invests. In addition, the value of the Fund's
fixed-income and convertible securities generally increases or
decreases due to economic and market factors, as well as changes in
prevailing interest rates. Generally, a rise in interest rates will
result in a decrease in value while a drop in interest rates will
result in an increase in value. There are also certain risks associated
with the Fund's investments in the financial services and financial
services related industries (see
page 11). The Fund may invest in lower-rated convertible securities and
the securities of foreign issuers which entails certain additional
risks. The Fund may also invest in options and futures transactions in
order to hedge its portfolio securities and may enter into forward
foreign currency exchange contracts in connection with its foreign
securities investments and may purchase securities on a when-issued,
delayed delivery or "when, as and if issued" basis, which involve
certain special risks (see pages 10-17). An investment in shares of the
Fund should not be considered a complete investment program and is not
appropriate for all investors. Investors should carefully consider
their ability to assume the risks outlined in the Prospectus (see page
10-17) before making an investment in the Fund.
</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus
and in the Statement of Additional Information.
4
<PAGE>
SUMMARY OF FUND EXPENSES
- -----------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are based
on the expenses and fees for the fiscal year ending May 31, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
- --------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) .................... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments ... None None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds).............................. None(2) 5.00%(3) 1.00%(4) None
Redemption Fees.................................... None None None None
Exchange Fee....................................... None None None None
Annual Fund Operating Expenses (as a percentage of average net assets)
- --------------------------------------------- .............................................
Management Fees ................................... 0.75% 0.75% 0.75% 0.75%
12b-1 Fees (5)(6).................................. 0.25% 1.00% 1.00% None
Other Expenses .................................... 0.29% 0.29% 0.29% 0.29%
Total Fund Operating Expenses (7).................. 1.29% 2.04% 2.04% 1.04%
</TABLE>
- ------------
(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) For the fiscal period February 26, 1997 (commencement of operations)
through May 31, 1997, the total annualized operating expenses of the
Fund's Class B shares, consisting of Management Fees (0.75%), 12b-1
Fees (1.0%) and Other Expenses (0.48%), amounted to 2.23%. There were
no outstanding shares of Class A, Class C or Class D prior to the date
of this Prospectus. Accordingly, "Total Fund Operating Expenses," as
shown above with respect to those Classes, are based upon the sum of
12b-1 Fees, Management Fees and estimated "Other Expenses'' for the
fiscal year ending May 31, 1998.
5
<PAGE>
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS
- ------------------------------------------------------------------------- -------- ---------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1)
a 5% annual return and (2) redemption at the end of each time period:
Class A ................................................................ $65 $91
Class B ................................................................ $71 $94
Class C................................................................. $31 $64
Class D ................................................................ $11 $33
You would pay the following expenses on the same $1,000 investment
assuming no redemption at the end of the period:
Class A ................................................................ $65 $91
Class B ................................................................ $21 $64
Class C ................................................................ $21 $64
Class D ................................................................ $11 $33
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER
OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares--Plan of
Distribution" and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales
charges, including distribution fees, than the economic equivalent of the
maximum front-end sales charges permitted by the NASD.
6
<PAGE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout the 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 Prospectus.
Further information about the performance of the Fund is contained in the
Fund's Statement of Additional Information, which may be obtained without
charge upon request to the Fund. All shares of the Fund held prior to July
28, 1997 have been designated Class B shares.
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 26, 1997*
THROUGH
MAY 31, 1997
------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 10.00
------------------
Net investment income................... 0.01
Net realized and unrealized gain ....... 0.04
------------------
Total from investment operations ....... 0.05
------------------
Net asset value, end of period.......... $ 10.05
==================
TOTAL INVESTMENT RETURN+................ 0.50%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 2.23%(2)
Net investment income................... 0.64%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $176,651
Portfolio turnover rate................. 17%(1)
Average commission rate paid............ $ 0.0573
</TABLE>
[FN]
- ------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
7
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Dean Witter Financial Services Trust (the "Fund") is an open-end,
diversified management investment company. The Fund is a trust of the type
commonly known as a "Massachusetts business trust" and was organized under
the laws of The Commonwealth of Massachusetts on November 8, 1996.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048,
is the Fund's Investment Manager. The Investment Manager, which was
incorporated in July, 1992, is a wholly-owned subsidiary of Morgan Stanley,
Dean Witter, Discover & Co., a preeminent global financial services firm that
maintains leading market positions in each of its three primary
businesses--securities, asset management and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 100 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined assets of approximately
$93.1 billion at June 30, 1997. The Investment Manager also manages
portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.5 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of
portfolio securities. InterCapital has retained Dean Witter Services Company
Inc. to perform the aforementioned administrative services for the Fund.
The Fund's Trustees review the various services provided by the Investment
Manager to ensure that the Fund's general investment policies and programs
are being properly carried out and that administrative services are being
provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund incurred by the Investment Manager, the Fund
pays the Investment Manager monthly compensation calculated daily by applying
the annual rate of 0.75% to the Fund's net assets. For the fiscal period
February 26, 1997 (commencement of operations) through May 31, 1997, the Fund
accrued total compensation to the Investment Manager amounting to an annual
rate of 0.75% of the Fund's average daily net assets and the Fund's total
annualized expenses amounted to an annual rate of 2.23% of the Fund's average
daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
The investment objective of the Fund is long-term capital appreciation.
The objective is a fundamental policy of the Fund and may not be changed
without a vote of a majority of the outstanding voting securities of the
Fund. There is no assurance that the objective will be achieved. The
following policies may be changed by the Board of Trustees without
shareholder approval.
The Fund seeks to achieve its investment objective by investing, under
normal circumstances, at least 65% of its total assets in the equity
securities of companies in the financial services and financial services
related industries. Issuers in these industries provide financial services or
financial products to companies and individuals or to other financial
services providers.
The financial services companies in which the Fund may invest include but
are not limited to the following: asset management companies, securities
brokerage firms, financial planners, regional and money center banks,
merchant banks, mortgage companies, consumer finance companies, savings
8
<PAGE>
banks and thrift institutions, insurance companies, insurance brokerage
firms, leasing companies, government-sponsored agencies, credit and finance
companies and foreign financial service companies. Examples of companies in
which the Fund may invest which provide products and services to the
aforementioned financial services companies include but are not limited to
the following: providers of financial publishing and news services, credit
research and rating services, financial advertising (including Internet site
development), financial equipment and technology (including financial
software), data processing and payroll services and other financial products
or services which do not involve the providing of credit, brokerage or
management of assets.
The equity securities in which the Fund may invest may be issued either by
large, established, well-capitalized companies or by newly-formed small
capitalization companies. There are no restrictions on the market
capitalization size of the Fund's holdings. While the equity securities in
which the Fund may invest will consist primarily of common stocks, the Fund
may also invest in other types of equity securities such as preferred and
convertible securities, rights and warrants.
The Fund's equity investments will be determined pursuant to an investment
process that seeks to identify companies that show good appreciation
prospects and value.This approach to stock selection involves a fundamental
analysis of individual companies through an analysis of their balance sheets,
income statements, products and services. Also, the Investment Manager will
take into consideration certain criteria which include, among other things,
capable management, attractive business niches or product innovation, sound
financial and accounting practices, ability to grow revenues, earnings and
cash flows consistently, and stock prices and growth potential which, in the
opinion of the Investment Manager, appear to be undervalued or temporarily
unrecognized by the market.
Companies considered to be in the financial services and financial
services related industries will be those which derive at least 35% of their
revenues or earnings from the aforementioned respective activities, or devote
at least 35% of their assets to such respective activities.
Up to 35% of the Fund's total assets may be invested in equity securities
of issuers not in the financial services or financial services related
industries, investment grade fixed-income securities, convertible securities,
rights and warrants of issuers not in the financial services or financial
services related industries, U.S. Government securities (including zero
coupon securities) or money market instruments. With respect to corporate
non-convertible fixed-income securities, the term "investment grade" means
securities which are rated Baa or higher by Moody's Investors Services, Inc.
("Moody's") or BBB or higher by Standard & Poor's Corporation ("S&P") or, if
not rated, are deemed by the Investment Manager to be of comparable quality.
The Fund may invest up to 25% of its total assets in the securities of
foreign issuers.
Investments in fixed-income securities rated either BBB by S&P or Baa by
Moody's (the lowest credit ratings designated "investment grade") have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make
principal and interest payments than would be the case with investments in
securities with higher credit ratings. If a fixed-income non-convertible
security held by the Fund is rated BBB or Baa and is subsequently downgraded
by a rating agency, or otherwise falls below investment grade the Fund will
sell such securities as soon as is practicable without undue market or tax
consequences to the Fund. See the Appendix to the Statement of Additional
Information for a discussion of ratings of fixed-income securities.
Money market instruments in which the Fund may invest are securities
issued or guaranteed by the U.S. Government or its agencies (Treasury bills,
notes and bonds); obligations of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more; Eurodollar
certificates of
9
<PAGE>
deposit; obligations of savings banks and savings and loan associations
having total assets of $1 billion or more; fully insured certificates of
deposit; and commercial paper rated within the two highest grades by Moody's
or S&P or, if not rated, issued by a company having an outstanding debt issue
rated AA by S&P or Aa by Moody's.
There may be periods during which, in the opinion of the Investment
Manager, market conditions warrant reduction of some or all of the Fund's
securities holdings. During such periods, the Fund may adopt a temporary
"defensive" posture in which up to 100% of its total assets is invested in
money market instruments or cash.
In accordance with SEC rules, the Fund will not purchase the security of
any company which in its most recent fiscal year derived more than 15% of its
gross revenues from securities related activities (defined by the SEC as
activities as a broker, dealer, underwriter or investment adviser) if
immediately after such purchase the Fund: (i) would own more than 5% of any
class of equity securities of the company; (ii) would own more than 10% of
the outstanding principal amount of the company's debt securities; or (iii)
would have invested more than 5% of its total assets in securities of such
company.
Convertible Securities. The Fund may invest in 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).
Up to 20% of the Fund's assets in convertible fixed-income securities can
be rated below investment grade or, if unrated, are of comparable quality as
determined by the Investment Manager. Securities rated below investment grade
are the equivalent of high yield, high risk bonds (commonly known as "junk
bonds"). The Fund will not invest in convertible fixed-income securities that
are in default in payment of principal or interest. In the event that the
Fund's investments in convertible securities rated below investment grade,
including downgraded convertible securities, constitute more than 20% of the
Fund's total assets, the Fund will seek immediately to sell sufficient
securities to reduce the total to below the applicable percentage. See "Risk
Considerations" below for a discussion of the risks of investing in
lower-rated and unrated fixed-income securities and the Appendix to the
Statement of Additional Information for a description of fixed-income
security ratings.
Foreign Securities. As noted above, the Fund may invest in securities of
foreign companies. Such investments may also be 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. The Fund's investments in unlisted
foreign securities are subject to the Fund's overall policy limiting its
investment in illiquid securities to 15% or less of its net assets. For a
discussion of the risks of investing in these securities, see "Risk
Considerations" below.
The Fund reserves the right to seek to achieve its investment objective by
converting to a "master/ feeder" fund structure (see "Additional
Information").
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in
the market value of the
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Fund's 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 affecting companies and/or industries in which the Fund
invests, which factors cannot be predicted. Additionally, the value of the
Fund's fixed-income and convertible securities may increase or decrease due
to changes in prevailing interest rates. Generally, a rise in interest rates
will result in a decrease in value, while a drop in interest rates will
result in an increase in value.
Financial Services and Financial Services-Related Industries. The Fund
concentrates its investments in the financial services and financial
services-related industries. Because of this concentration, the value of the
Fund's shares may be more volatile than that of investment companies that do
not similarly concentrate their investments. The financial services and
financial services-related industries will be particularly affected by
certain economic, competitive and regulatory developments. The profitability
of financial services companies as a group is largely dependent upon the
avail ability and cost of capital funds which in turn may fluctuate
significantly in response to changes in interest rates and general economic
conditions. Rising interest rates and inflation may negatively affect certain
financial services companies as the costs of lending money, attracting
deposits and doing business rise. Financial institutions are subject to
regulation and supervision by governmental authorities and changes in
governmental policies may impact the way financial institutions conduct
business. If regulation which would reduce the separation between commercial
and investment banking is ultimately enacted, financial services companies
may be significantly affected in terms of profitability and competition.
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, restrictions on foreign investment
and repatriation of capital, 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. Additionally, there may be
less investment community research and coverage with respect to certain
foreign 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
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<PAGE>
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
U.S. 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.
Convertible Securities. To the extent that a convertible security's
investment value is greater than its conversion value, its price will be
primarily a reflection of such investment value and its price will be likely
to increase when interest rates fall and decrease when interest rates rise,
as with a fixed-income security (the credit standing of the issuer and other
factors may also have an effect on the convertible security's value). If the
conversion value exceeds the investment value, the price of the convertible
security will rise above its investment value and, in addition, will
generally sell at some premium over its conversion value. (This premium
represents the price investors are willing to pay for the privilege of
purchasing a fixed-income security with a possibility of capital appreciation
due to the conversion privilege.) At such times the price of the convertible
security will tend to fluctuate directly with the price of the underlying
equity security.
A portion of the convertible securities in which the Fund may invest will
generally be rated 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 Standard & Poor's Corporation ("S&P") or Baa or higher by
Moody's Investors Service, Inc. ("Moody's"). Fixed-income securities rated
Baa by Moody's or BBB by Standard & Poor's have speculative characteristics
greater than those of more highly rated securities, while fixed-income
securities rated Ba or BB or lower by Moody's and Standard & Poor's,
respectively, are considered to be speculative investments. The Fund will not
invest in convertible securities that are rated lower than B by S&P or
Moody's or, if not rated, determined to be of comparable quality by the
Investment Manager. The Fund will not invest in convertible fixed-income
securities that are in default in payment of principal or interest. The
ratings of fixed-income securities by Moody's and Standard & Poor's are a
generally accepted barometer of credit risk. However, as the creditworthiness
of issuers of lower-rated fixed-income securities is more problematic than
that of issuers of higher-rated fixed-income securities, the achievement of
the Fund's investment objective will be more dependent upon the Investment
Manager's own credit analysis than would be the case with a mutual fund
investing primarily in higher quality bonds. The Investment Manager will
utilize a security's credit rating as simply one indication of an issuer's
creditworthiness and will principally rely upon its own analysis of any
security currently held by the Fund or potentially purchasable by the Fund
for its portfolio. See the Appendix to the Statement of Additional
Information for a discussion of ratings of fixed-income securities.
Because of the special nature of the Fund's permitted investments in lower
rated or unrated convertible securities, the Investment Manager must take
account of certain special considerations in assessing the risks associated
with such investments. The prices of lower rated or unrated 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 develop-
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<PAGE>
ments. 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 or unrated
securities and a corresponding volatility in the net asset value of a share
of the Fund.
The risks of other investment techniques which may be utilized by the Fund
described under "Other Investment Policies," "Options and Futures
Transactions" and "Forward Foreign Currency Exchange Contracts" are described
below.
OTHER INVESTMENT POLICIES
Warrants and Stock Rights. The Fund may acquire warrants and stock rights
which are attached to other securities in its portfolio. Warrants and stock
rights 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 and stock rights.
Investment in Real Estate Investment Trusts. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments
primarily in commercial real estate properties. Investment in real estate
investment trusts may be the most practical available means for the Fund to
invest in the real estate industry (the Fund is prohibited from investing in
real estate directly). As a shareholder in a real estate investment trust,
the Fund would bear its ratable share of the real estate investment trust's
expenses, including its advisory and administration fees. At the same time
the Fund would continue to pay its own investment management fees and other
expenses, as a result of which the Fund and its shareholders in effect will
be absorbing duplicate levels of fees with respect to investments in real
estate investment trusts.
Repurchase Agreements. The Fund may enter into repurchase agreements,
which may be viewed as a type of secured lending by the Fund, and which
typically involve the acquisition by the Fund of debt securities from a
selling financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying
security at a specified price and at a fixed time in the future, usually not
more than seven days from the date of purchase. While repurchase agreements
involve certain risks not associated with direct investments in debt
securities, including risks of defaults or bankruptcy of the selling
institution, the Fund follows procedures designed to minimize those risks.
These procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions and maintaining
adequate collateralization. See the Statement of Additional Information for a
further discussion of such investments.
Private Placements and Restricted Securities. The Fund may invest up to 5%
of its net assets in securities which are subject to restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or which are otherwise restricted.
(Securities eligible for resale pursuant to Rule 144A under the Securities
Act, and determined to be liquid pursuant to the procedures discussed in the
following paragraph, are not subject to the foregoing restriction.) These
securities are generally referred to as private placements or restricted
securities. Limitations on the resale of such securities may have an adverse
effect on their marketability, and may prevent the Fund from disposing of
them promptly at reasonable prices. The Fund may have to bear the expense of
registering such securities for resale and the risk of substantial delays in
effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which
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<PAGE>
permits the Fund to sell restricted securities to 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 under current policy may not
exceed 15% of the Fund's net assets. However, investing in Rule 144A
securities could have the effect of increasing the level of Fund illiquidity
to the extent the Fund, at a particular point of time, may be unable to find
qualified institutional buyers interested in purchasing such securities.
When-Issued and Delayed Delivery Securities and Forward Commitments. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after the date of the commitment.
An increase in the percentage of the Fund's assets committed to the purchase
of securities on a when-issued, delayed delivery or forward commitment basis
may increase the volatility of the Fund's net asset value.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when, as
and if issued" basis may increase the volatility of its net asset value.
Investment in Other Investment Vehicles. Under the Investment Company Act
of 1940, as amended, 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 foreign investment companies may be the sole or most practical means by
which the Fund may participate in certain foreign securities markets. As a
shareholder in an investment company, the Fund would bear its ratable share
of that entity's expenses, including its advisory and administration fees. At
the same time the Fund would continue to pay its own investment management
fees and other expenses, as a result of which the Fund and its shareholders
in effect will be absorbing duplicate levels of fees with respect to
investments in other investment companies.
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.
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
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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 and on the U.S. dollar or foreign currencies which are or may in
the future be listed on securities exchanges or are written in
over-the-counter transactions ("OTC Options"). Listed options are issued or
guaranteed by the exchange on which they trade or by a clearing corporation
such as the Options Clearing Corporation. 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 or foreign currencies,
without limit, in order to aid it in achieving its investment objective. The
Fund may also write covered put options; however, the aggregate value of the
obligations underlying the puts determined as of the date the options are
sold will not exceed 20% of the Fund's net assets.
The Fund may purchase listed and OTC call and put options on securities
and stock indexes in amounts equalling up to 5% of its total assets. The Fund
may purchase call options to close out a covered call position or to protect
against an increase in the price of a security it anticipates purchasing. The
Fund may purchase put options on securities which it holds in its portfolio
only to protect itself against a decline in the value of the security. The
Fund may also purchase put options to close out written put positions in a
manner similar to call option closing purchase transactions. There are no
other limits on the Fund's ability to purchase call and put options.
The Fund may also 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 of the foreign
currencies ("currency futures"), on U.S. or foreign fixed-income securities
("interest rate futures") and on such indexes of U.S. or foreign equity,
fixed-income or convertible securities as may exist or come into being
("index futures"). The Fund will purchase or sell interest rate futures
contracts for the purpose of hedging its fixed-income portfolio (or
anticipated portfolio) against changes in prevailing interest rates. The Fund
may purchase or sell index futures or currency futures 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).
The Fund, for hedging purposes, 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,
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<PAGE>
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 futures contracts and options transactions to be engaged in by the
Fund are only for the purpose of hedging the Fund's portfolio securities and
are not speculative in nature; however, 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 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 dollar cash prices of the Fund's portfolio
securities and their denominated currencies. See the Statement of Additional
Information for a further discussion of such risks.
FORWARD FOREIGN CURRENCY EXCHANGE
CONTRACTS
The Fund may enter into forward foreign currency exchange contracts
("forward contracts") in connection with its foreign securities investments.
A forward contract involves an obligation to purchase or sell a currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. The Fund may enter into forward contracts as a hedge against
fluctuations in future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in"
the price of the security in U.S. dollars or some other foreign currency
which the Fund is temporarily holding in its portfolio. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars or
other currency, of the amount of foreign currency involved in the underlying
security transactions, the Fund will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between
the U.S. dollar or other currency which is being used for the security
purchase (by the Fund or the counterparty) and the foreign currency in which
the security is denominated during the period between the date on which the
security is purchased or sold and the date on which payment is made or
received.
At other times, when, for example, the Investment Manager believes that
the currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar or some other foreign currency, the Fund may enter
into a forward contract to sell, for a fixed amount of dollars or other
currency, the amount of foreign currency approximating the value of some or
all of the Fund's securities holdings (or securities which the Fund has
purchased for its portfolio) denominated in such foreign currency. Under
identical circumstances, the Fund may enter into a forward contract to sell,
for a fixed amount of U.S. dollars or other currency, an amount of foreign
currency other than the currency in which the securities to be hedged are
denominated approximating the value of some or all of the portfolio
securities to be hedged. This method of hedging, called "cross-hedging," will
be selected by the Investment Manager 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 Investment Manager 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
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<PAGE>
foreign currency, the Fund may enter into a forward contract to purchase an
amount of currency equal to some or all of the value of the anticipated
purchase, for a fixed amount of U.S. dollars or other currency. The Fund may,
however, close out the forward contract without purchasing the security which
was the subject of the "anticipatory" hedge.
In all of the above circumstances, if the currency in which the Fund's
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 by the Investment Manager. 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 related
to qualification as a regulated investment company (see "Dividends,
Distributions, and Taxes").
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. The Fund's portfolio is
managed within InterCapital's Growth Group which manages 31 equity funds and
fund portfolios with approximately $13.5 billion in assets as of June 30,
1997.
Anita H. Kolleeny, Senior Vice President of InterCapital, and Michelle
Kaufman, Vice President of InterCapital, each a member of InterCapital's
Growth Group, have been the primary portfolio co-managers of the Fund since
its inception. Ms. Kolleeny has been a portfolio manager at InterCapital for
over five years. Ms. Kaufman, prior to joining InterCapital in September,
1993, was a securities analyst with Woodward and Associates (March-August,
1993), JRO and Associates (December, 1992) and the First Manhattan Company
(January, 1990-November, 1992).
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 the Investment Manager, and others regarding economic
developments and interest rate trends, and the Investment Manager's own
analysis of factors it deems relevant.
Orders for transactions in portfolio securities and commodities are placed
for the Fund with a number of brokers and dealers, including DWR and other
brokers and dealers that are affiliates of the Investment Manager. The Fund
may incur brokerage commissions on transactions conducted through such
affiliates. It is not anticipated that the portfolio trading will result in
the Fund's portfolio turnover rate exceeding 300% in any one year. The Fund
will incur brokerage costs commensurate with its portfolio turnover rate.
Short-term gains and losses may result from such portfolio transactions. See
"Dividends, Distributions and Taxes" for a discussion of the tax implications
of the Fund's trading policy. A more extensive discussion of the Fund's
portfolio brokerage policies is set forth in the Statement of Additional
Information.
Except as specifically noted, all investment policies and practices
discussed above are not fundamental policies of the Fund and thus may be
changed without shareholder approval.
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INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. (See the Statement of
Additional Information for a list of the Fund's other investment
restrictions.) 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 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 except that the Fund will invest at least 25% of
its total assets in the securities of issuers in the financial services
industry. This restriction does not apply to obligations issued or guaranteed
by the United States Government, its agencies or instrumentalities.
3. The Fund may not, as to 75% of its total assets, purchase more than 10%
of the voting 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
- -----------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and
Dean Witter Distributors Inc. (the "Distributor"), an affiliate of the
Investment Manager, shares of the Fund are distributed by the Distributor and
offered by DWR and other dealers who have entered into selected broker-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
18
<PAGE>
at net asset value without a front-end sales charge, and Class D shares may
be sold to certain other categories of investors, in each case as may be
described in the then current prospectus of the Fund. See "Alternative
Purchase Arrange ments--Selecting a Particular Class" for a discussion of
factors to consider in selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million or more and
to certain other limited categories of investors. For the purpose of meeting
the minimum $5 million initial investment for Class D shares, and subject to
the $1,000 minimum initial investment for each Class of the Fund, an
investor's existing holdings of Class A shares of the Fund and other Dean
Witter Funds that are multiple class funds ("Dean Witter Multi-Class Funds")
and shares of Dean Witter Funds sold with a front-end sales charge ("FSC
Funds") and concurrent investments in Class D shares of the Fund and other
Dean Witter Multi-Class Funds will be aggregated. Subsequent purchases of
$100 or more may be made by sending a check, payable to Dean Witter Financial
Services Trust, directly to Dean Witter Trust Company (the "Transfer Agent")
at P.O. Box 1040, Jersey City, NJ 07303, or by contacting an account
executive of DWR or other Selected Broker-Dealer account executive. 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, an automatic purchase plan (see "Shareholder Services"), is $100,
provided that the schedule of automatic investments will result in
investments totalling at lease $1,000 within the first twelve months. In the
case of investments pursuant to Systematic Payroll Deduction Plans (including
Individual Retirement Plans), the Fund, in its discretion, may accept
investments without regard to any minimum amounts which would otherwise be
required if the Fund has reason to believe that additional investments will
increase the investment in all accounts under such Plans to at least $1,000.
Certificates for shares purchased will not be issued unless a request is made
by the shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since
DWR and other Selected Broker-Dealers forward investors' funds on settlement
date, they will benefit from the temporary use of the funds if payment is
made prior thereto. As noted above, orders placed directly with the Transfer
Agent must be accompanied by payment. Investors will be entitled to receive
income dividends and capital gains distributions if their order is received
by the close of business on the day prior to the record date for such
dividends and distributions.
Sales personnel of a Selected Broker-Dealer are compensated for selling
shares of the Fund by the Distributor or any of its affiliates and/or the
Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive non-cash compensation in the form of trips to
educational seminars and merchandise as special sales incentives. 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
19
<PAGE>
expenses of the ongoing shareholder service fees, Class B and Class C shares
bear the expenses of the ongoing distribution fees and Class A, Class B and
Class C shares which are redeemed subject to a CDSC bear the expense of the
additional incremental distribution costs resulting from the CDSC applicable
to shares of those Classes. The ongoing distribution fees that are imposed on
Class A, Class B and Class C shares will be imposed directly against those
Classes and not against all assets of the Fund and, accordingly, such charges
against one Class will not affect the net asset value of any other Class or
have any impact on investors choosing another sales charge option. See "Plan
of Distribution" and "Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and
the factors an investor should consider when selecting a particular Class.
This summary is qualified in its entirety by detailed discussion of each
Class that follows this summary.
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain
other limited categories of investors) are not subject to any sales charges
at the time of purchase but are subject to a CDSC of 1.0% on redemptions made
within one year after purchase, except for certain specific circumstances.
Class A shares are also subject to a 12b-1 fee of up to 0.25% of the average
daily net assets of the Class. See "Initial Sales Charge Alternative--Class A
Shares."
Class B Shares. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to
1.0%) if redeemed within six years of purchase. (Class B shares purchased by
certain qualified employer-sponsored benefit plans are subject to a CDSC
scaled down from 2.0% to 1.0% if redeemed within three years after purchase.)
This CDSC may be waived for certain redemptions. Class B shares are also
subject to an annual 12b-1 fee of 1.0% of the average daily net assets of
Class B. The Class B shares' distribution fee will cause that Class to have
higher expenses and pay lower dividends than Class A or Class D shares.
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
20
<PAGE>
are not available with respect to Class B or Class C shares. Moreover, Class
A shares are subject to lower ongoing expenses than are Class B or Class C
shares over the term of the investment. As an alternative, Class B and Class
C shares are sold without any initial sales charge so the entire purchase
price is immediately invested in the Fund. Any investment return on these
additional investment amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Fund's future return cannot be
predicted, however, there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly
lower CDSC upon redemptions, they do not, unlike Class B shares, convert into
Class A shares after approximately ten years, and, therefore, are subject to
an ongoing 12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A
shares) for an indefinite period of time. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks. Other investors, however, may elect to purchase Class C shares if,
for example, they determine that they do not wish to be subject to a
front-end sales charge and they are uncertain as to the length of time they
intend to hold their shares.
For the purpose of meeting the $5 million minimum investment amount for
Class D shares, holdings of Class A shares in all Dean Witter Multi-Class
Funds, shares of FSC Funds and shares of Dean Witter Funds for which such
shares have been exchanged will be included together with the current
investment amount.
Sales personnel may receive different compensation for selling each Class
of shares. Investors should understand that the purpose of a CDSC is the same
as that of the initial sales charge in that the sales charges applicable to
each Class provide for the financing of the distribution of shares of that
Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
- --------- ------------------------- ------------- -------------------
MAXIMUM 5.25%
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
<S> <C> <C> <C>
A year. 0.25% No
- --------- ------------------------- ------------- -------------------
B shares convert
to A shares
Maximum 5.0% automatically
CDSC during the first after
year decreasing approximately
B to 0 after six years 1.0% ten years
- --------- ------------------------- ------------- -------------------
1.0% CDSC during
C first year 1.0% No
- --------- ------------------------- ------------- -------------------
D None None No
- --------- ------------------------- ------------- -------------------
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees
for each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge.
In some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not 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
21
<PAGE>
market value or the cost of the shares being redeemed. The CDSC will not be
imposed (i) in the circumstances set forth below in the section "Contingent
Deferred Sales Charge Alternative--Class B Shares--CDSC Waivers," except that
the references to six years in the first paragraph of that section shall mean
one year in the case of Class A shares, and (ii) in the circumstances
identified in the section "Additional Net Asset Value Purchase Options"
below. Class A shares are also subject to an annual 12b-1 fee of up to 0.25%
of the average daily net assets of the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
-------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
- -------------------- --------------- ---------------
<S> <C> <C>
Less than $25,000 .. 5.25% 5.54%
$25,000 but less
than $50,000 ...... 4.75% 4.99%
$50,000 but less
than $100,000 ..... 4.00% 4.17%
$100,000 but less
than $250,000 ..... 3.00% 3.09%
$250,000 but less
than $1 million .. 2.00% 2.04%
$1 million and over 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the
sales charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or
her spouse and their children under the age of 21 purchasing shares for his,
her or their own accounts; (c) a trustee or other fiduciary purchasing shares
for a single trust estate or a single fiduciary account; (d) a pension,
profit-sharing or other employee benefit plan qualified or non-qualified
under Section 401 of the Internal Revenue Code; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Internal Revenue Code; (f)
employee benefit plans qualified under Section 401 of the Internal Revenue
Code of a single employer or of employers who are "affiliated persons" of
each other within the meaning of Section 2(a)(3)(c) of the Act; and for
investments in Individual Retirement Accounts of employees of a single
employer through Systematic Payroll Deduction plans; or (g) any other
organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
Combined Purchase Privilege. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class
A shares of other 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
22
<PAGE>
investor has a cumulative net asset value of shares of FSC Funds and Class A
and Class D shares equal to at least $5 million, such investor is eligible to
purchase Class D shares subject to the $1,000 minimum initial investment
requirement of that Class of the Fund. See "No Load Alternative--Class D
Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Selected Broker-Dealer or the Transfer Agent
fails to confirm the investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will
also be available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from DWR or other Selected Broker-Dealers. The cost of Class A
shares of the Fund or shares of other Dean Witter Funds which were previously
purchased at a price including a front-end sales charge during the 90-day
period prior to the date of receipt by the Distributor of the Letter of
Intent, or of Class A shares of the Fund or shares of other Dean Witter Funds
acquired in exchange for shares of such funds purchased during such period at
a price including a front-end sales charge, which are still owned by the
shareholder, may also be included in determining the applicable reduction.
Additional Net Asset Value Purchase Options. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value
by the following:
(1) trusts for which Dean Witter Trust Company ("DWTC") or Dean Witter
Trust FSB ("DWTFSB") (each of which is an affiliate of the Investment
Manager) provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for
services in the nature of investment advisory or administrative services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees and restrictions on
transferability of Fund shares);
(3) retirement plans qualified under Section 401(k) of the Internal
Revenue Code ("401(k) plans") and other employer-sponsored plans qualified
under Section 401(a) of the Internal Revenue Code with at least 200 eligible
employees and for which DWTC or DWTFSB serves as Trustee or the 401(k)
Support Services Group of DWR serves as recordkeeper;
(4) 401(k) plans and other employer-sponsored plans qualified under
Section 401(a) of the Internal Revenue Code for which DWTC or DWTFSB serves
as Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper
whose Class B shares have converted to Class A shares, regardless of the
plan's asset size or number of eligible employees;
(5) investors who are clients of a Dean Witter account executive who
joined Dean Witter from another investment firm within six months prior to
the date of purchase of Fund shares by such investors, if the shares are
being purchased with the proceeds from a redemption of shares of an open-end
proprietary mutual fund of the account executive's previous firm which
imposed either a front-end or deferred sales charge, provided such purchase
was made within sixty days after the redemption and the proceeds of the
redemption had been maintained in the interim in cash or a money market fund;
and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
23
<PAGE>
For further information concerning purchases of the Fund's shares, contact
DWR or another Se-lected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase
payment may be immediately invested in the Fund. A CDSC, however, will be
imposed on most Class B shares redeemed within six years after purchase. The
CDSC will be imposed on any redemption of shares if after such redemption the
aggregate current value of a Class B account with the Fund falls below the
aggregate amount of the investor's purchase payments for Class B shares made
during the six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) preceding the redemption. In
addition, Class B shares are subject to an annual 12b-1 fee of 1.0% of the
average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may,
however, be subject to a CDSC which will be a percentage of the dollar amount
of shares redeemed and will be assessed on an amount equal to the lesser of
the current market value or the cost of the shares being redeemed. The size
of this percentage will depend upon how long the shares have been held, as
set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First...................... 5.0%
Second..................... 4.0%
Third...................... 3.0%
Fourth..................... 2.0%
Fifth...................... 2.0%
Sixth...................... 1.0%
Seventh and thereafter .... None
</TABLE>
In the case of Class B shares of the Fund held by 401 (k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal
Revenue Code for which DWTC or DWTFSB serves as Trustee or the 401(k) Support
Services Group of DWR serves as recordkeeper and whose accounts are opened on
or after July 28, 1997, shares held for three years or more after purchase
(calculated as described in the paragraph above) will not be subject to any
CDSC upon redemption. However, shares redeemed earlier than three years after
purchase may be subject to a CDSC (calculated as described in the paragraph
above), the percentage of which will depend on how long the shares have been
held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First ..................... 2.0%
Second .................... 2.0%
Third ..................... 1.0%
Fourth and thereafter .... None
</TABLE>
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 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
24
<PAGE>
shares are: (A) registered either in the name of an individual shareholder
(not a trust), or in the names of such shareholder and his or her spouse as
joint tenants with right of survivorship; or (B) held in a qualified
corporate or self-employed retirement plan, Individual Retirement Account
("IRA") or Custodial Account under Section 403(b)(7) of the Internal Revenue
Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination
of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified
corporate or self-employed retirement plan following retirement (or, in the
case of a "key employee" of a "top heavy" plan, following attainment of age
59 1/2); (B) distributions from an IRA or 403(b) Custodial Account following
attainment of age 59 1/2; or (C) a tax-free return of an excess contribution
to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
401(k) plan or other employer-sponsored plan qualified under Section 401(a)
of the Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which DWTC or DWTFSB serves as
Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper
("Eligible Plan"), provided that either: (A) the 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 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 401(k) plan or other employer-sponsored plan qualified under
Section 401(a) of the Internal Revenue Code and for which DWTC or DWTFSB
serves as Trustee or the 401(k) Support Services Group of DWR serves as
recordkeeper, the plan is treated as a single investor and all Class B shares
will convert to Class A shares on the conversion date of the first shares of
a Dean Witter Multi-Class Fund purchased by that plan. In the case of Class B
shares previously exchanged for shares of an "Exchange Fund" (see
"Shareholder Services--Exchange Privilege"), the period of time the shares
were held in the Exchange Fund (calculated from the last day of the month in
which the Exchange Fund shares were acquired) is excluded from the holding
period for conversion. If those shares are subsequently re-exchanged for
Class B shares of a Dean Witter Multi-Class Fund, the holding period resumes
on the last day of the month in which Class B shares are reacquired.
25
<PAGE>
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.
Class B shares purchased before July 28, 1997 by trusts for which DWTC or
DWTFSB provides discretionary trustee services will convert to Class A shares
on or about August 29, 1997. The CDSC will not be applicable to such shares.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions
made within one year after purchase (calculated from the last day of the
month in which the shares were purchased). The CDSC will be assessed on an
amount equal to the lesser of the current market value or the cost of the
shares being redeemed. The CDSC will not be imposed in the circumstances set
forth above in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case
of Class C shares. Class C shares are subject to an annual 12b-1 fee of up to
1.0% of the average daily net assets of the Class. Unlike Class B shares,
Class C shares have no conversion feature and, accordingly, an investor that
purchases Class C shares will be subject to 12b-1 fees applicable to Class C
shares for an indefinite period subject to annual approval by the Fund's
Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million and the
following categories of investors: (i) investors participating in the
InterCapital mutual fund asset allocation program pursuant to which such
persons pay an asset based fee; (ii) persons participating in a fee-based
program approved by the Distributor, pursuant to which such persons pay an
asset based fee for services in the nature of investment advisory or
administrative services (subject to all of the terms and conditions of such
programs, which may include termination fees and restrictions on
transferability of Fund shares); (iii) 401(k) plans established by DWR and
SPS Transaction Services, Inc. (an affiliate of DWR) for their employees;
(iv) certain Unit Investment Trusts sponsored by DWR; (v) certain other
open-end investment companies whose shares are distributed by the
Distributor; and (vi) other categories of investors, at the discretion of the
Board, as disclosed in the then current prospectus of the Fund. Investors who
require a $5 million minimum initial investment to qualify to purchase Class
D shares may satisfy that requirement by investing that amount in a single
transaction in Class D shares of the Fund and other Dean Witter Multi-Class
Funds, subject to the $1,000 minimum initial investment required for that
Class of the Fund. In addition, for the purpose of meeting the $5 million
minimum investment amount, holdings of Class A shares in all Dean Witter
Multi-Class Funds, shares of FSC Funds and shares of Dean Witter Funds for
which such shares have been exchanged will be included together with the
current investment amount. If a shareholder redeems Class A shares and
purchases Class D shares, such redemption may be a taxable event.
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PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act with respect to the distribution of Class A, Class B and Class C
shares of the Fund. In the case of Class A and Class C shares, the Plan
provides that the Fund will reimburse the Distributor and others for the
expenses of certain activities and services incurred by them specifically on
behalf of those shares. Reimbursements for these expenses will be made in
monthly payments by the Fund to the Distributor, which will in no event
exceed amounts equal to payments at the annual rates of 0.25% and 1.0% of the
average daily net assets of Class A and Class C, respectively. In the case of
Class B shares, the Plan provides that the Fund will pay the Distributor a
fee, which is accrued daily and paid monthly, at the annual rate of 1.0% of
the average daily net assets of Class B. The fee is treated by the Fund as an
expense in the year it is accrued. In the case of Class A shares, the entire
amount of the fee currently represents a service fee within the meaning of
the NASD guidelines. In the case of Class B and Class C shares, a portion of
the fee payable pursuant to the Plan, equal to 0.25% of the average daily net
assets of each of these Classes, is currently characterized as a service fee.
A service fee is a payment made for personal service and/or the maintenance
of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses
borne by the Distributor and others in the distribution of the shares of
those Classes, including the payment of commissions for sales of the shares
of those Classes and incentive compensation to and expenses of DWR's account
executives and others who engage in or support distribution of shares or who
service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Fund's shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan in the case of Class B shares to compensate DWR and other Selected
Broker-Dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
For the fiscal period ended May 31, 1997, Class B shares of the Fund
accrued payments under the Plan amounting to $408,650, which amount is equal
to 1.0% of the Fund's average daily net assets for the fiscal period. All
shares held prior to July 28, 1997 have been designated Class B shares.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i)
the payments made by the Fund pursuant to the Plan, and (ii) the proceeds of
CDSCs paid by investors upon the redemption of Class B shares. For example,
if $1 million in expenses in distributing Class B shares of the Fund had been
incurred and $750,000 had been received as described in (i) and (ii) above,
the excess expense would amount to $250,000. The Distributor has advised the
Fund that such excess amounts, including the carrying charge described above,
totalled $9,325,249 at May 31, 1997, which was equal to 5.28% of the net
assets of the Fund 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
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calendar year in excess of 0.25% or 1.0% of the average daily net assets of
Class A or Class C, respectively, will not be reimbursed by the Fund through
payments in any subsequent year, except that expenses representing a gross
sales commission credited to account executives at the time of sale may be
reimbursed in the subsequent calendar year. No interest or other financing
charges will be incurred on any Class A or Class C distribution expenses
incurred by the Distributor under the Plan or on any unreimbursed expenses
due to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time, on each day that the New York Stock Exchange is open (or on days
when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier
time) by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the
Class A, Class B, Class C and Class D shares will be invested together in a
single portfolio. The net asset value of each Class, however, will be
determined separately by subtracting each Class's accrued expenses and
liabilities. The net asset value per share will not be determined on Good
Friday and on such other federal and non-federal holidays as are observed by
the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange prior to the time assets are valued; if there were no sales that
day, the security is valued at the latest bid price (in cases where a
security is traded on more than one exchange, the security is valued on the
exchange designated as the primary market pursuant to procedures adopted by
the Trustees); and (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest bid price. When market quotations are not readily available, including
circumstances under which it is determined by the 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 Board of
Trustees. For valuation purposes, quotations of foreign portfolio securities,
other assets and liabilities and forward contracts stated in foreign currency
are translated into U.S. dollar equivalents at the prevailing market rates as
of the close of the New York Stock Exchange. Dividends receivable are accrued
as of the ex-dividend date or as of the time that the relevant ex-dividend
date and amounts become known.
Short-term debt securities with remaining maturities of 60 days or less at
the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. Other short-term debt securities will be valued on a mark-to-market
basis until such time as they reach a remaining maturity of 60 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. 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.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon
as the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining
what it believes is the fair valuation of the portfolio securities valued by
such pricing service.
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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. (Service Mark) Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account, or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption").
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset
value. The Withdrawal Plan provides for monthly or quarterly (March, June,
September and December) checks in any amount, not less than $25, or in any
whole percentage of the account balance, on an annualized basis. Any
applicable CDSC will be imposed on shares redeemed under the Withdrawal Plan
(see "Purchase of Fund Shares"). Therefore, any shareholder participating in
the Withdrawal Plan will have sufficient shares redeemed from his or her
account so that the proceeds (net of any applicable CDSC) to the shareholder
will be the designated monthly or quarterly amount.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net
investment income and net capital gains, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted. Each
withdrawal constitutes a redemption of shares and any gain or loss realized
must be recognized for federal income tax purposes.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of
the above services.
Tax-Sheltered Retirement Plans. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of
such plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the
Transfer Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Dean Witter Multi-Class Fund without the imposition of any exchange
fee. Shares may also be exchanged for shares of the following funds: Dean
Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S.
Treasury Trust and five Dean Witter funds which are money market funds (the
"Exchange Funds"). Class A shares may
29
<PAGE>
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 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 shares were acquired) the holding period (for
the purpose of determining the rate of the CDSC) is frozen. If those shares
are subsequently re-exchanged for shares of a Dean Witter Multi-Class Fund or
shares of a CDSC Fund, the holding period previously frozen when the first
exchange was made resumes on the last day of the month in which shares of a
Dean Witter Multi-Class Fund or shares of a CDSC Fund are reacquired. Thus,
the CDSC is based upon the time (calculated as described above) the
shareholder was invested in shares of a Dean Witter Multi-Class Fund or in
shares of a CDSC Fund (see "Purchase of Fund Shares"). In the case of
exchanges of Class A shares which are subject to a CDSC, the holding period
also includes the time (calculated as described above) the shareholder was
invested in shares of a FSC Fund. However, in the case of shares exchanged
for shares of an Exchange Fund on or after April 23, 1990, upon a redemption
of shares which results in a CDSC being imposed, a credit (not to exceed the
amount of the CDSC) will be given in an amount equal to the Exchange Fund
12b-1 distribution fees, if any, incurred on or after that date which are
attributable to those shares. (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.) 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 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
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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 (presently sixty days' prior written notice
for termination or material revision), provided that six months' prior
written notice of termination will be given to shareholders who hold shares
of an Exchange Fund pursuant to the Exchange Privilege, and provided further
that the Exchange Privilege may be terminated or materially revised without
notice under certain unusual circumstances. Shareholders maintaining margin
accounts with DWR or another Selected 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 any shareholder holding a share certificate or certificates, no
exchanges may be made until all applicable share certificates have been
received by the Transfer Agent and deposited in the Shareholder's account. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss. However, the ability to deduct capital losses on an
exchange may be limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. The Exchange Privilege is
only available in states where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean
Witter Funds (for which the Exchange Privilege is available) pursuant to this
Exchange Privilege by contacting their DWR or other Selected Broker-Dealer
account executive (no Exchange Privilege Authorization Form is required).
Other shareholders (and those shareholders who are clients of DWR or another
Selected Broker-Dealer but who wish to make exchanges directly by telephoning
the Transfer Agent) must complete and forward to the Transfer Agent an
Exchange Privilege Authorization Form, copies of which may be obtained from
the Transfer Agent, to initiate an exchange. If the Authorization Form is
used, exchanges may be made in writing or by contacting the Transfer Agent at
(800) 869-NEWS (toll-free). The Fund will employ reasonable procedures to
confirm that exchange instructions communicated over the telephone are
genuine. Such procedures may include requiring various forms of personal
identification such as name, mailing address, social security or other tax
identification number and DWR or other Selected Broker-Dealer account number
(if any). Telephone instructions may also be recorded. If such procedures are
not employed, the Fund may be liable for any losses due to unauthorized or
fraudulent instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her DWR or other
Selected Broker-Dealer account executive, if appropriate, or make a written
exchange request. Shareholders are advised that during periods of drastic
economic or market changes, it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the case
with the Dean Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Broker-Dealer account executive or
the Transfer Agent.
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REPURCHASES AND REDEMPTIONS
- -----------------------------------------------------------------------------
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 sent to the
Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption, along
with any additional documentation required by the Transfer Agent.
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 or telegraphic 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 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 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 and at net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement or Custodial Account under Section
403(b)(7) of the Internal Revenue Code) whose shares, due to redemptions by
the shareholder, have a value of less than $100 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, 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.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
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 capital gains, if any, at least
once each year. The Fund may, however, determine to retain all or part of any
net long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in
additional shares of the same Class and automatically credited to the
shareholder's account without issuance of a share certificate unless the
shareholder requests in writing that all dividends and/or distributions be
paid in cash. Shares acquired by dividend and distribution reinvestments will
not be subject to any front-end sales charge or CDSC. Class B shares acquired
through dividend and distribution reinvestments will become eligible for
conversion to Class A shares on a pro rata basis. Distributions paid on Class
A and Class D shares will be higher than for Class B and Class C shares
because distribution fees paid by Class B and Class C shares are higher. (See
"Shareholder Services--Automatic Investment of Dividends and Distributions.")
Taxes. Because the Fund intends to distribute all of its net investment
income and 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 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 with a record date 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. Dividend payments will be eligible for
the federal dividends received deduction available to the Fund's corporate
shareholders only to the extent the aggregate dividends received by the Fund
would be eligible for the deduction if the Fund were the shareholder claiming
the dividends received deduction. In this regard, a 46-day holding period
generally must be met.
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.
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.
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.
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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.
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 one, five and ten
years, or the life of the Fund, if less than any of the foregoing. Average
annual total return reflects all income earned by the Fund, any appreciation
or depreciation of the Fund's assets, all expenses incurred by the applicable
Class and all sales charges which would be incurred by shareholders, for the
period. It also assumes reinvestment of all dividends and distributions paid
by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average, and
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each Class of
shares of the Fund. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc.).
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 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 limitation on shareholder personal liability,
and the nature of the Fund's assets and operations,
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<PAGE>
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 60 days of a sale or a sale
within 60 days of a pur chase) of a security. In addition, investment
personnel may not purchase or sell a security for their personal account
within 30 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
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.
35
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (91.4%)
Annuities (3.5%)
26,500 Equitable of Iowa Companies ..................................... $ 1,467,437
20,000 Hartford Financial Services Group Inc. .......................... 1,560,000
25,400 Hartford Life Inc. (Class A)* ................................... 850,900
54,300 Nationwide Financial Services, Inc. (Class A)* .................. 1,527,187
17,400 SunAmerica, Inc. ................................................ 822,150
--------------
6,227,674
--------------
Asset Management (2.4%)
34,000 Franklin Resources, Inc. ........................................ 2,201,500
43,000 Price (T. Rowe) Associates, Inc. ................................ 2,117,750
--------------
4,319,250
--------------
Banks -Canadian (1.8%)
65,000 Canadian Imperial Bank of Commerce .............................. 1,574,256
35,000 Royal Bank of Canada ............................................ 1,526,875
--------------
3,101,131
--------------
Banks -European (0.6%)
55,000 ABN Amro Holding N.V. (ADR)(Netherlands) ........................ 1,024,375
--------------
Banks -Midwest (4.1%)
24,000 Comerica, Inc. .................................................. 1,500,000
50,000 Firstar Corp. .................................................. 1,493,750
12,500 KeyCorp ......................................................... 679,687
65,000 Norwest Corp. .................................................. 3,477,500
--------------
7,150,937
--------------
Banks -Money Center (4.9%)
28,000 BankAmerica Corp. ............................................... 3,272,500
16,500 Chase Manhattan Corp. .......................................... 1,559,250
7,000 Citicorp ........................................................ 800,625
52,000 NationsBank Corp. .............................................. 3,061,500
--------------
8,693,875
--------------
Banks -Northeast (10.7%)
65,000 Bank of New York Company, Inc. .................................. 2,770,625
24,000 BankBoston Corporation .......................................... 1,752,000
20,000 CoreStates Financial Corp. ..................................... 1,057,500
24,000 Fleet Financial Group, Inc. ..................................... 1,467,000
39,000 Mellon Bank Corp. .............................................. 3,412,500
82,000 North Fork Bancorporation, Inc. ................................ 1,722,000
33,500 PNC Bank Corp. .................................................. 1,402,813
80,000 State Street Corp. .............................................. 3,570,000
34,000 Summit Bancorp. ................................................ 1,678,750
--------------
18,833,188
--------------
Banks -Northwest (4.5%)
60,000 City National Corp. ............................................. $ 1,447,500
67,500 First Security Corp. ............................................ 1,636,875
32,000 Pacific Century Financial Corporation ........................... 1,472,000
29,000 U.S. Bancorp. ................................................... 1,779,875
55,000 Zions Bancorporation ............................................ 1,677,500
--------------
8,013,750
--------------
Banks -Southeast (11.5%)
40,000 1st United Bancorp. ............................................. 600,000
30,000 Barnett Banks, Inc. ............................................. 1,578,750
46,500 Compass Bancshares Inc. ......................................... 1,488,000
20,000 Crestar Financial Corp. ......................................... 760,000
50,000 First American Corp. ............................................ 1,812,500
47,000 First of America Bank Corp. ..................................... 3,237,125
15,000 First Tennessee National Corp. .................................. 673,125
19,000 First Union Corp. ............................................... 1,631,625
25,000 First Virginia Banks, Inc. ...................................... 1,400,000
21,000 Hamilton Bancorp, Inc.* ......................................... 420,000
75,000 Hibernia Corp. (Class A) ........................................ 993,750
25,000 Mercantile Bancorporation, Inc. ................................. 1,475,000
72,000 National Commerce Bancorporation ................................ 1,665,000
27,300 Provident Bankshares Corp. ..................................... 1,030,575
42,000 Southtrust Corp. ................................................ 1,632,750
--------------
20,398,200
--------------
Brokerage (14.1%)
13,000 Alex. Brown, Inc. ............................................... 871,000
50,000 Bear Stearns Companies, Inc. ................................... 1,625,000
47,000 Edwards (A.G.), Inc. ........................................... 1,744,875
70,300 Hambrecht & Quist Group* ........................................ 1,599,325
34,500 Legg Mason, Inc. ............................................... 1,591,313
66,000 Lehman Brothers Holdings, Inc. .................................. 2,664,750
20,500 McDonald & Co. Investments, Inc. ................................ 786,688
24,000 Merrill Lynch & Co., Inc. ....................................... 2,544,000
78,000 Morgan Keegan, Inc. ............................................. 1,404,000
59,400 Paine Webber Group, Inc. ........................................ 2,108,700
71,000 Raymond James Financial, Inc. .................................. 1,952,500
32,000 Salomon, Inc. ................................................... 1,716,000
47,000 Schwab (CHARLES) Corp. ......................................... 1,909,375
44,000 Travelers Group, Inc. ........................................... 2,414,500
--------------
24,932,026
--------------
Credit Card (2.3%)
44,700 American Express Co. ............................................ 3,106,650
30,000 MBNA Corp. ...................................................... 1,016,250
--------------
4,122,900
--------------
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
Disability Insurance (1.8%)
28,000 Provident Companies, Inc. ....................................... $ 1,505,000
20,000 UNUM Corp. ...................................................... 1,582,500
--------------
3,087,500
--------------
Financial Services (2.4%)
50,000 Associates First Capital Corp. (Class A) ........................ 2,362,500
30,000 General Electric Co. ............................................ 1,811,250
--------------
4,173,750
--------------
Insurance Brokers (1.0%)
14,000 Marsh & McLennan Companies, Inc. ................................ 1,844,500
--------------
Life Insurance (1.8%)
34,000 Protective Life Corp. .......................................... 1,521,500
25,000 ReliaStar Financial Corp. ...................................... 1,603,125
--------------
3,124,625
--------------
Mortgage Related (0.9%)
85,000 Homeside, Inc.* ................................................. 1,519,375
--------------
Multi-Line Insurance (5.7%)
30,000 American International Group, Inc. .............................. 4,061,250
25,000 Chubb Corp. .................................................... 1,525,000
30,000 Conseco, Inc. .................................................. 1,200,000
56,000 Equitable Companies, Inc. ....................................... 1,764,000
25,000 Providian Corp. ................................................ 1,496,875
--------------
10,047,125
--------------
On Line Trade (1.6%)
32,000 America Online, Inc.* ........................................... 1,768,000
AmeriTrade Holding Corp.
7,400 (Class A)* ...................................................... 101,750
50,000 E*TRADE Group, Inc.* ............................................ 875,000
--------------
2,744,750
--------------
Property -Casualty Insurance (1.7%)
27,000 Allstate Corp. .................................................. 1,987,875
4,000 Harleysville Group, Inc. ........................................ 143,000
12,000 St. Paul Companies, Inc. ........................................ 859,500
--------------
2,990,375
--------------
Reinsurers (3.0%)
5,500 Ace, Ltd. (Bermuda) ............................................. 352,000
20,000 Everest Reinsurance Holdings, Inc. .............................. 680,000
16,500 Exel Limited (Bermuda) .......................................... 730,125
9,800 General Re Corp. ................................................ 1,717,450
39,000 Vesta Insurance Group, Inc. .................................... 1,789,125
--------------
5,268,700
--------------
Specialty Insurance (2.8%)
30,000 Executive Risk Inc. ............................................. $ 1,563,750
33,000 Frontier Insurance Group, Inc. .................................. 1,810,875
40,000 Mutual Risk Management Ltd. (Bermuda) ........................... 1,655,000
--------------
5,029,625
--------------
Technology (5.4%)
60,000 Analog Devices, Inc.* ........................................... 1,605,000
46,000 Ericsson (L.M.) Telephone Co. (Class B)(ADR)(Sweden) ............ 1,638,750
10,000 Intel Corp. ..................................................... 1,513,750
10,000 KLA -Tencor Corp.* .............................................. 475,000
40,000 LSI Logic Corp.* ................................................ 1,670,000
20,000 Texas Instruments, Inc. ......................................... 1,797,500
25,000 Vitesse Semiconductor Corp.* .................................... 896,875
--------------
9,596,875
--------------
Thrifts -Midwest (1.1%)
14,000 Charter One Financial, Inc. ..................................... 654,500
32,000 TCF Financial Corp. ............................................ 1,360,000
--------------
2,014,500
--------------
Thrifts -Northeast (0.8%)
16,000 Astoria Financial Corp. ........................................ 656,000
42,000 Dime Bancorp, Inc. .............................................. 714,000
5,000 ML Bancorp, Inc. ............................................... 85,625
--------------
1,455,625
--------------
Thrifts -Northwest (1.0%)
18,000 Ahmanson (H.F.) & Co. ........................................... 733,500
19,000 Washington Mutual, Inc. ........................................ 1,054,500
--------------
1,788,000
--------------
TOTAL COMMON STOCKS
(Identified Cost $156,929,960) .................................. 161,502,631
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (11.4%)
U.S. GOVERNMENT AGENCY (a)(11.0%)
Federal Home Loan Mortgage Corp. 5.55% due 06/02/97 (Amortized
$19,500 Cost $19,496,993) ............................................... 19,496,993
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT (0.4%)
The Bank of New York 5.4375% due 06/02/97 (dated 05/30/97;
proceeds $621,646; collateralized by $50,432 Federal Farm Credit
Bank Note 9.20% due 08/22/05 valued at $59,311 and by $589,847
Federal National Mortgage Assoc. 7.00% due 04/01/27 valued at
$ 621 $574,481)(Identified Cost $621,365) ............................. $ 621,365
-------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $20,118,358) ................................... 20,118,358
-------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
- ---------------------------------- -------- --------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $177,048,318)(b) . 102.8% $181,620,989
LIABILITIES IN EXCESS OF
OTHER ASSETS....................... (2.8) (4,970,414)
-------- --------------
NET ASSETS......................... 100.0% $176,650,575
======== ==============
</TABLE>
- ------------
* Non-income producing security.
ADR American Depository Receipt.
(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
$6,616,177, and the aggregate gross unrealized depreciation is
$2,043,506, resulting in net unrealized appreciation of $4,572,671.
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $177,048,318)....................................... $181,620,989
Receivable for:
Shares of beneficial interest sold.................................. 1,124,998
Dividends........................................................... 151,918
Deferred organizational expenses...................................... 103,326
Prepaid expenses and other assets..................................... 653
--------------
TOTAL ASSETS........................................................ 183,001,884
--------------
LIABILITIES:
Payable for:
Investments purchased............................................... 5,777,781
Plan of distribution fee............................................ 144,735
Investment management fee........................................... 108,552
Shares of beneficial interest repurchased........................... 82,480
Organizational expenses............................................... 109,000
Accrued expenses and other payables................................... 128,761
--------------
TOTAL LIABILITIES .................................................. 6,351,309
--------------
NET ASSETS:
Paid-in-capital....................................................... 175,066,439
Net unrealized appreciation........................................... 4,572,671
Undistributed net investment income................................... 267,531
Net realized loss..................................................... (3,256,066)
--------------
NET ASSETS.......................................................... $176,650,575
==============
NET ASSET VALUE PER SHARE,
17,580,252 shares outstanding (unlimited shares authorized of $.01
par value)........................................................... $ 10.05
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the period February 26, 1997* through May 31, 1997
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $5,262 foreign withholding tax) $ 593,863
Interest........................................... 577,675
-------------
TOTAL INCOME .................................... 1,171,538
-------------
EXPENSES
Plan of distribution fee........................... 408,650
Investment management fee.......................... 306,488
Registration fees.................................. 69,202
Transfer agent fees and expenses................... 61,586
Professional fees.................................. 44,858
Custodian fees..................................... 6,733
Organizational expenses............................ 5,674
Shareholder reports and notices ................... 3,300
Trustees' fees and expenses........................ 3,190
-------------
TOTAL EXPENSES................................... 909,681
-------------
NET INVESTMENT INCOME............................ 261,857
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss................................ (3,256,066)
Net unrealized appreciation...................... 4,572,671
-------------
NET GAIN ........................................ 1,316,605
-------------
NET INCREASE....................................... $ 1,578,462
=============
</TABLE>
- ------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 26, 1997*
THROUGH
MAY 31, 1997
- -------------------------------------------------------------- ------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ......................................... $ 261,857
Net realized loss.............................................. (3,256,066)
Net unrealized appreciation ................................... 4,572,671
------------------
NET INCREASE................................................. 1,578,462
Net increase from transactions in shares of beneficial
interest...................................................... 174,972,113
------------------
NET INCREASE................................................. 176,550,575
NET ASSETS:
Beginning of period............................................ 100,000
------------------
END OF PERIOD
(Including undistributed net investment income of $267,531) . $176,650,575
==================
</TABLE>
- ------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Financial Services Trust (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
long-term capital appreciation. The Fund seeks to achieve its objective by
investing at least 65% of its total assets in the equity securities of
companies in the financial services and financial services related
industries. The Fund was organized as a Massachusetts business trust on
November 8, 1996 and had no other operations other than those relating to
organizational matters and the issuance of 10,000 shares of beneficial
interest for $100,000 to Dean Witter InterCapital Inc. (the "Investment
Manager") to effect the Fund's initial capitalization. The Fund commenced
operations on February 26, 1997.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where securities are traded on more than one exchange,
the security is valued on the exchange designated as the primary market
pursuant to procedures adopted by the Trustees); (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation;
(3) when market quotations are not readily available, including circumstances
under which it is determined by the Investment Manager that sale or bid
prices are not reflective of a security's market value, portfolio securities
are valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees (valuation
of debt securities for which market quotations are not readily available may
be based upon current market prices of securities which are comparable in
coupon, rating and maturity or an appropriate matrix utilizing similar
factors); (4) certain portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the 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
42
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1997, continued
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt
securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date. Discounts are accreted over the life of the respective
securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- The Investment Manager incurred the
organizational expenses of the Fund in the amount of approximately $109,000
which will be reimbursed for the full amount thereof. Such expenses have been
deferred and are being amortized on the straight-line method over a period
not to exceed five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.75% to the net assets of the Fund determined as of the close
of each business day.
43
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1997, continued
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted
a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act
pursuant to which the Fund pays the Distributor compensation, accrued daily
and payable monthly, at an annual rate of 1.0% of the Fund's average daily
net assets. Amounts paid under the Plan are paid to the Distributor to
compensate it for the services provided and the expenses borne by it and
others in the distribution of the Fund's shares, including the payment of
commissions for sales of the Fund's shares and incentive compensation to, and
expenses of, the account executives of Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Investment Manager and Distributor, and others who engage in
or support distribution of the Fund's shares or who service shareholder
accounts, including overhead and telephone expenses, printing and
distribution of prospectuses and reports used in connection with the offering
of the Fund's shares to other than current shareholders and preparation,
printing and distribution of sales literature and advertising materials. In
addition, the Distributor may utilize fees paid pursuant to the Plan to
compensate DWR and other selected broker-dealers for their opportunity costs
in advancing such amounts which compensation would be in the form of a
carrying charge on any unreimbursed distribution expenses.
Provided that the Plan continues in effect, any cumulative expenses incurred
but not yet recovered, may be recovered through future distribution fees from
the Fund and contingent deferred sales charges from the Fund's shareholders.
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 $9,325,249 at May 31, 1997.
The Distributor has informed the Fund that for the period ended May 31, 1997,
it received approximately $47,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares.
44
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1997, continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the period ended May 31, 1997,
aggregated $180,566,117 and $20,380,091, respectively. Included in the
aforementioned are purchases and sales of U.S. Government securities of
$2,234,850 and $2,042,573, respectively.
For the period ended May 31, 1997, the Fund incurred brokerage commissions of
$43,270 with DWR for portfolio transactions executed on behalf of the Fund.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At May 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $22,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 26, 1997*
THROUGH
MAY 31, 1997
----------------------------
SHARES AMOUNT
------------- --------------
<S> <C> <C>
Sold ........... 19,038,217 $188,928,099
Repurchased ... (1,467,965) (13,955,986)
------------- --------------
Net increase .. 17,570,252 $174,972,113
============= ==============
</TABLE>
- ------------
* Commencement of operations.
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $2,911,000 during fiscal 1997.
As of May 31, 1997, the Fund had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales.
45
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1997, continued
7. SUBSEQUENT EVENT
On June 30, 1997, the Fund's Board of Trustees approved a proposal to adopt a
multiple class share structure. Through this arrangement, the Fund will offer
four classes of shares with various sales charges, ongoing fees and other
features. This conversion is scheduled to take place on July 28, 1997.
8. FINANCIAL HIGHLIGHTS
See the "Financial Highlights" table on page 7 of this Prospectus.
46
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER FINANCIAL SERVICES TRUST
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights (which
appear under the heading "Financial Highlights" on page 7 of this Prospectus)
present fairly, in all material respects, the financial position of Dean
Witter Financial Services Trust (the "Fund") at May 31, 1997, and the results
of its operations, the changes in its net assets and the financial highlights
for the period February 26, 1997 (commencement of operations) through May 31,
1997, 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 audit. We conducted our audit 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 audit, which included
confirmation of securities at May 31, 1997 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 3, 1997
<PAGE>
Dean Witter Financial Services Trust
Two World Trade Center
New York, New York 10048
Trustees
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
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
Anita H. Kolleeny
Vice President
Michelle Kaufman
Vice President
Thomas F. Caloia
Treasurer
Custodian
The Bank of New York
90 Washington Street
New York, New York 10286
Transfer Agent and
Dividend Disbursing Agent
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
Investment Manager
Dean Witter InterCapital Inc.
DEAN WITTER
FINANCIAL SERVICES
TRUST
PROSPECTUS--JULY 28, 1997
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JULY 28, 1997
DEAN WITTER
FINANCIAL SERVICES
TRUST
- -----------------------------------------------------------------------------
Dean Witter Financial Services Trust (the "Fund") is an open-end,
diversified management investment company whose investment objective is
long-term capital appreciation. The Fund seeks to meet its investment
objective by investing at least 65% of its total assets in the equity
securities of companies in the financial services and financial services
related industries. (See "Investment Practices and Policies.")
A Prospectus for the Fund dated July 28, 1997, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at its address or telephone numbers listed below
or from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean
Witter Reynolds Inc, at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in
addition to and more detailed than that set forth in the Prospectus. It is
intended to provide additional information regarding the activities and
operations of the Fund, and should be read in conjunction with the
Prospectus.
Dean Witter Financial Services Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund and its Management.......... 3
Trustees and Officers................ 6
Investment Practices and Policies ... 12
Investment Restrictions.............. 23
Portfolio Transactions and
Brokerage........................... 24
The Distributor...................... 26
Determination of Net Asset Value ... 30
Purchase of Fund Shares ............. 30
Shareholder Services................. 33
Redemptions and Repurchases.......... 37
Dividends, Distributions and Taxes .. 39
Performance Information.............. 40
Shares of the Fund................... 41
Custodian and Transfer Agent ........ 41
Independent Accountants.............. 41
Reports to Shareholders.............. 42
Legal Counsel........................ 42
Experts ............................. 42
Registration Statement............... 42
Appendix............................. 43
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the laws of the Commonwealth of
Massachusetts on November 8, 1996.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or
"InterCapital"), a Delaware corporation, whose address is Two World Trade
Center, New York, New York 10048, is the Fund's Investment Manager.
InterCapital is a wholly-owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co. ("MSDWD"), a Delaware corporation. In an internal
reorganization which took place in January, 1993, InterCapital assumed the
investment advisory, administrative and management activities previously
performed by the InterCapital Division of Dean Witter Reynolds Inc. ("DWR"),
a broker-dealer affiliate of InterCapital. (As hereinafter used in this
Statement of Additional Information, the terms "InterCapital" and "Investment
Manager" refer to DWR's InterCapital Division prior to the internal
reorganization and to Dean Witter InterCapital Inc. thereafter). The daily
management of the Fund and research relating to the Fund's portfolio are
conducted by or under the direction of officers of the Fund and of the
Investment Manager, subject to review by the Fund's Board of Trustees.
Information as to these Trustees and officers is contained under the caption
"Trustees and Officers".
InterCapital is also the investment manager or investment adviser of the
following investment companies: Dean Witter Liquid Asset Fund Inc.,
InterCapital Income Securities Inc., Dean Witter High Yield Securities Inc.,
Dean Witter Tax-Free Daily Income Trust, Dean Witter Developing Growth
Securities Trust, Dean Witter Tax-Exempt Securities Trust, Dean Witter
Natural Resource Development Securities Inc., Dean Witter Dividend Growth
Securities Inc., Dean Witter American Value Fund, Dean Witter U.S. Government
Money Market Trust, Dean Witter Variable Investment Series, Dean Witter World
Wide Investment Trust, Dean Witter Select Municipal Reinvestment Fund, Dean
Witter U.S. Government Securities Trust, Dean Witter California Tax-Free
Income Fund, Dean Witter New York Tax-Free Income Fund, Dean Witter
Convertible Securities Trust, Dean Witter Federal Securities Trust, Dean
Witter Value-Added Market Series, High Income Advantage Trust, High Income
Advantage Trust II, High Income Advantage Trust III, Dean Witter Government
Income Trust, Dean Witter Utilities Fund, Dean Witter California Tax-Free
Daily Income Trust, Dean Witter Strategist Fund, Dean Witter World Wide
Income Trust, Dean Witter Intermediate Income Securities, Dean Witter New
York Municipal Money Market Trust, Dean Witter Capital Growth Securities,
Dean Witter European Growth Fund Inc., Dean Witter Precious Metals and
Minerals Trust, Dean Witter Global Short-Term Income Fund Inc., Dean Witter
Pacific Growth Fund Inc., Dean Witter Multi-State Municipal Series Trust,
Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Diversified Income
Trust, Dean Witter Health Sciences Trust, Dean Witter Retirement Series, Dean
Witter Global Dividend Growth Securities, Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund, Dean Witter Global Utilities Fund,
Dean Witter High Income Securities Trust, Dean Witter International SmallCap
Fund, Dean Witter Select Dimensions Investment Series, Dean Witter Mid-Cap
Growth Fund, Dean Witter Global Asset Allocation Fund, Dean Witter National
Municipal Trust, Dean Witter Balanced Growth Fund, Dean Witter Balanced
Income Fund, Dean Witter Hawaii Municipal Trust, Dean Witter Capital
Appreciation Fund, Dean Witter Information Fund, Dean Witter Intermediate
Term U.S. Treasury Trust, Dean Witter Japan Fund, Dean Witter Income Builder
Fund, Dean Witter Special Value Fund, Dean Witter Market Leader Trust,
InterCapital Quality Municipal Income Trust, InterCapital California Quality
Municipal Securities, InterCapital New York Quality Municipal Securities,
InterCapital Quality Municipal Investment Trust, Active Assets Money Trust,
Active Assets Tax-Free Trust, Active Assets California Tax-Free Trust, Active
Assets Government Securities Trust, Municipal Income Trust, Municipal Income
Trust II, Municipal Income Trust III, Municipal Income Opportunities Trust,
Municipal Income Opportunities Trust II, Municipal Income Opportunities Trust
III, Prime Income Trust and Municipal Premium Income Trust. The foregoing
investment companies, together with the Fund, are collectively referred to as
the Dean Witter Funds.
In addition, Dean Witter Services Company Inc., ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies for which TCW Funds Management, Inc. is the investment adviser:
TCW/DW Core Equity Trust, TCW/DW North American
3
<PAGE>
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
Mid-Cap Equity Trust, TCW/DW Total Return 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) subadministrator of MassMutual Participation Investors and Templeton
Global Governments Income Trust, closed-end investment companies.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage
the investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help and bookkeeping and certain legal services as the
Fund may reasonably require in the conduct of its business, including the
preparation of prospectuses, statements of additional information, proxy
statements and reports required to be filed with federal and state securities
commissions (except insofar as the participation or assistance of independent
accountants and attorneys is, in the opinion of the Investment Manager,
necessary or desirable). In addition, the Investment Manager pays the
salaries of all personnel, including officers of the Fund, who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone service, heat, light, power and other utilities provided to the
Fund. The Investment Manager has retained DWSC to perform its administrative
services under the Agreement.
Expenses not expressly assumed by the Investment Manager under the
Agreement or by Dean Witter Distributiors Inc., the Distributor of the Fund's
shares ("Distributors" or "the Distributor") will be paid by the Fund. These
expenses will be allocated among the four classes of shares of the Fund
(each, a "Class") pro rata based on the net assets of the Fund attributable
to each Class, except as described below. The expenses borne by the Fund
include, but are not limited to: expenses of the Plan of Distribution
pursuant to Rule 12b-1 (the "12b-1 fee") (see "The Distributor"); charges and
expenses of any registrar; custodian, stock transfer and dividend disbursing
agent; brokerage commissions; taxes; engraving and printing of share
certificates; registration costs of the Fund and its shares under federal and
state securities laws; the cost and expense of printing, including
typesetting, and distributing Prospectuses and Statements of Additional
Information of the Fund and supplements thereto to the Fund's shareholders;
all expenses of shareholders' and Trustees' meetings and of preparing,
printing and mailing of proxy statements and reports to shareholders; fees
and travel expenses of Trustees or members of any advisory board or committee
who are not employees of the Investment Manager or any corporate affiliate of
the Investment Manager; all expenses incident to any dividend, withdrawal or
redemption options; charges and expenses of any outside service used for
pricing of the Fund's shares; fees and expenses of legal counsel, including
counsel to the Trustees who are not interested persons of the Fund or of the
Investment Manager (not including compensation or expenses of attorneys who
are employees of the Investment Manager) and independent accountants;
membership dues of industry associations; interest on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Trustees) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and 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.
4
<PAGE>
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.75% to the Fund's daily net assets. For the fiscal period
February 26, 1997 (commencement of operations) through May 31, 1997, the Fund
accrued to the Investment Manager total compensation under the Agreement in
the amount of $306,488.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors. The Agreement in no way restricts the Investment
Manager from acting as investment manager or adviser to others.
The Investment Manager incurred the organizational expenses of the Fund
incurred prior to the offering of the Fund's shares. The Fund will reimburse
the Investment Manager for such expenses, in an amount of approximately
$109,000. The Fund has deferred and is amortizing the reimbursed 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 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 Trustees on December 3, 1996 and by InterCapital, as the then sole
shareholder, on December 10, 1996. 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 of the outstanding shares of the Fund, as defined in
the Investment Company Act of 1940, as amended (the "Act"), or by the
Investment Manager. The Agreement will automatically terminate in the event
of its assignment (as defined in the Act).
Under its terms, the Agreement has an initial term ending April 30, 1999
and will continue from year to year thereafter, provided continuance of the
Agreement is approved at least annually by the vote of the holders of a
majority of the outstanding shares of the Fund, as defined in the Act, or by
the Trustees of the Fund; provided that in either event such continuance is
approved annually by the vote of a majority of the Trustees of the Fund who
are not parties to the Agreement or "interested persons" (as defined in the
Act) of any such party (the "Independent Trustees"), which vote must be cast
in person at a meeting called for the purpose of voting on such approval.
The Fund has acknowledged that the name "Dean Witter" is a property right
of DWR. The Fund has agreed that DWR or its parent company may use or, at any
time, permit others to use, the name "Dean Witter." The Fund has also agreed
that in the event the Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate
the name "Dean Witter" from its name if DWR or its parent company shall so
request.
5
<PAGE>
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital, and with the 83 Dean Witter Funds and the 14 TCW/DW Funds are
shown below:
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
<S> <C>
Michael Bozic (56).......................... Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee
c/o Levitz Furniture Corporation of the Dean Witter Funds; formerly President and Chief
6111 Broken Sound Parkway, N.W. Executive Officer of Hills Department Stores (May,
Boca Raton, Florida 1991-July, 1995); formerly variously Chairman, Chief
Executive Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director or Trustee of the Dean Witter
Funds; Director of Eaglemark Financial Services Inc.,
the United Negro College Fund and Weirton Steel
Corporation.
Charles A. Fiumefreddo* (64)................ Chairman, Chief Executive Officer and Director of
Chairman, President, InterCapital, Distributors and DWSC; Executive Vice
Chief Executive Officer and Trustee President and Director of DWR; Chairman, Director or
Two World Trade Center Trustee, President and Chief Executive Officer of the
New York, New York Dean Witter Funds; Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Chairman and Director of
Dean Witter Trust Company ("DWTC"); Director and/or
officer of various MSDWD subsidiaries; formerly
Executive Vice President and Director of Dean Witter,
Discover & Co. (until February, 1993).
Edwin J. Garn (64).......................... Director or Trustee of the Dean Witter Funds; formerly
Trustee United States Senator (R-Utah)(1974-1992) and Chairman,
c/o Huntsman Corporation Senate Banking Committee (1980-1986); formerly Mayor of
500 Huntsman Way Salt Lake City, Utah (1971-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Corporation (since January, 1993);
Director of Franklin Quest (time management systems) and
John Alden Financial Corporation (health insurance);
member of the board of various civic and charitable
organizations.
John R. Haire (72).......................... Chairman of the Audit Committee and Chairman of the
Trustee Committee of the Independent Directors or Trustees and
Two World Trade Center Director or Trustee of the Dean Witter Funds; Chairman
New York, New York of the Audit Committee and Chairman of the Committee of
the Independent Trustees and Trustee of the TCW/DW
Funds; formerly President, Council for Aid to Education
(1978-1989), Chairman and Chief Executive Officer of
Anchor Corporation, and Investment Adviser (1964-1978);
Director of Washington National Corporation (insurance).
6
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
Wayne E. Hedien** (63) Retired; Director or Trustee of the Dean Witter Funds
Trustee (commencing on September 1, 1997); Director of The PMI
c/o Gordon Altman Butowsky Group, Inc. (private mortgage insurance); Trustee and
Weitzen Shalov & Wein Vice Chairman of The Field Museum of Natural History;
Counsel to the Independent Trustees formerly associated with the Allstate Companies (1966-
114 West 47th Street 1994), most recently as Chairman of The Allstate
New York, New York Corporation (March, 1993-December, 1994) and Chairman
and Chief Executive Officer of its wholly-owned
subsidiary, Allstate Insurance Company (July,
1989-December, 1994); director of various other business
and charitable organizations.
Dr. Manuel H. Johnson (47).................. Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Director or Trustee of the Dean Witter
c/o Johnson Smick International, Inc. Funds; Trustee of the TCW/DW Funds; Director of NASDAQ
1133 Connecticut Avenue, N.W. (since June, 1995); Co-Chairman and a founder of the
Washington, D.C. Group of Seven Council (G7C), an international economic
commission (since September, 1990); Director of
Greenwich Capital Markets, Inc. (broker-dealer); Trustee
of the Financial Accounting Foundation (oversight
organization of the Financial Accounting Standards
Board); formerly Vice Chairman of the Board of Governors
of the Federal Reserve System (1986-1990) and Assistant
Secretary of the U.S. Treasury (1982-1986).
Michael E. Nugent (61) ..................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Director or Trustee of the Dean
c/o Triumph Capital, L.P. Witter Funds; Trustee of the TCW/DW Funds; formerly Vice
237 Park Avenue President, Bankers Trust Company and BT Capital
New York, New York Corporation (1984-1988); Director of various business
organizations.
Philip J. Purcell* (53) .................... Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDWD, DWR and Novus Credit Services Inc.;
1585 Broadway Director of InterCapital, DWSC and Distributors;
New York, New York Director or Trustee of the Dean Witter Funds; Director
and/or officer of various MSDWD subsidiaries.
John L. Schroeder (66) ..................... Retired; Director or Trustee of the Dean Witter Funds;
Trustee Director of Citizens Utilities Company; formerly
c/o Gordon Altman Butowsky Executive Vice President and Chief Investment Officer of
Weitzen Shalov & Wein the Home Insurance Company (August, 1991-September,
Counsel to the Independent Trustees 1995).
114 West 47th Street
New York, New York
7
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
Barry Fink (42)............................ Senior Vice President (since March, 1997) and Secretary
Vice President, and General Counsel (since February, 1997) of
Secretary and General Counsel InterCapital and DWSC; Senior Vice President (since
Two World Trade Center March, 1997) and Assistant Secretary and Assistant
New York, New York General Counsel 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 (since June, 1993-February, 1997), Vice
President (until June, 1993) and Assistant General
Counsel and Assistant Secretary of InterCapital and
DWSC; and Assistant Secretary of the Dean Witter Funds
and the TCW/DW Funds.
Anita H. Kolleeny (42) .................... Senior Vice President of InterCapital (since April,
Vice President 1992); Vice President of Dean Witter American Value
Two World Trade Center Fund; previously Vice President of InterCapital.
New York, New York
Michelle Kaufman (32) ..................... Vice President (since June, 1997), Assistant Vice
Vice President President of InterCapital (May, 1995-June, 1997) and
Two World Trade Center portfolio manager with InterCapital (since September,
New York, New York 1993); previously security analyst with Woodward and
Associates (March-August, 1993) and JRO and Associates
(December, 1992).
Thomas F. Caloia (51) ..................... First Vice President and Assistant Treasurer of
Treasurer InterCapital and DWSC; Treasurer of the Dean Witter
Two World Trade Center Funds and the TCW/DW Funds.
New York, New York
</TABLE>
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
** Mr. Hedien's term will commence on September 1, 1997.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Executive Vice President, Chief Administrative Officer and
Director of DWR and Director of SPS Transaction Services, Inc. and various
other MSDWD subsidiaries, Joseph J. McAlinden, Executive Vice President and
Chief Investment Officer of InterCapital and Director of DWTC, Robert S.
Giambrone, Senior Vice President of InterCapital, DWSC, Distributors and DWTC
and Director of DWTC, and Jenny Beth Jones, Edward F. Gaylor and Ronald J.
Worobel, Vice Presidents of InterCapital, are Vice Presidents of the Fund. In
addition, Marilyn K. Cranney, First Vice President and Assistant General
Counsel of InterCapital and DWSC, Lou Anne D. McInnis, Carsten Otto and Ruth
Rossi, Vice Presidents and Assistant General Counsels of InterCapital and
DWSC, and Frank Bruttomesso, a Staff Attorney with InterCapital, are
Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees currently consists of eight (8) trustees; as noted
above, Mr. Hedien's term will commence on September 1, 1997. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of
this Statement of Additional Information, there are a total of 83 Dean Witter
Funds, comprised of 126 portfolios. As of June 30, 1997, the Dean Witter
Funds had total net assets of approximately $87.9 billion and more than five
million shareholders.
Six Trustees and Mr. Hedien (77% of the total number) have no affiliation
or business connection with InterCapital or any of its affiliated persons and
do not own any stock or other securities issued by
8
<PAGE>
InterCapital's parent company, MSDWD. These are the "disinterested" or
"independent" Trustees. The other two Trustees (the "management Trustees")
are affiliated with InterCapital. Four of the six independent Trustees are
also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Dean Witter Funds seek as Independent
Trustees individuals of distinction and experience in business and finance,
government service or academia; these are people whose advice and counsel are
in demand by others and for whom there is often competition. To accept a
position on the Funds' Boards, such individuals may reject other attractive
assignments because the Funds make substantial demands on their time. Indeed,
by serving on the Funds' Boards, certain Trustees who would otherwise be
qualified and in demand to serve on bank boards would be prohibited by law
from doing so.
All of the current Independent Trustees serve as members of the Audit
Committee and the Committee of the Independent Trustees. Three of them also
serve as members of the Derivatives Committee. During the calendar year ended
December 31, 1996, the three Committees held a combined total of sixteen
meetings. The Committees hold some meetings at InterCapital's offices and
some outside InterCapital. Management Trustees or officers do not attend
these meetings unless they are invited for purposes of furnishing information
or making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading
among Funds in the same complex; and approving fidelity bond and related
insurance coverage and allocations, as well as other matters that arise from
time to time. The Independent Trustees are required to select and nominate
individuals to fill any Independent Trustee vacancy on the Board of any Fund
that has a Rule 12b-1 plan of distribution. Most of the Dean Witter Funds
have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing
engagement; approving professional services provided by the independent
accountants and other accounting firms prior to the performance of such
services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of
the Fund's system of internal controls; and preparing and submitting
Committee meeting minutes to the full Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect
to derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and
the Funds' operations and management. He screens and/or prepares written
materials and identifies critical issues for the Independent Trustees to
consider, develops agendas for Committee meetings, determines the type and
amount of information that the Committees will need to form a judgment on
various issues, and arranges to have that information furnished to Committee
members. He also arranges for the services of independent experts and
consults with them in advance of meetings to help refine reports and to focus
on critical issues. Members of the Committees believe that the person who
serves as Chairman of both Committees and guides their efforts is pivotal to
the effective functioning of the Committees.
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.
9
<PAGE>
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee and, since
July 1, 1996, as Chairman of the Committee of the Independent Trustees and
the Audit Committee of the TCW/DW Funds. The current Committee Chairman has
had more than 35 years experience as a senior executive in the investment
company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and
enhances their ability to negotiate on behalf of each Fund with the Fund's
service providers. This arrangement also precludes the possibility of
separate groups of Independent Trustees arriving at conflicting decisions
regarding operations and management of the Funds and avoids the cost and
confusion that would likely ensue. Finally, having the same Independent
Trustees serve on all Fund Boards enhances the ability of each Fund to
obtain, at modest cost to each separate Fund, the services of Independent
Trustees, and a Chairman of their Committees, of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund intends to pay 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 intends
to pay the Chairman of the Audit Committee an annual fee of $750 and the
Chairman of the Committee of the Independent Trustees an additional annual
fee of $1,200). The Fund will also reimburse 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 will receive no
compensation or expense reimbursement from the Fund. Payments will commence
as of the time the Fund begins paying management fees, which, pursuant to an
undertaking by the Investment Manager, will be at such time as the Fund has
$50 million of net assets or six months from the date of commencement of the
Fund's operations, whichever occurs first.
At such time as the Fund has been in operation, and has paid fees to the
Independent Trustees, for a full fiscal year, and assuming that during such
fiscal year the Fund holds the same number of Board and committee meetings as
were held by the other Dean Witter Funds during the calendar year ended
December 31, 1996, it is estimated that the compensation paid to each
Independent Trustee during such fiscal year will be the amount shown in the
following table:
FUND COMPENSATION (ESTIMATED)
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- ---------------
<S> <C>
Michael Bozic .............. $1,900
Edwin J. Garn .............. 1,900
John R. Haire .............. 3,850
Dr. Manuel H. Johnson ..... 1,900
Michael E. Nugent........... 1,900
John L. Schroeder........... 1,900
</TABLE>
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.
10
<PAGE>
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF
COMMITTEES OF FOR SERVICE AS
INDEPENDENT CHAIRMAN OF
FOR SERVICE DIRECTORS/ COMMITTEES OF TOTAL CASH
AS DIRECTOR OR FOR SERVICE AS TRUSTEES AND INDEPENDENT COMPENSATION
TRUSTEE AND TRUSTEE AND AUDIT TRUSTEES FOR SERVICES TO
COMMITTEE MEMBER COMMITTEE MEMBER COMMITTEES OF 82 AND AUDIT 82 DEAN WITTER
NAME OF OF 82 DEAN WITTER OF 14 TCW/DW DEAN WITTER COMMITTEES OF 14 FUNDS AND 14
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS TCW/DW FUNDS TCW/DW FUNDS
- ---------------------- ----------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael Bozic ......... $138,850 -- -- -- $138,850
Edwin J. Garn ......... 140,900 -- -- -- 140,900
John R. Haire ......... 106,400 $64,283 $195,450 $12,187 378,320
Dr. Manuel H. Johnson 137,100 66,483 -- -- 203,583
Michael E. Nugent .... 138,850 64,283 -- -- 203,133
John L. Schroeder...... 137,150 69,083 -- -- 206,233
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, not including the Fund, have adopted a retirement program under
which an Independent Trustee who retires after serving for at least five
years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Dean Witter Fund that has adopted the
retirement program (each such Fund referred to as an "Adopting Fund" and each
such Trustee referred to as an "Eligible Trustee") is entitled to retirement
payments upon reaching the eligible retirement age (normally, after attaining
age 72). Annual payments are based upon length of service. Currently, upon
retirement, each Eligible Trustee is entitled to receive from the Adopting
Fund, commencing as of his or her retirement date and continuing for the
remainder of his or her life, an annual retirement benefit (the "Regular
Benefit") equal to 25.0% of his or her Eligible Compensation plus 0.4166666%
of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years
up to a maximum of 50.0% after ten years of service. The foregoing
percentages may be changed by the Board.(1) "Eligible Compensation" is
one-fifth of the total compensation earned by such Eligible Trustee for
service to the Adopting Fund in the five year period prior to the date of the
Eligible Trustee's retirement. Benefits under the retirement program are not
secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 57 Dean Witter Funds (not including the
Fund) for the year ended December 31, 1996, and the estimated retirement
benefits for the Fund's Independent Trustees, to commence upon their
retirement, from the 57 Dean Witter Funds as of December 31, 1996.
RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
ESTIMATED BENEFITS BENEFITS
CREDITED ACCRUED AS UPON
YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
RETIREMENT ELIGIBLE ADOPTING ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS (2)
- --------------------------- --------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Michael Bozic .............. 10 50.0% $20,147 $ 51,325
Edwin J. Garn .............. 10 50.0 27,772 51,325
John R. Haire .............. 10 50.0 46,952 129,550
Dr. Manuel H. Johnson ..... 10 50.0 10,926 51,325
Michael E. Nugent .......... 10 50.0 19,217 51,325
John L. Schroeder........... 8 41.7 38,700 42,771
</TABLE>
(1) An Eligible Trustee may elect alternate payments of his or her
retirement benefits based upon the combined life expectancy of such
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. The amount estimated to be payable under this
method, through the remainder of the later of the lives of such
Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit. In addition, the Eligible Trustee may elect that the
surviving spouse's periodic payment of benefits will be equal to either
50% or 100% of the previous periodic amount, an election that,
respectively, increases or decreases the previous periodic amount so
that the resulting payments will be the actuarial equivalent of the
Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
11
<PAGE>
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- -----------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES
As discussed in the Prospectus, the Fund may invest in, among other
securities, securities issued by the U.S. Government, its agencies or
instrumentalities. Such securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration, the General Services
Administration, the Maritime Administration and the Small Business
Administration. The maturities of such obligations range from three months
to 30 years.
(3) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its
obligations, from an existing line of credit with the U.S. Treasury. Among
the agencies and instrumentalities issuing such obligations are the
Tennessee Valley Authority, the Federal National Mortgage Association
("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and the
U.S. Postal Service.
(4) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but which are
backed by the credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are the Federal
Farm Credit System and the Federal Home Loan Banks.
Neither the value nor the yield of the U.S. Government securities which
may be invested in by the Fund are guaranteed by the U.S. Government. Such
values and yield will fluctuate with changes in prevailing interest rates and
other factors. Generally, as prevailing interest rates rise, the value of any
U.S. Government securities held by the Fund will fall. Such securities with
longer maturities generally tend to produce higher yields and are subject to
greater market fluctuation as a result of changes in interest rates than debt
securities with shorter maturities. The Fund is not limited as to the
maturities of the U.S. Government securities in which it may invest.
MONEY MARKET SECURITIES
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, bankers'
acceptances, commercial paper (see below) and other debt obligations) 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 as
permitted below;
12
<PAGE>
Eurodollar Certificates of Deposit. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1
billion or more (investments in Eurodollar certificates may be affected by
changes in currency rates or exchange control regulations, or changes in
governmental administration or economic or monetary policy in the United
States and abroad);
Obligations of Savings Institutions. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more (investments in savings institutions above $100,000 in principal amount
are not protected by Federal deposit insurance);
Fully Insured Certificates of Deposit. Certificates of deposit of banks
and savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is insured by the Bank Insurance Fund or
the Savings Association Insurance Fund (each of which is administered by the
Federal Deposit Insurance Corporation), limited to $100,000 principal amount
per certificate and to 15% or less of the Fund's total assets in all such
obligations and in all illiquid assets, in the aggregate; and
Commercial Paper. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation or the highest grade by Moody's Investors
Service, Inc. or, if not rated, issued by a company having an outstanding
debt issue rated at least AAA by Standard & Poor's or Aaa by Moody's.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
From time to time the Fund may purchase securities on a when-issued or
delayed delivery basis or may purchase or sell securities on a forward
commitment basis. When such transactions are negotiated, the price is fixed
at the time of the commitment, but delivery and payment can take place a
month or more after the date of commitment. While the Fund will only purchase
securities on a when-issued, delayed delivery or forward commitment basis
with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date, if it is deemed advisable. The
securities so purchased or sold are subject to market fluctuation and no
interest or dividends accrue to the purchaser prior to the settlement date.
At the time the Fund makes the commitment to purchase or sell securities on a
when-issued, delayed delivery or forward commitment basis, it will record the
transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be
more or less than the purchase or sale price. The Fund will also establish a
segregated account with its custodian bank in which it will continually
maintain cash or cash equivalents or other liquid portfolio securities equal
in value to commitments to purchase securities on a when-issued, delayed
delivery or forward commitment basis. During the fiscal period ended May 31,
1997, the Fund did not purchase any when-issued and delayed delivery
securities.
WHEN, AS AND IF ISSUED SECURITIES
The Fund may purchase securities on a "when, as and if issued" basis under
which the issuance of the security depends upon the occurrence of a
subsequent event, such as approval of a merger, corporate reorganization or
debt restructuring. The commitment for the purchase of any such security will
not be recognized in the portfolio of the Fund until the Investment Manager
determines that issuance of the security is probable. At such time, the Fund
will record the transaction and, in determining its net asset value, will
reflect the value of the security daily. At such time, the Fund will also
establish a segregated account with its custodian bank in which it will
maintain cash or cash equivalents or other liquid portfolio securities equal
in value to recognized commitments for such securities. The value of the
Fund's commitments to purchase the securities of any one issuer, together
with the value of all securities of such issuer owned by the Fund, may not
exceed 5% of the value of the Fund's total assets at the time the initial
commitment to purchase such securities is made (see "Investment
Restrictions"). An increase in the percentage of the Fund's assets committed
to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value. The Investment Manager and
the Trustees do not believe that the net asset value of the Fund will be
adversely affected by its purchase of securities
13
<PAGE>
on such basis. The Fund may also sell securities on a "when, as and if
issued" basis provided that the issuance of the security will result
automatically from the exchange or conversion of a security owned by the Fund
at the time of sale. During the fiscal period ended May 31, 1997, the Fund
did not purchase securities on a when, as and if issued basis.
RULE 144A SECURITIES
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by
the Fund. The procedures require that the following factors be taken into
account in making a liquidity determination: (1) the frequency of trades and
price quotes for the security; (2) the number of dealers and other potential
purchasers who have issued quotes on the security; (3) any dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (the time needed to dispose
of the security, the method of soliciting offers, and the mechanics of
transfer). If a restricted security is determined to be "liquid," such
security will not be included within the category "illiquid securities,"
which under current policy may not exceed 15% of the Fund's net assets.
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 loan 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 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. During the fiscal period ended May 31, 1997, the Fund
did not lend any of its portfolio securities.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities and stock
indexes and purchase options of the same series to effect closing
transactions, and may hedge against potential changes in the market value of
investments (or anticipated investments) by purchasing put and call options
on portfolio (or eligible portfolio)
14
<PAGE>
securities and engaging in transactions involving futures contracts and
options on such contracts. Call and put options on U.S. Treasury notes, bonds
and bills and equity securities are listed on Exchanges and are written in
over-the-counter transactions ("OTC options"). Listed options are issued by
the Options Clearing Corporation ("OCC"). Ownership of a listed call option
gives the Fund the right to buy from the OCC the underlying security covered
by the option at the stated exercise price (the price per unit of the
underlying security) by filing an exercise notice prior to the expiration
date of the option. The writer (seller) of the option would then have the
obligation to sell to the OCC the underlying security at that exercise price
prior to the expiration date of the option, regardless of its then current
market price. Ownership of a listed put option would give the Fund the right
to sell the underlying security to the OCC at the stated exercise price. Upon
notice of exercise of the put option, the writer of the put would have the
obligation to purchase the underlying security from the OCC at the exercise
price. The Fund will not write uncovered options.
Options on Treasury Bonds and Notes. Because trading in options written on
Treasury bonds and notes tends to center on the most recently auctioned
issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each issue of
bonds or notes will thus be phased out as new options are listed on more
recent issues, and options representing a full range of expirations will not
ordinarily be available for every issue on which options are traded.
Options on Treasury Bills. Because a deliverable Treasury bill changes
from week to week, writers of Treasury bill calls cannot provide in advance
for their potential exercise settlement obligations by acquiring and holding
the underlying security. However, if the Fund holds a long position in
Treasury bills with a principal amount of the securities deliverable upon
exercise of the option, the position may be hedged from a risk standpoint by
the writing of a call option. For so long as the call option is outstanding,
the Fund will hold the Treasury bills in a segregated account with its
Custodian, so that they will be treated as being covered.
OTC Options. Exchange-listed options are issued by the OCC which assures
that all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or financial institutions which
have entered into direct agreements with the Fund. With OTC options, such
variables as expiration date, exercise price and premium will be agreed upon
between the Fund and the transacting dealer, without the intermediation of a
third party such as the OCC. If the transacting dealer fails to make or take
delivery of the securities underlying an option it has written, in accordance
with the terms of that option, the Fund would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Fund will
engage in OTC option transactions only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities in order to aid in achieving its investment
objective. Generally, a call option is "covered" if the Fund owns, or has the
right to acquire, without additional cash consideration (or for additional
cash consideration held for the Fund by its Custodian in a segregated
account) the underlying security subject to the option except that in the
case of call options on U.S. Treasury Bills, the Fund might own U.S. Treasury
Bills of a different series from those underlying the call option, but with a
principal amount and value corresponding to the exercise price and a maturity
date not later than that of the securities deliverable under the call option.
A call option is also covered if the Fund holds a call on the same security
as the underlying security of the written option, where the exercise price of
the call used for coverage is equal to or less than the exercise price of the
call written or greater than the exercise price of the call written if the
mark to market difference is maintained by the Fund in cash, U.S. Government
securities or other liquid portfolio securities which the Fund holds in a
segregated account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these
premiums may better enable the Fund to achieve a greater total return than
would be realized from holding the underlying securities alone. Moreover, the
premium received will
15
<PAGE>
offset a portion of the potential loss incurred by the Fund if the securities
underlying the option are ultimately sold by the Fund at a loss. The premium
received will fluctuate with varying economic market conditions. If the
market value of the portfolio securities upon which call options have been
written increases, the Fund may receive less total return from the portion of
its portfolio upon which calls have been written than it would have had such
call not been written.
During the option period, the Fund may be required, at any time, to
deliver the underlying security against payment of the exercise price on any
calls it has written (exercise of certain listed options may be limited to
specific expiration dates). This obligation is terminated upon the expiration
of the option period or at such earlier time when the writer effects a
closing purchase transaction. A closing purchase transaction is accomplished
by purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit
on an outstanding call option to prevent an underlying security from being
called, to permit the sale of an underlying security or to enable the Fund to
write another call option on the underlying security with either a different
exercise price or expiration date or both. Also, effecting a closing purchase
transaction will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments by the
Fund. The Fund may realize a net gain or loss from a closing purchase
transaction depending upon whether the amount of the premium received on the
call option is more or less than the cost of effecting the closing purchase
transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of
the underlying security. Conversely, a gain resulting from a closing purchase
transaction could be offset in whole or in part or exceeded by a decline in
the market value of the underlying security.
If a call option expires unexercised, the Fund realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security equal to the
difference between the purchase price of the underlying security and the
proceeds of the sale of the security plus the premium received on the option
less the commission paid.
Options written by a Fund normally have expiration dates of from up to
nine months (equity securities) to eighteen months (fixed-income securities)
from the date written. The exercise price of a call option may be below,
equal to or above the current market value of the underlying security at the
time the option is written. See "Risks of Options and Futures Transactions,"
below.
Covered Put Writing. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period,
at the purchaser's election (certain listed put options written by the Fund
will be exercisable by the purchaser only on a specific date). A put is
"covered" if, at all times, the Fund maintains, in a segregated account
maintained on its behalf at the Fund's Custodian, cash, U.S. Government
securities or other liquid portfolio securities in an amount equal to at
least the exercise price of the option, at all times, during the option
period. Similary, a short put position could be covered by the Fund by its
purchase of a put option on the same security as the underlying security of
the written option, where the exercise price of the purchased option is equal
to or more than the exercise price of the put written or less than the
exercise price of the put written if the mark to market difference is
maintained by the Fund in cash, U.S. Government securities or other liquid
portfolio securities which the Fund holds in a segregated account maintained
at its Custodian. In writing puts, the Fund assumes the risk of loss should
the market value of the underlying security decline below the exercise price
of the option (any loss being decreased by the receipt of the premium on the
option written). During the option period, the Fund may be required, at any
time, to make payment of the exercise price against delivery of the
underlying security. The operation of and limitations on covered put options
in other respects are substantially identical to those of call options.
16
<PAGE>
The Fund will write put options for two purposes: (1) to receive the
income derived from the premiums paid by purchasers; and (2) when the
Investment Manager wishes to purchase the security underlying the option at a
price lower than its current market price, in which case it will write the
covered put at an exercise price reflecting the lower purchase price sought.
The potential gain on a covered put option is limited to the premium received
on the option (less the commissions paid on the transaction) while the
potential loss equals the difference between the exercise price of the option
and the current market price of the underlying securities when the put is
exercised, offset by the premium received (less the commissions paid on the
transaction).
Purchasing Call and Put Options. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options on securities and stock indexes
in amounts equalling up to 10% of its total assets, with a maximum of 5% of
the Fund's assets invested in stock index options. The Fund may purchase call
options only in order to close out a covered call position (see "Covered Call
Writing" above). The purchase of a call option to effect a closing
transaction on a call written over-the-counter may be a listed or OTC option.
In either case, the call purchased is likely to be on the same securities and
have the same terms as the written option. If purchased over-the-counter, the
option would generally be acquired from the dealer or financial institution
which purchased the call written by the Fund.
The Fund may purchase put options on securities which it holds (or has the
right to acquire) in its portfolio only to protect itself against a decline
in the value of the security. If the value of the underlying security were to
fall below the exercise price of the put purchased in an amount greater than
the premium paid for the option, the Fund would incur no additional loss. The
Fund may also purchase put options to close out written put positions in a
manner similar to call options closing purchase transactions. In addition,
the Fund may sell a put option which it has previously purchased prior to the
sale of the securities underlying such option. Such a sale would result in a
net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction costs paid on the put option
which is sold. And such gain or loss could be offset in whole or in part by a
change in the market value of the underlying security. If a put option
purchased by the Fund expired without being sold or exercised, the premium
would be lost.
Risks of Options Transactions. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of
the underlying security increase, but has retained the risk of loss should
the price of the underlying security decline. The secured put writer also
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option less the premium received on
the sale of the option. In both cases, the writer has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver or receive the underlying securities at the
exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction, it cannot
sell the underlying security until the option expires or the option is
exercised. Accordingly, a covered call option writer may not be able to sell
an underlying security at a time when it might otherwise be advantageous to
do so. A secured put option writer who is unable to effect a closing purchase
transaction would continue to bear the risk of decline in the market price of
the underlying security until the option expires or is exercised. In
addition, a secured put writer would be unable to utilize the amount held in
cash or U.S. government or other liquid portfolio securities as security for
the put option for other investment purposes until the exercise or expiration
of the option.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on Option
Exchanges. There is no assurance that such a market will exist, particularly
in the case of OTC options. However, the Fund may be able to purchase an
offsetting option which does not close out its position as a writer but
constitutes an asset of equal value to the obligation under the option
written. If the Fund is not able to either enter into a closing purchase
transaction or
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purchase an offsetting position, it will be required to maintain the
securities subject to the call, or the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can
be entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes
or series of options or underlying securities; (iv) interruption of the
normal operations on an Exchange; (v) inadequacy of the facilities of an
Exchange or the OCC to handle current trading volume; or (vi) a decision by
one or more Exchanges to discontinue the trading of options (or a particular
class or series of options), in which event the secondary market on that
Exchange (or in that class or series of options) would cease to exist,
although outstanding options on that Exchange that had been issued by the OCC
as a result of trades on that Exchange would generally continue to be
excerisable 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 through one or more brokers). An Exchange may
order the liquidation of positions found to be in violation of these limits
and it may impose other sanctions or restrictions. These position limits may
restrict the number of listed options which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
Stock Index Options. Options on stock indexes are similar to options on
stock except that, rather than the right to take or make delivery of stock at
a specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level
of the stock index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple (the "multiplier"). The multiplier for an index
option performs a function similar to the unit of trading for a stock option.
It determines the total dollar value per contract of each point in the
difference between the exercise price of an option and the current level of
the underlying index. A multiplier of 100 means that a one-point difference
will yield $100. Options on different indexes may have different multipliers.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. Unlike stock options, all settlements are in
cash and a gain or loss depends on price movements in the stock market
generally (or in a particular segment of the market) rather than the price
movements in individual stocks. Currently, options are traded on the S&P 100
Index and the S&P 500 Index on the Chicago Board Options Exchange, the Major
Market Index and the Computer Technology Index, Oil Index and Institutional
Index on the American Stock Exchange and the NYSE Index and NYSE Beta Index
on the New York Stock Exchange, The Financial News Composite Index on the
Pacific Stock Exchange and the Value Line Index, National O-T-C Index and
Utilities Index on the Philadelphia Stock Exchange, each of which and any
similar index on which options are traded in the future which include stocks
that are not limited to any particular industry or segment of the market is
referred to as a "broadly based stock market index." The Fund will invest
only in broadly based indexes. Options on broad-based
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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 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, 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 had been assigned until the next business day, at the earliest.
The time lag between exercise and notice of assignment poses no risk for the
writer of a covered call on a specific underlying security, such as a common
stock, because there the writer's obligation is to deliver the underlying
security, not to pay its value as of a fixed time in the past. So long as the
writer already owns the underlying security, it can satisfy its settlement
obligations by simply delivering it, and the risk that its value may have
declined since the exercise date is borne by the exercising holder. In
contrast, even if the writer of an index call holds stocks that exactly match
the composition of the underlying index, it will not be able to satisfy its
assignment obligations by delivering those stocks against payment of the
exercise price. Instead, it will be required to pay cash in an amount based
on the closing index value on the exercise date; and by the time it learns
that it has been assigned, the index may have declined, with a corresponding
decrease in the value of its stock portfolio. This "timing risk" is an
inherent limitation on the ability of index call writers to cover their risk
exposure by holding stock positions.
A holder of an index option who exercises it before the closing index
value for that day is available runs the risk that the level of the
underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the exercising holder will be
required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the
assigned writer.
If dissemination of the current level of an underlying index is
interrupted, or if trading is interrupted in stocks accounting for a
substantial portion of the value of an index, the trading of options on that
index will ordinarily be halted. If the trading of options on an underlying
index is halted, an exchange may impose restrictions prohibiting the exercise
of such options.
Futures Contracts. As stated in the Prospectus, the Fund may purchase and
sell interest rate and stock index futures contracts ("futures contracts")
that are traded on U.S. commodity exchanges on such
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underlying securities as U.S. Treasury bonds, notes, bills and GNMA
Certificates ("interest rate" futures) and such indexes as the S&P 500 Index,
the Moody's Investment-Grade Corporate Bond Index and the New York Stock
Exchange Composite Index ("index" futures).
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of
the underlying obligation at a specified time in return for an agreed upon
price.
The Fund will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) securities against changes in prevailing interest
rates. If the Investment Manager anticipates that interest rates may rise
and, concomitantly, the price of fixed-income securities falls, the Fund may
sell an interest rate futures contract or a bond index futures contract. If
declining interest rates are anticipated, the Fund may purchase an interest
rate futures contract to protect against a potential increase in the price of
U.S. Government securities the Fund intends to purchase. Subsequently,
appropriate fixed-income securities may be purchased by the Fund in an
orderly fashion; as securities are purchased, corresponding futures positions
would be terminated by offsetting sales of contracts.
The Fund will purchase or sell stock index futures contracts for the
purpose of hedging its equity portfolio (or anticipated portfolio) securities
against changes in their prices. If the Investment Manager anticipates that
the prices of stock held by the Fund may fall, the Fund may sell a stock
index futures contract. Conversely, if the Investment Manager wishes to hedge
against anticipated price rises in those stocks which the Fund intends to
purchase, the Fund may purchase stock index futures contracts. In addition,
interest rate and stock index futures contracts will be bought or sold in
order to close out a short or long position in a corresponding futures
contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Stock index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open
or close of the last trading day of the contract and the futures contract
price. A futures contract sale is closed out by effecting a futures contract
purchase for the same aggregate amount of the specific type of equity
security and the same delivery date. If the sales price exceeds the
offsetting purchase price, the seller would be paid the difference and would
realize a gain. If the offsetting purchase price exceeds the sale price, the
seller would pay the difference and would realize a loss. Similarly, a
futures contract purchase is closed out by effecting a futures contract sale
for the same aggregate amount of the specific type of security and the same
delivery date. If the offsetting sale price exceeds the purchase price, the
purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no
assurance that the Fund will be able to enter into a closing transaction.
Interest Rate Futures Contracts. When the Fund enters into an interest
rate futures contract, it is initially required to deposit with the Fund's
Custodian, in a segregated account in the name of the broker performing the
transaction, an "initial margin" of cash or U.S. Government securities or
other liquid portfolio securities equal to approximately 2% of the contract
amount. Initial margin requirements are established by the Exchanges on which
futures contracts trade and may, from time to time, change. In addition,
brokers may establish margin deposit requirements in excess of those required
by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a broker's client but is, rather, a good faith deposit on the
futures contract which will be returned to the Fund upon the proper
termination of the futures contract. The margin deposits made are marked to
market daily and the Fund may be required to make subsequent deposits of cash
or U.S. Government securities called "variation margin", with the Fund's
futures contract clearing broker, which are reflective of price fluctuations
in the futures contract. Currently, interest rate futures contracts can be
purchased on debt securities such as U.S. Treasury Bills and Bonds, U.S.
Treasury Notes with Maturities between 6 1/2 and 10 years, GNMA Certificates
and Bank Certificates of Deposit.
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<PAGE>
Index Futures Contracts. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future
time. An index futures contract purchase would create an obligation by the
Fund, as purchaser, to take delivery of cash at a specified future time.
Futures contracts on indexes do not require the physical delivery of
securities, but provide for a final cash settlement on the expiration date
which reflects accumulated profits and losses credited or debited to each
party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in
the form of variation margin payments. The Fund may be required to make
additional margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required
to be paid by or released to the Fund and the Fund realizes a loss or a gain.
Currently, index futures contracts can be purchased or sold with respect
to, among others, the Standard & Poor's 500 Stock Price Index and the
Standard & Poor's 100 Stock Price Index on the Chicago Mercantile Exchange,
the New York Stock Exchange Composite Index on the New York Futures Exchange,
the Major Market Index on the American Stock Exchange, the Value Line Stock
Index on the Kansas City Board of Trade and the Moody's Investment-Grade
Corporate Bond Index on the Chicago Board of Trade.
Options on Futures Contracts. The Fund may purchase and write call and put
options on futures contracts and enter into closing transactions with respect
to such options to terminate an existing position. An option on a futures
contract gives the purchaser the right (in return for the premium paid), and
the writer the obligation, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents
the amount by which the market price of the futures contract at the time of
exercise exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option on the futures contract.
The Fund will purchase and write options on futures contracts for
identical purposes to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of
a futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts. If, for example, the
Investment Manager wished to protect against an increase in interest rates
and the resulting negative impact on the value of a portion of its
fixed-income portfolio, it might write a call option on an interest rate
futures contract, the underlying security of which correlates with the
portion of the portfolio the Investment Manager seeks to hedge. Any premiums
received in the writing of options on futures contracts may, of course,
augment the total return of the Fund and thereby provide a further hedge
against losses resulting from price declines in portions of the Fund's
portfolio.
The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an
option on a futures contract are included in initial margin deposits.
Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid
for premiums for unexpired options on futures contracts exceeds 5% of the
value of the Fund's total assets, after taking into account unrealized gains
and unrealized losses on such contracts it has entered into, provided,
however, that in the case of an option that is in-the-money (the
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<PAGE>
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. With respect to futures and
options on futures contracts, segregated accounts will be maintained
consisting of cash or liquid portfolio securities with a value (marked to
market daily) equal to the dollar amount of the Fund's purchase or sale
obligation under such contracts.
Risks of Transactions in Futures Contracts and Related Options. The Fund
may sell a futures contract to protect against the decline in the value of
securities held by the Fund. However, it is possible that the futures market
may advance and the value of securities held in the portfolio of the Fund may
decline. If this occurred, the Fund would lose money on the futures contract
and also experience a decline in value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree,
over time the value of a diversified portfolio will tend to move in the same
direction as the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Investment Manager may determine not to invest in the
securities as planned and will realize a loss on the futures contract that is
not offset by a reduction in the price of the securities.
If the Fund maintains a short position in a futures contract or has sold a
call option in a futures contract, it will cover this position by holding, in
a segregated account maintained at its Custodian, cash, U.S. Government
securities or liquid portfolio securities equal in value (when added to any
initial or variation margin on deposit) to the market value of the securities
underlying the futures contract or the exercise price of the option. Such a
position may also be covered by owning the securities underlying the futures
contract (in the case of a stock index futures contract a portfolio of
securities substantially replicating the relevant index), or by holding a
call option permitting the Fund to purchase the same contract at a price no
higher than the price at which the short position was established.
In addition, if the Fund holds a long position in a futures contract or
has sold a put option on a futures contract, it will hold cash, U.S.
Government securities or other liquid portfolio securities equal to the
purchase price of the contract or the exercise price of the put option (less
the amount of initial or variation margin on deposit) in a segregated account
maintained for the Fund by its Custodian. Alternatively, the Fund could cover
its long position by purchasing a put option on the same futures contract
with an exercise price as high or higher than the price of the contract held
by the Fund.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition,
the Fund may be required to take or make delivery of the instruments
underlying interest rate futures contracts it holds at a time when it is
disadvantageous to do so. The inability to close out options and futures
positions could also have an adverse impact on the Fund's ability to
effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or options thereon, the Fund could experience
delays and/or losses in liquidating open positions purchased or sold through
the broker and/or incur a loss of all or part of its margin deposits with the
broker. Transactions are entered into by the Fund only with brokers or
financial institutions deemed creditworthy by the Investment Manager.
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There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of
the securities which are the subject of the hedge. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the securities and futures markets could result.
Price distortions could also result if investors in futures contracts opt to
make or take delivery of underlying securities rather than engage in closing
transactions due to the resultant reduction in the liquidity of the futures
market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions.
Due to the possibility of price distortions in the futures market and because
of the imperfect correlation between movements in the prices of securities
and movements in the prices of futures contracts, a correct forecast of stock
price or interest rate trends by the Investment Manager may still not result
in a successful hedging transaction.
There is no assurance that a liquid secondary market will exist for
futures contracts and related options in which the Fund may invest. In the
event a liquid market does not exist, it may not be possible to close out a
futures position and, in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin. In
addition, limitations imposed by an exchange or board of trade on which
futures contracts are traded may compel or prevent the Fund from closing out
a contract which may result in reduced gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to
make or take delivery of the underlying securities at a time when it may be
disadvantageous to do so.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss
to the Fund notwithstanding that the purchase or sale of a futures contract
would not result in a loss, as in the instance where there is no movement in
the prices of the futures contract or underlying securities.
NEW INSTRUMENTS
New financial products and various combinations thereof continue to be
developed. The Fund may invest in any such products as may be developed, to
the extent conistent with its investment objective and applicable regulatory
requirements.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate will not exceed
300%. A 300% turnover rate would occur, for example, if 300% of the
securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced
within one year. For the fiscal period February 26, 1997 (commencement of
operations) through May 31, 1997, the Fund's portfolio turnover rate was
17%.
INVESTMENT RESTRICTIONS
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In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at
a meeting of Shareholders, if the holders of 50% of the outstanding shares of
the Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund. For purposes of the following restrictions:
(i) all percentage limitations apply immediately after a purchase or initial
investment; and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets
does not require elimination of any security from the portfolio.
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The Fund may not:
1. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities secured by
real estate or interests therein.
2. Purchase or sell commodities or commodities contracts except that the
Fund may purchase or sell financial or index futures contracts and related
options.
3. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest in
the securities of companies which operate, invest in, or sponsor such
programs.
4. Borrow money, except that the Fund may borrow 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).
5. 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 initial or variation margin for futures are not deemed to be
pledges of assets.
6. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase agreement; (b) purchasing or selling futures
contracts or options; (c) borrowing money in accordance with restrictions
described above; (d) purchasing any securities on a when-issued or delayed
delivery basis; or (e) lending portfolio securities.
7. Make loans of money or securities, except: (a) by the purchase of
portfolio securities in which the Fund may invest consistent with its
investment objective and policies; (b) by investment in repurchase
agreements; or (c) by lending its portfolio securities.
8. Make short sales of securities.
9. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options is not considered the purchase of a
security on margin.
10. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
11. Invest for the purpose of exercising control or management of any
other 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.
As a non-fundamental policy, the Fund may not invest in other investment
companies in reliance on Sections 12(d)(1)(F), 12(d)(1)(G) or 12(d)(1)(J) of
the Act.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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Subject to the general supervision of the Board of Trustees, the
Investment Manager is responsible for decisions to buy and sell securities
for the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. The Fund also
expects that securities will be purchased at times in underwritten offerings
where the price includes a fixed amount of compensation, generally referred
to as the
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<PAGE>
underwriter's concession or discount. Futures transactions are usually
effected through a broker and a commission will be charged. On occasion, the
Fund may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid. For the fiscal
period February 26, 1997 (commencement of operations) through May 31, 1997,
the Fund paid a total of $208,997 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.
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: reports on industries and companies, economic
analyses and review of business conditions, portfolio strategy, analytic
computer software, account performance services, computer terminals and
various trading and/or quotation equipment. They also include advice from
broker-dealers as to the value of securities, availability of securities,
availability of buyers, and availability of sellers. In addition, they
include recommendations as to purchase and sale of individual securities and
timing of such transactions. The Fund will not purchase at a higher price or
sell at a lower price in connection with transactions effected with a dealer,
acting as principal, who furnishes research services to the Fund than would
be the case if no weight were given by the Fund to the dealer's furnishing of
such services. During the fiscal period ended May 31, 1997, the Fund directed
the payment of $160,129 in brokerage commissions in connection with
transactions in the aggregate amount of $117,414,162 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.
25
<PAGE>
Pursuant to an order of the Securities and Exchange Commission, the Fund
may effect principal transactions in certain money market instruments with
DWR. The Fund will limit its transactions with DWR to U.S. Government and
Government Agency Securities, Bank Money Instruments (i.e., Certificates of
Deposit and Bankers' Acceptances) and Commercial Paper. Such transactions
will be effected with DWR only when the price available from DWR is better
than that available from other dealers.
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. During the fiscal period ended May
31, 1997, the Fund paid a total of $43,270 in brokerage commissions to DWR.
During the period ended May 31, 1997, the brokerage commissions paid to DWR
represented approximately 20.70% of the total brokerage commissions paid by
the Fund during the year and were paid on account of transactions having an
aggregate dollar value equal to approximately 30.03% of the aggregate dollar
value of all portfolio transactions of the Fund during the year for which
commissions were paid. 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 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 Board of Trustees of the Fund including a majority of the Trustees who
are not, and were not at the time they voted, interested persons of the Fund,
as defined in the Act ( the "Independent Trustees"), approved, at their
meeting held on June 30, 1997, the current Distribution Agreement appointing
the Distributor as exclusive distributor of the Fund's shares and providing
for the Distributor to bear distribution expenses not borne by the Fund. By
its terms, the Distribution Agreement has an initial term ending April 30,
1998, and will remain in effect from year to year thereafter if approved by
the Board.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to
account executives. The Distributor also pays certain expenses in connection
with the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears
the costs of initial typesetting, printing and distribution of prospectuses
and supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal securities laws and pays
filing fees in accordance with state securities laws. The Fund and the
Distributor have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment
or mistake of law or for any act or omission or for any losses sustained by
the Fund or its shareholders.
26
<PAGE>
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan" ) pursuant to which each Class other than Class D, pays
the Distributor compensation accrued daily and payable monthly at the
following annual rates: 0.25%, 1.0% and 1.0% of the average daily net assets
of Class A, Class B and Class C, respectively. The Distributor 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"). The
Distributor has informed the Fund that it and/or DWR received approximately
$47,226 in contingent deferred sales charges for the fiscal period ended May
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 of Distribution equal to 0.25% of such Class's average
daily net assets are currently 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 vote of the Trustees of the Fund on December 3,
1996 at a meeting of the Trustees called for the purpose of voting on such
Plan. The vote included the vote of a majority of the Trustees of the Fund
who are not "interested persons" of the Fund (as defined in the Act) and who
have no direct or indirect financial interest in the operation of the Plan
(the "Independent 12b-1 Trustees"). In making their decision to adopt the
Plan, the Trustees requested from the Distributor and received such
information as they deemed necessary to make an informed determination as to
whether or not adoption of the Plan was in the best interests of the
shareholders of the Fund. After due consideration of the information
received, the Trustees, including the Independent 12b-1 Trustees, determined
that adoption of the Plan would benefit the shareholders of the Fund.
InterCapital, as then sole shareholder of the Fund, approved the Plan on
December 10, 1996, whereupon the Plan went into effect. 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 will receive
and review promptly after the end of each fiscal quarter a written report
provided by the Distributor of the amounts expended by the Distributor under
the Plan and the purpose for which such expenditures were made. The Fund
accrued amounts payable to the Distributor under the Plan, during the fiscal
period ended May 31, 1997, of $408,650. This amount is equal to 1.0% of the
Fund's average daily net assets for the fiscal period. This amount is treated
by the Fund as an expense in the year it is accrued. This amount represents
amounts paid by Class B only; there were no Class A or Class C shares
outstanding on such date.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method, the Fund offers four
Classes of shares, each with a different distribution arrangement as set
forth in the Prospectus.
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value
of the respective accounts for which they are the account executives or
dealers of record in all cases. On orders of $1 million or more (for which no
sales charge was paid) or net asset value purchases by 401(k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal
Revenue Code for which Dean Witter Trust Company ("DWTC") or Dean Witter
Trust FSB ("DWTFSB") serves as Trustee or the 401(k) Support Services Group
of DWR serves as recordkeeper, the Investment Manager compensates DWR's
account executives by paying them, from its own funds, a gross sales credit
of 1.0% of the amount sold.
27
<PAGE>
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 DWTC or DWTFSB serves as
Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper,
and which plans are opened on or after July 28, 1997, DWR compensates its
account executives by paying them, from its own funds, a gross sales credit
of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value
of the respective accounts for which they are the account executives of
record.
With respect to Class D shares other than shares held by participants in
the InterCapital mutual fund asset allocation program, the Investment Manager
compensates DWR's account executives by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of
up to 1.0% of the amount sold. There is a chargeback of 100% of the amount
paid if the Class D shares are redeemed in the first year and a chargeback of
50% of the amount paid if the Class D shares are 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 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 shares sales. Payments
may also be made with respect to distribution expenses incurred in connection
with the distribution of shares, including personal services to shareholders
with respect to holdings of such shares, of an investment company whose
assets are acquired by the Fund in a tax-free reorganization. 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 its distribution costs for this purpose.
The broker's call rate is the interest rate charged to securities brokers on
loans secured by exchange-listed securities.
The Fund paid 100% of the $408,650 accrued under the Plan for the fiscal
period ended May 31, 1997 to the Distributor. The Distributor and DWR
estimate that they have spent, pursuant to the Plan, $9,776,371 on behalf of
the Fund since the inception of the Plan. It is estimated that this amount
was spent in approximately the following ways: (i) 11.24%
($1,099,024)--advertising and promotional expenses; (ii) 0.95%
($93,190)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 87.81% ($8,584,157)--other expenses, including the
gross sales credit and the carrying charge, of which 1.23% ($105,257)
represents carrying charges, 39.90% ($3,425,476) represents
28
<PAGE>
commission credits to DWR branch offices for payments of commissions to
account executives and 58.87% ($5,053,424) represents overhead and other
branch office distribution-related expenses. These amounts represent amounts
paid by Class B only; there were no Class A or Class C shares outstanding on
such date.
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.
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 $9,325,249 as of May 31, 1997. 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 distribution expenses in excess of payments made under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such
expenses. Any cumulative expenses incurred, but not yet recovered through
distribution fees or contingent deferred sales charges, may or may not be
recovered through future distribution fees or contingent deferred sales
charges.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or
indirect financial interest in the operation of the Plan except to the extent
that the Distributor, InterCapital, DWSC and DWR or certain of their
employees may be deemed to have such an interest as a result of benefits
derived from the successful operation of the Plan or as a result of receiving
a portion of the amounts expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending April 30, 1997 and
will remain in effect from year to year thereafter, provided such continuance
is approved annually by a vote of the Trustees in the manner described above.
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
29
<PAGE>
Plan, the Trustees considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated;
(2) the benefits the Fund had obtained, was obtaining and would be likely to
obtain under the Plan; and (3) what services had been provided and were
continuing to be provided under the Plan to the Fund and its shareholders.
Based upon their review, the Trustees of the Fund, including each of the
Independent 12b-1 Trustees, determined that continuation of the Plan would be
in the best interest of the Fund and would have a reasonable likelihood of
continuing to benefit the Fund and its shareholders. In the Trustees'
quarterly review of the Plan, they will consider its continued
appropriateness and the level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of
the affected Class or Classes of the Fund, and all material amendments of the
Plan must also be approved by the Trustees in the manner described above. The
Plan may be terminated at any time, without payment of any penalty, by vote
of a majority of the Independent 12b-1 Trustees or by a vote of a majority of
the outstanding voting securities of the Fund (as defined in the Act) or not
more than thirty days' written notice to any other party to the Plan. So long
as the Plan is in effect, the election and nomination of Independent Trustees
shall be committed to the discretion of the Independent 12b-1 Trustees.
DETERMINATION OF NET ASSET VALUE
- -----------------------------------------------------------------------------
As stated in the Prospectus, short-term securities with remaining
maturities of sixty days or less at the time of purchase are valued at
amortized cost, unless the Trustees determine such does not reflect the
securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt
securities will be valued on a mark-to-market basis until such time as they
reach a remaining maturity of sixty days, whereupon they will be valued at
amortized cost using their value on the 61st day unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. All other securities and other assets are valued at their fair
value as determined in good faith under procedures established by and under
the supervision of the Trustees.
The net asset value per share for each Class of shares of the Fund is
determined once daily at 4:00 p.m. New York time (or, on days when the New
York Stock Exchange closes prior to 4:00 p.m., at such earlier time), on each
day that the New York Stock Exchange is open. The New York Stock Exchange
currently observes the following holidays: New Year's Day, Reverend Dr.
Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
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.
30
<PAGE>
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the selected broker-dealer or
shareholder when such an order is placed by mail. The reduced sales charge
will not be granted if: (a) such notification is not furnished at the time of
the order; or (b) a review of the records of the Distributor or Dean Witter
Trust Company (the "Transfer Agent") fails to confirm the investor's
represented holdings.
Letter of Intent. As discussed in the Prospectus, reduced sales charges
are available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment
goal to be achieved by any number of purchases over a thirteen-month period.
Each purchase of Class A shares made during the period will receive the
reduced sales commission applicable to the amount represented by the goal, as
if it were a single purchase. A number of shares equal in value to 5% of the
dollar amount of the Letter of Intent will be held in escrow by the Transfer
Agent, in the name of the shareholder. The initial purchase under a Letter of
Intent must be equal to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to
pay the difference between the sales charge otherwise applicable to the
purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the
Distributor is authorized by the shareholder to liquidate a sufficient number
of his or her escrowed shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level,
the sales charge on the entire amount of the purchase that results in passing
that level and on subsequent purchases will be subject to further reduced
sales charges in the same manner as set forth above under "Right of
Accumulation," but there will be no retroactive reduction of sales charges on
previous purchases. For the purpose of determining whether the investor is
entitled to a further reduced sales charge applicable to purchases at or
above a sales charge level which exceeds the stated goal of a Letter of
Intent, the cumulative current net asset value of any shares owned by the
investor in any other Dean Witter Funds held by the shareholder which were
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Dean Witter Funds acquired in exchange for those
shares, and including in each case shares acquired through reinvestment of
dividends and distributions) will be added to the cost or net asset value of
shares of the Fund owned by the investor. However, shares of "Exchange Funds"
(see "Shareholder Services--Exchange Privilege") and the purchase of shares
of other Dean Witter Funds will not be included in determining whether the
stated goal of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction.
The 5% escrow and minimum purchase requirements will be applicable to the new
stated goal. Investors electing to purchase shares of the Fund pursuant to a
Letter of Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to
a CDSC payable upon most redemptions within six years after purchase. As
stated in the Prospectus, a CDSC will be imposed on any redemption by an
investor if after such redemption the current value of the investor's Class B
shares of the Fund is less than the dollar amount of all payments by the
shareholder for the purchase of Class B shares during the preceding six years
(or, in the case of shares held by certain employer-sponsored benefit plans,
three years). However, no CDSC will be imposed to the extent that the net
asset value of the shares redeemed does not exceed: (a) the current net asset
value of shares purchased more than six years (or, in the case of shares held
by certain employer-sponsored benefit plans, three years) prior to the
redemption, plus (b) the current net asset value of shares purchased through
reinvestment of
31
<PAGE>
dividends or distributions of the Fund or another Dean Witter Fund (see
"Shareholder Services--Targeted Dividends"), plus (c) the current net asset
value of shares acquired in exchange for (i) shares of Dean Witter front-end
sales charge funds, or (ii) shares of other Dean Witter Funds for which
shares of front-end sales charge funds have been exchanged (see "Shareholder
Services--Exchange Privilege"), plus (d) increases in the net asset value of
the investor's shares above the total amount of payments for the purchase of
Fund shares made during the preceding six (three) years. The CDSC will be
paid to the Distributor.
In determining the applicability of the CDSC to each redemption, the
amount which represents an increase in the net asset value of the investor's
shares above the amount of the total payments for the purchase of shares
within the last six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) will be redeemed first. In the
event the redemption amount exceeds such increase in value, the next portion
of the amount redeemed will be the amount which represents the net asset
value of the investor's shares purchased more than six (three) years prior to
the redemption and/or shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of Dean Witter
front-end sales charge funds, or for shares of other Dean Witter funds for
which shares of front-end sales charge funds have been exchanged. A portion
of the amount redeemed which exceeds an amount which represents both such
increase in value and the value of shares purchased more than six years (or,
in the case of shares held by certain employer-sponsored benefit plans, three
years) prior to the redemption and/or shares purchased through reinvestment
of dividends or distributions and/or shares acquired in the above-described
exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number
of years from the time of any payment for the purchase of shares, all
payments made during a month will be aggregated and deemed to have been made
on the last day of the month. The following table sets forth the rates of the
CDSC applicable to most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- --------------------------- ------------------------
<S> <C>
First ...................... 5.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 2.0%
Fifth ...................... 2.0%
Sixth ...................... 1.0%
Seventh and thereafter .... None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund held by 401(k) plans or other employer-sponsored plans
qualified under Section 401(a) of the Internal Revenue Code for which DWTC or
DWTFSB serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper and whose accounts are opened on or after July 28, 1997:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ------------------------- ------------------------
<S> <C>
First .................... 2.0%
Second ................... 2.0%
Third .................... 1.0%
Fourth and thereafter .... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year or three-year period. This will result in any such
CDSC being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years
(or, in the case of shares
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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
- -----------------------------------------------------------------------------
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 applicable Class of
the Fund, unless the shareholder requests that they be paid in cash. Each
purchase of shares of the Fund is made upon the condition that the Transfer
Agent is thereby automatically appointed as agent of the investor to receive
all dividends and capital gains distributions on shares owned by the
investor. Such dividends and distributions will be paid, at the net asset
value per share, in shares of the applicable Class of the Fund (or in cash if
the shareholder so requests) as of the close of business on the record date.
At any time an investor may request the Transfer Agent, in writing, to have
subsequent dividends and/or capital gains distributions paid to him or her in
cash rather than shares. To assure sufficient time to process the change,
such request should be received by the Transfer Agent at least five business
days prior to the record date of the dividend or distribution. In the case of
recently purchased shares for which registration instructions have not been
received on the record date, cash payments will be made to DWR or other
selected broker-dealer, and will be forwarded to the shareholder, upon the
receipt of proper instructions.
Targeted Dividends (Service Mark) . In states where it is legally
permissible, shareholders may also have all income dividends and capital
gains distributions automatically invested in shares of any Class of an
open-end Dean Witter Fund other than Dean Witter Financial Services Trust or
in another Class of Dean Witter Financial Services Trust. Such investment
will be made as described above for automatic investment in shares of the
Fund, at the net asset value per share of the selected Dean Witter Fund as of
the close of business on the payment date of the dividend or distribution and
will begin to earn dividends, if any, in the selected Dean Witter Fund the
next business day. To participate in the Targeted Dividends program,
shareholders should contact their DWR or other selected broker-dealer account
executive or the Transfer Agent. Shareholders of the Fund must be
shareholders of the 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
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<PAGE>
through EasyInvest will be added to the shareholder's existing account at the
net asset value calculated the same business day the transfer of funds is
effected. For further information or to subscribe to EasyInvest, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
Investment of Dividends or Distributions Received in Cash. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares
of the applicable Class at net asset value, without the imposition of a CDSC
upon redemption, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. If the shareholder returns the
proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset
value per share next determined after receipt of the check or 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 in the application. The
shares will be redeemed at their net asset value determined, at the
shareholder's option, on the tenth or twenty-fifth day (or next following
business day) of the relevant month or quarter and normally a check for the
proceeds will be mailed by the Transfer Agent, or amounts credited to a
shareholder's DWR brokerage account, within five business days after the date
of redemption. The Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net
investment income and net capital gains, the share holder's original
investment will be correspondingly reduced and ultimately exhausted. Each
withdrawal constitutes a redemption of shares and any gain or loss realized
must be recognized for federal income tax purposes. Although the shareholder
may make additional investments of $2,500 or more under the Withdrawal Plan,
withdrawals made concurrently with purchases of additional shares may be
inadvisable because of sales charges which may be applicable to purchases or
redemptions of shares (see "Purchase of Fund Shares").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the
account must send complete written instructions to the Transfer Agent to
enroll in the Withdrawal Plan. The shareholder's signature on such
instructions must be guaranteed by an eligible guarantor acceptable to the
Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is such an eligible
guarantor). A shareholder may, at any time, change the amount and interval of
withdrawal payments through his or her Account Executive or by written
notification to the Transfer Agent. In addition, the party and/or the address
to which checks are mailed may be changed by written notification to the
Transfer Agent, with signature guarantees required in the manner described
above. The shareholder may also terminate the Withdrawal Plan at any time by
written notice to the Transfer Agent. In the event of such termination, the
account will be continued as a regular shareholder investment account. The
shareholder may also redeem all or part of the shares held in the Withdrawal
Plan account (see "Redemptions and Repurchases" in the Prospectus) at any
time. Shareholders wishing to enroll in the Withdrawal Plan should contact
their account executive or the Transfer Agent.
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<PAGE>
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 Financial Services Trust, and
indicating the selected Class, directly to the Fund's Transfer Agent. In the
case of Class A shares, after deduction of any applicable sales charge, the
balance will be applied to the purchase of Fund shares, and, in the case of
shares of the other Classes, the entire amount will be applied to the
purchase of Fund shares, at the net asset value per share next computed after
receipt of the check or purchase payment by the Transfer Agent. The shares so
purchased will be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of each Class of
shares of the Fund may exchange their shares for shares of the same Class of
any other Dean Witter Multi-Class Fund without the imposition of an 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. 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
35
<PAGE>
shareholder was invested in a Dean Witter Multi-Class Fund or in a CDSC Fund.
In the case 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 another CDSC Fund, or 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.
Shares of Dean Witter American Value Fund acquired prior to April 30, 1984,
shares of Dean Witter Dividend Growth Securities Inc. and Dean Witter Natural
Resource Development Securities Inc. acquired prior to July 2, 1984, and
shares of Dean Witter Strategist Fund acquired prior to November 8, 1989 are
also considered Free Shares and will be the first Free Shares to be
exchanged. After an exchange, all dividends earned on shares in an Exchange
Fund will be considered Free Shares. If the exchanged amount exceeds the
value of such Free Shares, an exchange is made, on a block-by-block basis, of
non-Free Shares held for the longest period of time (except that, 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 the lower CDSC rate
will be exchanged prior to the shares of that block that are subject to a
higher CDSC rate). Shares equal to any appreciation in the value of non-Free
Shares exchanged will be treated as Free Shares, and the amount of the
purchase payments for the non-Free Shares of the fund exchanged into will be
equal to the lesser of (a) the purchase payments for, or (b) the current net
asset value of, the exchanged non-Free Shares. If an exchange between funds
would result in exchange of only part of a particular block of non-Free
Shares, then shares equal to any appreciation in the value of the block (up
to the amount of the exchange) will be treated as Free Shares and exchanged
first, and the purchase payment for that block will be allocated on a pro
rata basis between the non-Free Shares of that block to be retained and the
non-Free Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase
payment for such shares, and the amount of purchase payment for the exchanged
non-Free Shares will be equal to the lesser of (a) the prorated amount of the
purchase payment for, or (b) the current net asset value of, those exchanged
non-Free Shares. Based upon the procedures described in the Prospectus under
the caption "Purchase of Fund Shares," any applicable CDSC will be imposed
upon the ultimate redemption of shares of any fund, regardless of the number
of exchanges since those shares were originally purchased.
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
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$5,000 for Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily
Income Trust, Dean Witter California Tax-Free Daily Income Trust and Dean
Witter New York Municipal Money Market Trust although those funds may, at
their discretion, accept initial investments of as low as $1,000. The minimum
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 for all other Dean Witter Funds for
which the Exchange Privilege is available is $1,000.) Upon exchange into an
Exchange Fund, the shares of that fund will be held in a special Exchange
Privilege Account separately from accounts of those shareholders who have
acquired their shares directly from that fund. As a result, certain services
normally available to shareholders of 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.
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") 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),
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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.
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.
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
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 and state 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 and state personal income tax purposes but
will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares of any Class presented for repurchase or
redemption will be made by check within seven days after receipt by the
Transfer Agent of the certificate and/or written request in good order. The
term good order means that the share certificate, if any, and request for
redemption are properly signed, accompanied by any documentation required by
the Transfer Agent, and bear signature guarantees when required by the Fund
or Transfer Agent. Such payment may be postponed or the right of redemption
suspended at times (a) when the New York Stock Exchange is closed for other
than customary weekends and holidays, (b) when trading on that Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (d) during any other period when the Securities and Exchange
Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to
whether the conditions prescribed in (b) or (c) exist. If the shares to be
redeemed have recently been purchased by check, payment of the redemption
proceeds may be delayed for the minimum time needed to verify that the check
used for investment has been honored (not more than fifteen days from the
time of receipt of the check by the Transfer Agent). Shareholders maintaining
margin accounts with DWR or another selected broker-dealer are referred to
their account executive regarding restrictions on redemption of shares of the
Fund pledged in the margin account.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
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As discussed in the Prospectus under "Dividends, Distributions and Taxes",
the Fund will determine either to distribute or to retain all or part of any
net long-term capital gains in any year for reinvestment. If any such gains
are retained, the Fund will pay federal income tax thereon, and shareholders
at year-end will be able to claim their share of the tax paid by the Fund as
a credit against their individual federal income tax. Shareholders will
increase their tax basis of Fund shares owned by an amount equal, under
current law, to 65% of the amount of undistributed capital gains.
The Fund, however, intends to distribute substantially all of its net
investment income and net capital gains to shareholders and otherwise qualify
as a regulated investment company under Subchapter M of the Internal Revenue
Code. It is not expected that the Fund will be required to pay any federal
income tax. Shareholders will normally have to pay federal income taxes, and
any state income taxes, on the dividends and distributions they receive from
the Fund. Such dividends and distributions, to the extent that they are
derived from the net investment income or net short-term capital gains, are
taxable to the shareholder as ordinary income regardless of whether the
shareholder receives such payments in additional shares or in cash. Any
dividends declared in the last quarter of any calendar year which are paid in
the following year prior to February 1 will be deemed received by the
shareholder in the prior calendar year. Dividend payments will be eligible
for the federal dividends received deduction available to the Fund's
corporate shareholders only to the extent the aggregate dividends received by
the Fund would be eligible for the deduction if the Fund were the shareholder
claiming the dividends received deduction. In this regard, a 46-day holding
period generally must be met by the Fund and the shareholder.
Gains or losses on sales of securities by the Fund will be long-term
capital gains or losses if the securities have a tax holding period of more
than twelve months. Gains or losses on the sale of securities with a tax
holding period of twelve months or less will be short-term capital gains or
losses.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes, including information as to the portion taxable as ordinary income,
the portion taxable as long-term capital gains, and the amount of dividends
eligible for the Federal dividends received deduction available to
corporations. To avoid being subject to a 31% Federal backup withholding tax
on taxable dividends, capital gains distributions and the proceeds of
redemptions and repurchases, shareholders' taxpayer identification numbers
must be furnished and certified as to their accuracy.
Under current federal tax law, the Fund will receive net investment income
in the form of interest by virtue of holding Treasury bills, notes and bonds,
and will recognize income attributable to it from holding zero coupon
Treasury securities. Current federal tax law requires that a holder (such as
the Fund) of a zero coupon security accrue a portion of the discount at which
the security was purchased as income each year even though the Fund receives
no interest payment in cash on the security during the year. As an investment
company, the Fund must pay out substantially all of its net investment income
each year. Accordingly, the Fund, to the extent it invests in zero coupon
Treasury securities, may be required to pay out as an income distribution
each year an amount which is greater than the total amount of cash receipts
of interest the Fund actually received. Such distributions will be made from
the available cash of the Fund or by liquidation of portfolio securities if
necessary. If a distribution of cash necessitates the liquidation of
portfolio securities, the Investment Manager will select which securities to
sell. The Fund may realize a gain or loss from such sales. In the event the
Fund realizes net capital gains from such transactions, its shareholders may
receive a larger capital gain distribution, if any, than they would in the
absence of such transactions.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value
of the shareholder's stock in that company by the exact amount of the
dividend or capital gains distribution. Furthermore, capital gains
distributions and some portion of the dividends are subject to federal income
taxes. If the net asset value of the shares should be reduced below a
shareholder's cost as a result of the payment of dividends or the
distribution
39
<PAGE>
of realized long-term capital gains, such payment or distribution would be in
part a return of capital but nonetheless would be taxable to the shareholder.
Therefore, an investor should consider the tax implications of purchasing
Fund shares immediately prior to a distribution record date.
Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. 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. For periods of less than one year,
the Fund quotes its total return on a non-annualized basis. The average total
return of the Fund for the period February 26, 1997 through May 31, 1997 was
- -4.50%. This return is for Class B only; there were no other Classes of
shares outstanding on such date.
In addition, the Fund may compute its aggregate total return for each
Class for specified periods by determining the aggregate percentage rate
which will result in the ending value of a hypothetical $1,000 investment
made at the beginning of the period. For the purpose of this calculation, it
is assumed that all dividends and distributions are reinvested. The formula
for computing aggregate total return involves a percentage obtained by
dividing the ending value (without reduction for any sales charge) by the
initial $1,000 investment and subtracting 1 from the result. Based on the
foregoing calculation, the Fund's total return for the period February 26,
1997 through May 31, 1997 was 0.50%. This return is for Class B only; there
were no other Classes of shares outstanding on such date.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for
Class A or the deduction of the CDSC for each of Class B and Class C which,
if reflected, would reduce the performance quotes. For example, the total
return of the Fund may be calculated in the manner described above, but
without deduction of any sales charge.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1
to the Fund's aggregate total return to date (expressed as a decimal and
without taking into account the effect of any applicable CDSC) and
multiplying by $9,475, $48,000 and $97,000 in the case of Class A
(investments of $10,000, $50,000 and $100,000 adjusted for the initial sales
charge) or by $10,000, $50,000 and $100,000 in the case of each of Class B,
Class C and Class D, as the case may be. Investments of $10,000, $50,000 and
$100,000 in the Fund at inception would have grown to $10,050, $50,250 and
$100,500, respectively, at May 31, 1997. This information is for Class B
only; there were no other Classes of shares outstanding on such date.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent
organizations.
40
<PAGE>
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. On that date, Wayne E. Hedien
was also elected as a Trustee of the Fund, with his term to commence on
September 1, 1997. The Trustees themselves have the power to alter the number
and the terms of office of the Trustees (as provided for in the Declaration
of Trust), and they may at any time lengthen or shorten their own terms or
make their terms of unlimited duration and appoint their own successors,
provided that always at least a majority of the Trustees has been elected by
the shareholders of the Fund. Under certain circumstances the Trustees may be
removed by action of the Trustees. The shareholders also have the right under
certain circumstances to remove the Trustees. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of
the shares voting can, if they choose, elect all Trustees being selected,
while the holders of the remaining shares would be unable to elect any
Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series. 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 Bank of New York, 90 Washington Street, New York, New York 10286 is
the Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and
Dividend Disbursing Agent for payment of dividends and distributions on Fund
shares and Agent for shareholders under various investment plans described
herein. Dean Witter Trust Company is an affiliate of Dean Witter InterCapital
Inc., the Fund's Investment Manager and Dean Witter Distributors Inc., the
Fund's Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean
Witter Trust Company's responsibilities include maintaining shareholder
accounts, disbursing cash dividends and reinvesting dividends, processing
account registration changes, handling purchase and redemption transactions,
mailing prospectuses and reports, mailing and tabulating proxies, processing
share certificate transactions, and maintaining shareholder records and
lists. For these services Dean Witter Trust Company receives a per
shareholder account fee from the Fund.
INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------------
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the independent accountants of the Fund. The independent
accountants are responsible for auditing the annual financial statements of
the Fund.
41
<PAGE>
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 May 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- -----------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- -----------------------------------------------------------------------------
The financial statements of the Fund included in the Prospectus and
incorporated by reference in this Statement of Additional Information have
been so included and incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
REGISTRATION STATEMENT
- -----------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
42
<PAGE>
APPENDIX--RATINGS OF CORPORATE DEBT INSTRUMENTS
- -----------------------------------------------------------------------------
Moody's Investors Service Inc. ("Moody's")
Bond Ratings
<TABLE>
<CAPTION>
<S> <C>
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may
be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations; i.e., they are neither highly protected
nor poorly secured. Interest payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as
well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as
well assured. Often the protection of interest and principal payments may be very moderate, and therefore
not well safeguarded during both good and bad times in the future. Uncertainty of position characterizes
bonds in this class.
B Bonds which are rated B generally lack characteristics of a desirable investment. Assurance of interest
and principal payments or of maintenance of other terms of the contract over any long period of time may
be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements
of danger with respect to principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative in a high degree. Such issues are often
in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
</TABLE>
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and a modifier 3 indicates that the issue ranks in the lower end if
its generic rating category.
43
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess
of nine months. The ratings apply to Municipal Commercial Paper as well as
taxable Commercial Paper. Moody's employs the following three designations,
all judged to be investment grade, to indicate the relative repayment
capacity of rated issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3
have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers,
or lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and
(3) protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings
may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
<TABLE>
<CAPTION>
<S> <C>
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the highest-rated
issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category
than for debt in higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated "BB" has less near-term vulnerability to default than other speculative grade debt. However,
it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity or willingness to pay interest and repay principal.
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.
44
<PAGE>
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.
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 the major ratings categories.
</TABLE>
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to
purchase or sell a security. The ratings are based upon current information
furnished by the issuer or obtained by 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. Ratings are applicable to both taxable and tax-exempt
commercial paper. The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the
designation 1, 2, and 3 to indicate the relative degree of safety.
<TABLE>
<CAPTION>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is strong. However, the relative
degree of safety is not as overwhelming as for issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying this designation are, however,
somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying
the higher designations.
</TABLE>
45
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial statements and schedules, included
in Prospectus (Part A):
Page in
Prospectus
----------
Financial highlights for the period February 26,
1997 through May 31, 1997......................... 7
Portfolio of Investments at May 31, 1997.......... 36
Statement of Assets and Liabilities at May
31, 1997.......................................... 39
Statement of Operations for the period February 26,
1997 through May 31, 1997......................... 40
Statement of Changes in Net Assets for the period
February 26, 1997 through May 31, 1997............ 41
Notes to Financial Statements..................... 42
(2) Financial statements included in the Statement of
Additional Information (Part B):
none
(3) Financial statements included in Part C:
None
(b) Exhibits:
--------
1. Form of Instrument Establishing and Designating
Additional Classes.
5. Form of Investment Management Agreement between the
Registrant and Dean Witter InterCapital Inc.
6.(a) Form of Distribution Agreement between the Registrant
and Dean Witter Distributors Inc.
6.(b) Form of Multiple-Class Distribution Agreement between
the Registrant and Dean Witter Distributors Inc.
11. Consent of Independent Accountants.
1
<PAGE>
15. Form of Amended and Restated Plan of Distribution
pursuant to Rule 12b-1.
16. Schedule for Computation of Performance Quotations
27. Financial Data Schedule.
Other Form of Multiple-Class Plan pursuant to Rule 18f-3.
- --------------------
All other exhibits were previously filed and are hereby incorporated by
reference.
Item 25. Persons Controlled by or Under Common Control With Registrant.
None
Item 26. Number of Holders of Securities.
(1) (2)
Number of Record Holders
Title of Class at June 30, 1997
-------------- ----------------
Shares of Beneficial Interest 21,979
Item 27. Indemnification.
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the
Registrant's trustees, officers, employees and agents is permitted if it is
determined that they acted under the belief that their actions were in or not
opposed to the best interest of the Registrant, and, with respect to any
criminal proceeding, they had reasonable cause to believe their conduct was not
unlawful. In addition, indemnification is permitted only if it is determined
that the actions in question did not render them liable by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties
or by reason of reckless disregard of their obligations and duties to the
Registrant. Trustees, officers, employees and agents will be indemnified for
the expense of litigation if it is determined that they are entitled to
indemnification against any liability established in such litigation. The
Registrant may also advance money for these expenses provided that they give
their undertakings to repay the Registrant unless their conduct is later
determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the
Registrant shall be liable for any action or failure to act, except in the case
of bad faith, willful misfeasance, gross negligence or reckless disregard of
duties to the Registrant.
2
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer,
or controlling person of the Registrant in connection with the successful
defense of any action, suit or proceeding) is asserted against the Registrant
by such trustee, officer or controlling person in connection with the shares
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act, and will be governed by the
final adjudication of such issue.
The Registrant hereby undertakes that it will apply the
indemnification provision of its by-laws in a manner consistent with Release
11330 of the Securities and Exchange Commission under the Investment Company
Act of 1940, so long as the interpretation of Sections 17(h) and 17(i) of such
Act remains in effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for
which Registrant itself is not permitted to indemnify him.
Item 28. Business and Other Connections of Investment Adviser.
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment adviser. The following information is given
regarding officers of Dean Witter InterCapital Inc. InterCapital is a
wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co. The
principal address of the Dean Witter Funds is Two World Trade Center, New York,
New York 10048.
The term "Dean Witter Funds" used below refers to the following
registered investment companies:
Closed-End Investment Companies
(1) InterCapital Income Securities Inc.
(2) High Income Advantage Trust
3
<PAGE>
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) Municipal Income Trust
(6) Municipal Income Trust II
(7) Municipal Income Trust III
(8) Dean Witter Government Income Trust
(9) Municipal Premium Income Trust
(10) Municipal Income Opportunities Trust
(11) Municipal Income Opportunities Trust II
(12) Municipal Income Opportunities Trust III
(13) Prime Income Trust
(14) InterCapital Insured Municipal Bond Trust
(15) InterCapital Quality Municipal Income Trust
(16) InterCapital Quality Municipal Investment Trust
(17) InterCapital Insured Municipal Income Trust
(18) InterCapital California Insured Municipal Income Trust
(19) InterCapital Insured Municipal Trust
(20) InterCapital Quality Municipal Securities
(21) InterCapital New York Quality Municipal Securities
(22) InterCapital California Quality Municipal Securities
(23) InterCapital Insured California Municipal Securities
(24) InterCapital Insured Municipal Securities
Open-end Investment Companies:
(1) Dean Witter Short-Term Bond Fund
(2) Dean Witter Tax-Exempt Securities Trust
(3) Dean Witter Tax-Free Daily Income Trust
(4) Dean Witter Dividend Growth Securities Inc.
(5) Dean Witter Convertible Securities Trust
(6) Dean Witter Liquid Asset Fund Inc.
(7) Dean Witter Developing Growth Securities Trust
(8) Dean Witter Retirement Series
(9) Dean Witter Federal Securities Trust
(10) Dean Witter World Wide Investment Trust
(11) Dean Witter U.S. Government Securities Trust
(12) Dean Witter Select Municipal Reinvestment Fund
(13) Dean Witter High Yield Securities Inc.
(14) Dean Witter Intermediate Income Securities
(15) Dean Witter New York Tax-Free Income Fund
(16) Dean Witter California Tax-Free Income Fund
(17) Dean Witter Health Sciences Trust
(18) Dean Witter California Tax-Free Daily Income Trust
(19) Dean Witter Global Asset Allocation Fund
(20) Dean Witter American Value Fund
(21) Dean Witter Strategist Fund
(22) Dean Witter Utilities Fund
(23) Dean Witter World Wide Income Trust
(24) Dean Witter New York Municipal Money Market Trust
(25) Dean Witter Capital Growth Securities
(26) Dean Witter Precious Metals and Minerals Trust
(27) Dean Witter European Growth Fund Inc.
(28) Dean Witter Global Short-Term Income Fund Inc.
4
<PAGE>
(29) Dean Witter Pacific Growth Fund Inc.
(30) Dean Witter Multi-State Municipal Series Trust
(31) Dean Witter Short-Term U.S. Treasury Trust
(32) Dean Witter Diversified Income Trust
(33) Dean Witter U.S. Government Money Market Trust
(34) Dean Witter Global Dividend Growth Securities
(35) Active Assets California Tax-Free Trust
(36) Dean Witter Natural Resource Development Securities Inc.
(37) Active Assets Government Securities Trust
(38) Active Assets Money Trust
(39) Active Assets Tax-Free Trust
(40) Dean Witter Limited Term Municipal Trust
(41) Dean Witter Variable Investment Series
(42) Dean Witter Value-Added Market Series
(43) Dean Witter Global Utilities Fund
(44) Dean Witter High Income Securities
(45) Dean Witter National Municipal Trust
(46) Dean Witter International SmallCap Fund
(47) Dean Witter Mid-Cap Growth Fund
(48) Dean Witter Select Dimensions Investment Series
(49) Dean Witter Balanced Growth Fund
(50) Dean Witter Balanced Income Fund
(51) Dean Witter Hawaii Municipal Trust
(52) Dean Witter Capital Appreciation Fund
(53) Dean Witter Intermediate Term U.S. Treasury Trust
(54) Dean Witter Information Fund
(55) Dean Witter Japan Fund
(56) Dean Witter Income Builder Fund
(57) Dean Witter Special Value Fund
(58) Dean Witter Financial Services Trust
(59) Dean Witter Market Leader Trust
The term "TCW/DW Funds" refers to the following registered investment
companies:
Open-End Investment Companies
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10)TCW/DW Strategic Income Trust
Closed-End Investment Companies
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
5
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Charles A. Fiumefreddo Executive Vice President and Director of Dean
Chairman, Chief Witter Reynolds Inc. ("DWR"); Chairman, Chief
Executive Officer and Executive Officer and Director of Dean Witter
Director Distributors Inc. ("Distributors") and Dean
Witter Services Company Inc. ("DWSC"); Chairman
and Director of Dean Witter Trust Company ("DWTC");
Chairman, Director or Trustee, President and
Chief Executive Officer of the Dean Witter Funds
and Chairman, Chief Executive Officer and Trustee
of the TCW/DW Funds; Director and/or officer of
various Morgan Stanley, Dean Witter, Discover & Co.
("MSDWD") subsidiaries; Formerly Executive Vice
President and Director of Dean Witter, Discover & Co.
Philip J. Purcell Chairman, Chief Executive Officer and Director of
Director of MSDWD and DWR; Director of DWSC and Distributors;
Director or Trustee of the Dean Witter Funds;
Director and/or officer of various MSDWD
subsidiaries.
Richard M. DeMartini President and Chief Operating Officer of Dean Witter
Director Capital, a division of DWR; Director of DWR, DWSC,
Distributors and DWTC; Trustee of the TCW/DW Funds.
James F. Higgins President and Chief Operating Officer of Dean Witter
Director Financial; Director of DWR, DWSC, Distributors and
DWTC.
Thomas C. Schneider Executive Vice President and Chief Strategic
Executive Vice and Administrative Officer of MSDWD; Executive
President, Chief Vice President and Chief Financial Officer of
Financial Officer and DWSC and Distributors; Director of DWR,
Director DWSC and Distributors.
Christine A. Edwards Executive Vice President, Chief Legal Officer
Director and Secretary of MSDWD; Executive Vice
President, Secretary and Chief Legal Officer
of Distributors; Director of DWR, DWSC and
Distributors.
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of DWTC;
Vice President of the Dean Witter Funds and the
TCW/DW Funds.
6
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Mitchell M. Merin President and Chief Strategic Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Strategic Officer Executive Vice President and Director of DWTC;
Executive Vice President and Director of DWR;
Director of SPS Transaction Services, Inc. and
various other MSDWD subsidiaries.
John B. Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Joseph J. McAlinden
Executive Vice President
and Chief Investment Vice President of the Dean Witter Funds and
Officer Director of DWTC.
Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
Secretary and General President, Assistant Secretary and Assistant
Counsel General Counsel of Distributors; Vice President,
Secretary and General Counsel of the Dean Witter
Funds and the TCW/DW Funds.
Peter M. Avelar
Senior Vice President Vice President of various Dean Witter Funds.
Mark Bavoso
Senior Vice President Vice President of various Dean Witter Funds.
Richard Felegy
Senior Vice President
Edward F. Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone Senior Vice President of DWSC, Distributors
Senior Vice President and DWTC and Director of DWTC; Vice President
of the Dean Witter Funds and the TCW/DW Funds.
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
Kenton J. Hinchcliffe
Senior Vice President Vice President of various Dean Witter Funds.
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
Jenny Beth Jones Vice President of Dean Witter Special Value Fund.
Senior Vice President
7
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
Anita H. Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira N. Ross
Senior Vice President Vice President of various Dean Witter Funds.
Guy G. Rutherfurd, Jr. Vice President of Dean Witter Market Leader
Senior Vice President Trust.
Rafael Scolari Vice President of Prime Income Trust.
Senior Vice President
Rochelle G. Siegel
Senior Vice President Vice President of various Dean Witter Funds.
Jayne M. Stevlingston Vice President of various Dean Witter Funds.
Senior Vice President
Paul D. Vance
Senior Vice President Vice President of various Dean Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
Ronald J. Worobel
Senior Vice President Vice President of various Dean Witter Funds.
Douglas Brown
First Vice President
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC, Assistant Treasurer of Distributors;
and Assistant Treasurer and Chief Financial Officer of the
Treasurer Dean Witter Funds and the TCW/DW Funds.
Thomas Chronert
First Vice President
Rosalie Clough
First Vice President
8
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of DWSC; Assistant
and Assistant Secretary Secretary of the Dean Witter Funds and the TCW/DW
Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors;First Vice
and Controller President and Treasurer of DWTC.
David Johnson
First Vice President
Stanley Kapica
First Vice President
Robert Zimmerman
First Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds.
Kirk Balzer
Vice President Vice President of Various Dean Witter Funds.
Nancy Belza
Vice President
Dale Boettcher
Vice President
Joseph Cardwell
Vice President
Philip Casparius
Vice President
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
9
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Frank J. DeVito
Vice President Vice President of DWSC.
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
Michael Geringer
Vice President
Stephen Greenhut
Vice President
Peter W. Gurman
Vice President
Matthew Haynes Vice President of Dean Witter
Vice President Variable Investment Series
Peter Hermann
Vice President Vice President of various Dean Witter Funds
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
Christopher Jones
Vice President
James P. Kastberg
Vice President
Michelle Kaufman
Vice President Vice President of various Dean Witter Funds
Michael Knox
Vice President Vice President of various Dean Witter Funds
Paula LaCosta
Vice President Vice President of various Dean Witter Funds.
Thomas Lawlor
Vice President
10
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Gerard J. Lian
Vice President Vice President of various Dean Witter Funds.
Catherine Maniscalco Vice President of Dean Witter Natural
Vice President Resource Development Securities Inc.
Albert McGarity
Vice President
LouAnne D. McInnis Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
Mary Beth Mueller
Vice President
David Myers Vice President of Dean Witter Natural
Vice President Resource Development Securities Inc.
James Nash
Vice President
Richard Norris
Vice President
Carsten Otto Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
George Paoletti
Vice President
Anne Pickrell Vice President of Dean Witter Global Short-
Vice President Term Income Fund Inc.
Michael Roan
Vice President
Hugh Rose
Vice President
Robert Rossetti Vice President of Dean Witter Precious Metal and
Vice President Minerals Trust.
11
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Ruth Rossi Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Carl F. Sadler
Vice President
Peter Seeley Vice President of Dean Witter World
Vice President Wide Income Trust
Naomi Stein
Vice President
Kathleen H. Stromberg
Vice President Vice President of various Dean Witter Funds.
Marybeth Swisher
Vice President
Vinh Q. Tran
Vice President Vice President of various Dean Witter Funds.
Robert Vanden Assem
Vice President
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
Katherine Wickham
Vice President
Item 29. Principal Underwriters
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant.
Distributors is also the principal underwriter of the
following investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Global Asset Allocation
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
12
<PAGE>
(13) Active Assets Government Securities Trust
(14) Dean Witter Short-Term Bond Fund
(15) Dean Witter Mid-Cap Growth Fund
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Limited Term Municipal Trust
(22) Dean Witter Natural Resource Development Securities Inc.
(23) Dean Witter World Wide Income Trust
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Federal Securities Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Value-Added Market Series
(43) Dean Witter Global Utilities Fund
(44) Dean Witter High Income Securities
(45) Dean Witter National Municipal Trust
(46) Dean Witter International SmallCap Fund
(47) Dean Witter Balanced Growth Fund
(48) Dean Witter Balanced Income Fund
(49) Dean Witter Hawaii Municipal Trust
(50) Dean Witter Variable Investment Series
(51) Dean Witter Capital Appreciation Fund
(52) Dean Witter Intermediate Term U.S. Treasury Trust
(53) Dean Witter Information Fund
(54) Dean Witter Japan Fund
(55) Dean Witter Income Builder Fund
(56) Dean Witter Special Value Fund
(57) Dean Witter Financial Services Trust
(58) Dean Witter Market Leader Trust
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
13
<PAGE>
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income Trust
(b) The following information is given regarding directors and officers of
Distributors not listed in Item 28 above. The principal address of Distributors
is Two World Trade Center, New York, New York 10048. None of the following
persons has any position or office with the Registrant.
Positions and
Office with
Name Distributors
- ---- ------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
are maintained by the Investment Manager at its offices, except records
relating to holders of shares issued by the Registrant, which are maintained by
the Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. Management Services
Registrant is not a party to any such management-related service
contract.
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State
of New York on the 22nd day of July, 1997.
DEAN WITTER FINANCIAL SERVICES TRUST
By /s/ Barry Fink
----------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 1 has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 07/22/97
----------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 07/22/97
----------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 07/22/97
----------------------------
Barry Fink
Attorney-in-Fact
John R. Haire Michael E. Nugent
Michael Bozic Manuel H. Johnson
Edwin J. Garn John L. Schroeder
By /s/ David M. Butowsky 07/22/97
----------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
EXHIBIT INDEX
1. Form of Instrument Establishing and Designating
Additional Classes.
5. Form of Investment Management Agreement between the
Registrant and Dean Witter InterCapital Inc.
6.(a) Form of Distribution Agreement between the Registrant
and Dean Witter Distributors Inc.
6.(b) Form of Multiple-Class Distribution Agreement between
the Registrant and Dean Witter Distributors Inc.
11. Consent of Independent Accountants.
15. Form of Amended and Restated Plan of Distribution
pursuant to Rule 12b-1.
16. Schedule for Computation of Performance Quotations
27. Financial Data Schedule.
Other Form of Multiple-Class Plan pursuant to Rule 18f-3.
1
<PAGE>
CERTIFICATE
The undersigned hereby certifies that he is the Secretary of Dean
Witter Financial Services Trust (the "Trust"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, that annexed
hereto is an Instrument Establishing and Designating Additional Classes of
Shares of the Trust unanimously adopted by the Trustees of the Trust on June
30, 1997, as provided in Section 6.9(h) of the said Declaration, said
Instrument to take effect on July 28, 1997, and I do hereby further certify
that such Instrument has not been amended and is on the date hereof in full
force and effect.
Dated this 28th day of July, 1997.
-----------------------------
Barry Fink
Secretary
(SEAL)
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
INSTRUMENT ESTABLISHING AND DESIGNATING
ADDITIONAL CLASSES OF SHARES
WHEREAS, Dean Witter Financial Services Trust (the "Trust") was established by
the Declaration of Trust dated November 8, 1996, as amended from time to time
(the "Declaration"), under the laws of the Commonwealth of Massachusetts;
WHEREAS, Section 6.9(h) of the Declaration provides that the establishment and
designation of any additional class of shares shall be effective upon the
execution by a majority of the then Trustees of an instrument setting forth
such establishment and designation and the relative rights, preferences, voting
powers, restrictions, limitations as to dividends, qualifications, and terms
and conditions of such class, or as otherwise provided in such instrument,
which instrument shall have the status of an amendment to the Declaration; and
WHEREAS, the Trustees of the Trust have deemed it advisable to establish and
designate three additional classes of shares and to designate classes for the
existing shares held prior to July 28, 1997 ("Existing Class") as provided
herein.
NOW, THEREFORE, BE IT RESOLVED, pursuant to Section 6.9(h) of the Declaration,
there are hereby established and designated three additional classes of shares,
to be known as: Class A, Class C and Class D (the "Additional Classes"), each
of which shall be subject to the relative rights, preferences, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption set forth in the Declaration with respect to the
Existing Class, except to the extent the Dean Witter Funds Multiple Class Plan
Pursuant to Rule 18f-3 attached hereto as Exhibit A sets forth differences (i)
between each of the Additional Classes, or (ii) among each of the Existing
Class and the Additional Classes; and be it further
RESOLVED, pursuant to Section 6.9(h) of the Declaration, all shares of the
Trust held prior to July 28, 1997 are hereby designated as Class B shares of
the Trust. This instrument may be executed in more than one counterpart, each
of which shall be deemed an original, but all of which together shall
constitute one and the same document.
<PAGE>
IN WITNESS THEREOF, the undersigned, the Trustees of the Trust, have executed
this instrument this 30th day of June, 1997.
/s/ Michael Bozic /s/ Manuel H. Johnson
- ---------------------------------- ----------------------------------
Michael Bozic, as Trustee Manuel H. Johnson, as Trustee
and not individually and not individually
c/o Levitz Furniture Corp. c/o Johnson Smick International Inc.
6111 Broken Sound Parkway, N.W. 1133 Connecticut Avenue, N.W.
Boca Raton, FL 33487 Washington, D.C. 20036
/s/ Charles A. Fiumefreddo /s/ Michael E. Nugent
- ---------------------------------- ----------------------------------
Charles A. Fiumefreddo, as Trustee Michael E. Nugent, as Trustee
and not individually and not individually
Two World Trade Center c/o Triumph Capital, L.P.
New York, NY 10048 237 Park Avenue
New York, NY 10017
/s/ Edwin J. Garn /s/ Philip J. Purcell
- ---------------------------------- ----------------------------------
Edwin J. Garn, as Trustee Philip J. Purcell, as Trustee
and not individually and not individually
c/o Huntsman Chemical Corporation Two World Trade Center
500 Huntsman Way New York, NY 10048
Salt Lake City, UT 84111
/s/ John R. Haire /s/ John L. Schroeder
- ---------------------------------- ----------------------------------
John R. Haire, as Trustee John L. Schroeder, as Trustee
and not individually and not individually
Two World Trade Center c/o Gordon Altman Butowsky Weitzen
New York, NY 10048 Shalov & Wein
Counsel to the Independent Trustees
114 West 47th Street
New York, NY 10036
<PAGE>
STATE OF NEW YORK )
)ss:
COUNTY OF NEW YORK )
On this 30th day of June, 1997, MICHAEL BOZIC, CHARLES A. FIUMEFREDDO,
EDWIN J. GARN, JOHN R. HAIRE, MANUEL H. JOHNSON, MICHAEL E. NUGENT, PHILIP J.
PURCELL and JOHN L. SCHROEDER, known to me to be the individuals described in
and who executed the foregoing instrument, personally appeared before me and
they severally acknowledged the foregoing instrument to be their free act and
deed.
/s/ Marilyn K. Cranney
------------------------------
Notary Public
My Commission expires:
MARILYN K. CRANNEY
NOTARY PUBLIC, STATE OF NEW YORK
NO. 24-4795538
QUALIFIED IN KINGS COUNTY
COMMISSION EXPIRES MAY 31, 1999
<PAGE>
EXHIBIT A
DEAN WITTER
FUNDS
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18F-3
INTRODUCTION
This plan (the "Plan") is adopted pursuant to Rule 18f-3(d) of the
Investment Company Act of 1940, as amended (the "1940 Act"), and will be
effective as of July 28, 1997. The Plan relates to shares of the open-end
investment companies to which Dean Witter InterCapital Inc. acts as
investment manager, that are listed on Schedule A, as may be amended from
time to time (each, a "Fund" and collectively, the "Funds"). The Funds are
distributed pursuant to a system (the "Multiple Class System") in which each
class of shares (each, a "Class" and collectively, the "Classes") of a Fund
represents a pro rata interest in the same portfolio of investments of the
Fund and differs only to the extent outlined below.
I. DISTRIBUTION ARRANGEMENTS
One or more Classes of shares of the Funds are offered for purchase by
investors with the sales load structures described below. In addition,
pursuant to Rule 12b-1 under the 1940 Act, the Funds have each adopted a Plan
of Distribution (the "12b-1 Plan") under which shares of certain Classes are
subject to the service and/or distribution fees ("12b-1 fees") described
below.
1. Class A Shares
Class A shares are offered with a front-end sales load ("FESL"). The
schedule of sales charges applicable to a Fund and the circumstances under
which the sales charges are subject to reduction are set forth in each Fund's
current prospectus. As stated in each Fund's current prospectus, Class A
shares may be purchased at net asset value (without a FESL): (i) in the case
of certain large purchases of such shares; and (ii) by certain limited
categories of investors, in each case, under the circumstances and conditions
set forth in each Fund's current prospectus. Class A shares purchased at net
asset value may be subject to a contingent deferred sales charge ("CDSC") on
redemptions made within one year of purchase. Further information relating to
the CDSC, including the manner in which it is calculated, is set forth in
paragraph 6 below. Class A shares are also subject to payments under each
Fund's 12b-1 Plan to reimburse Dean Witter Distributors Inc., Dean Witter
Reynolds Inc. ("DWR"), its affiliates and other broker-dealers for
distribution expenses incurred by them specifically on behalf of the Class,
assessed at an annual rate of up to 0.25% of average daily net assets. The
entire amount of the 12b-1 fee represents a service fee within the meaning of
National Association of Securities Dealers, Inc. ("NASD") guidelines.
2. Class B Shares
Class B shares are offered without a FESL, but will in most cases be
subject to a six-year declining CDSC which is calculated in the manner set
forth in paragraph 6 below. Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a three-year declining CDSC
which is calculated in the manner set forth in paragraph 6 below. The
schedule of CDSC charges applicable to each Fund is set forth in each Fund's
current prospectus. With the exception of certain of the Funds which have a
different formula described below (Dean Witter American Value Fund, Dean
Witter Natural Resource Development Securities Inc., Dean Witter Strategist
Fund and Dean Witter Dividend Growth Securities
1
<PAGE>
Inc.) (1), Class B shares are also subject to a fee under each Fund's
respective 12b-1 Plan, assessed at the annual rate of up to 1.0% of either:
(a) the lesser of (i) the average daily aggregate gross sales of the Fund's
Class B shares since the inception of the Fund (not including reinvestment 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 (ii) the average
daily net assets of Class B; or (b) the average daily net assets of Class B.
A portion of the 12b-1 fee equal to up to 0.25% of the Fund's average daily
net assets is characterized as a service fee within the meaning of the NASD
guidelines and the remaining portion of the 12b-1 fee, if any, is
characterized as an asset-based sales charge. Also, Class B shares have a
conversion feature ("Conversion Feature") under which such shares convert to
Class A shares after a certain holding period. Details of the Conversion
Feature are set forth in Section IV below.
3. Class C Shares
Class C shares are offered without imposition of a FESL, but will in most
cases be subject to a CDSC of 1.0% on redemptions made within one year after
purchase. Further information relating to the CDSC is set forth in paragraph
6 below. In addition, Class C shares, under each Fund's 12b-1 Plan, are
subject to 12b-1 payments to reimburse Dean Witter Distributors Inc., DWR,
its affiliates and other broker-dealers for distribution expenses incurred by
them specifically on behalf of the Class, assessed at the annual rate of up
to 1.0% of the average daily net assets of the Class. A portion of the 12b-1
fee equal to up to 0.25% of the Fund's average daily net assets is
characterized as a service fee within the meaning of NASD guidelines. Unlike
Class B shares, Class C shares do not have the Conversion Feature.
4. Class D Shares
Class D shares are offered without imposition of a FESL, CDSC or a 12b-1
fee for purchases of Fund shares by (i) investors meeting an initial minimum
investment requirement and (ii) certain other limited categories of
investors, in each case, as may be approved by the Boards of
Directors/Trustees of the Funds and as disclosed in each Fund's current
prospectus.
5. Additional Classes of Shares
The Boards of Directors/Trustees of the Funds have the authority to create
additional Classes, or change existing Classes, from time to time, in
accordance with Rule 18f-3 under the 1940 Act.
6. Calculation of the CDSC
Any applicable CDSC is calculated based upon the lesser of net asset value
of the shares at the time of purchase or at the time of redemption. The CDSC
does not apply to amounts representing an increase in share value due to
capital appreciation and shares acquired through the reinvestment of
dividends or
- --------------
(1) The payments under the 12b-1 Plan for each of Dean Witter American Value
Fund, Dean Witter Natural Resource Development Securities Inc. and Dean
Witter Dividend Growth Securities Inc. are assessed 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's Plan (not including
reinvestment of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since
the Plan's inception upon which a contingent deferred sales charge 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
inception of the Plan. The payments under the 12b-1 Plan for the Dean Witter
Strategist Fund are assessed at the annual rate of: (i) 1% of the lesser of
(a) the average daily aggregate gross sales of the Fund's Class B shares
since the effectiveness of the first amendment of the Plan on November 8,
1989 (not including reinvestment of dividends or capital gains
distributions), less the average daily aggregate net asset value of the
Fund's Class B shares redeemed since the effectiveness of the first amended
Plan, upon which a contingent deferred sales charge 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 the effectiveness of the first
amended 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
effectiveness of the first amended Plan.
2
<PAGE>
capital gains distributions. The CDSC schedule applicable to a Fund and the
circumstances in which the CDSC is subject to waiver are set forth in each
Fund's prospectus.
II. EXPENSE ALLOCATIONS
Expenses incurred by a Fund are allocated among the various Classes of
shares pro rata based on the net assets of the Fund attributable to each
Class, except that 12b-1 fees relating to a particular Class are 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 Fund's Board of Directors/Trustees.
III. CLASS DESIGNATION
All shares of the Funds held prior to July 28, 1997 (other than the shares
held by certain employee benefit plans established by DWR and its affiliate,
SPS Transaction Services, Inc., shares of Funds offered with a FESL, and
shares of Dean Witter Balanced Growth Fund and Dean Witter Balanced Income
Fund) have been designated Class B shares. Shares held prior to July 28, 1997
by such employee benefit plans have been designated Class D shares. Shares
held prior to July 28, 1997 of Funds offered with a FESL have been designated
Class D shares. In addition, shares of Dean Witter American Value Fund
purchased prior to April 30, 1984, shares of Dean Witter Strategist Fund
purchased prior to November 8, 1989 and shares of Dean Witter Natural
Resource Development Securities Inc. and Dean Witter Dividend Growth
Securities Inc. purchased prior to July 2, 1984 (with respect to such shares
of each Fund, including such proportion of shares acquired through
reinvestment of dividends and capital gains distributions as the total number
of shares acquired prior to each of the preceding dates in this sentence
bears to the total number of shares purchased and owned by the shareholder of
that Fund) have been designated Class D shares. Shares of Dean Witter
Balanced Growth Fund and Dean Witter Balanced Income Fund held prior to July
28, 1997 have been designated Class C shares except that shares of Dean
Witter Balanced Growth Fund and Dean Witter Balanced Income Fund held prior
to July 28, 1997 that were acquired in exchange for shares of an investment
company offered with a CDSC have been designated Class B shares and those
that were acquired in exchange for shares of an investment company offered
with a FESL have been designated Class A shares.
IV. THE CONVERSION FEATURE
Class B shares held before May 1, 1997 will convert to Class A shares in
May, 2007, except that Class B shares which are purchased before July 28,
1997 by trusts for which Dean Witter Trust Company ("DWTC") or Dean Witter
Trust FSB ("DWTFSB") provides discretionary trustee services will convert to
Class A shares on or about August 29, 1997 (the CDSC will not be applicable
to such shares upon the conversion). In all other instances, Class B shares
of each Fund will automatically convert 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. Conversions will be effected once a month. The 10 year
period will be 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.
Except as set forth below, 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 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 (the "Code") and for which DWTC or DWTFSB serves as
Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper,
all Class B shares will convert to Class A shares on the conversion date of
the first shares of a Fund purchased by that plan. In the case of Class B
shares previously exchanged
3
<PAGE>
for shares of an "Exchange Fund" (as such term is defined in the prospectus
of each Fund), 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 Fund, the
holding period resumes on the last day of the month in which Class B shares
are reacquired.
Effectiveness of the Conversion Feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel to the effect that (i) the conversion of shares does not constitute a
taxable event under the 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 fees under the applicable Fund's 12b-1
Plan.
V. EXCHANGE PRIVILEGES
Shares of each Class may be exchanged for shares of the same Class of the
other Funds and for shares of certain other investment companies without the
imposition of an exchange fee as described in the prospectuses and statements
of additional information of the Funds. The exchange privilege of each Fund
may be terminated or revised at any time by the Fund upon such notice as may
be required by applicable regulatory agencies as described in each Fund's
prospectus.
VI. VOTING
Each Class shall have exclusive voting rights on any matter that relates
solely to its 12b-1 Plan, except that Class B shareholders will have the
right to vote on any proposed material increase in Class A's expenses,
including payments under the Class A 12b-1 Plan, if such proposal is
submitted separately to Class A shareholders. If the amount of expenses,
including payments under the Class A 12b-1 Plan, is increased materially
without the approval of Class B shareholders, the Fund will establish a new
Class A for Class B shareholders whose shares automatically convert on the
same terms as applied to Class A before the increase. In addition, each Class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one Class differ from the interests of any other
Class.
4
<PAGE>
DEAN WITTER FUNDS
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
SCHEDULE A
AT JULY 28, 1997
1) Dean Witter American Value Fund
2) Dean Witter Balanced Growth Fund
3) Dean Witter Balanced Income Fund
4) Dean Witter California Tax-Free Income Fund
5) Dean Witter Capital Appreciation Fund
6) Dean Witter Capital Growth Securities
7) Dean Witter Convertible Securities Trust
8) Dean Witter Developing Growth Securities Trust
9) Dean Witter Diversified Income Trust
10) Dean Witter Dividend Growth Securities Inc.
11) Dean Witter European Growth Fund Inc.
12) Dean Witter Federal Securities Trust
13) Dean Witter Financial Services Trust
14) Dean Witter Global Asset Allocation Fund
15) Dean Witter Global Dividend Growth Securities
16) Dean Witter Global Utilities Fund
17) Dean Witter Health Sciences Trust
18) Dean Witter High Yield Securities Inc.
19) Dean Witter Income Builder Fund
20) Dean Witter Information Fund
21) Dean Witter Intermediate Income Securities
22) Dean Witter International SmallCap Fund
23) Dean Witter Japan Fund
24) Dean Witter Managers' Select Fund
25) Dean Witter Market Leader Trust
26) Dean Witter Mid-Cap Growth Fund
27) Dean Witter Natural Resource Development Securities Inc.
28) Dean Witter New York Tax-Free Income Fund
29) Dean Witter Pacific Growth Fund Inc.
30) Dean Witter Precious Metals and Minerals Trust
31) Dean Witter Special Value Fund
32) Dean Witter Strategist Fund
33) Dean Witter Tax-Exempt Securities Trust
34) Dean Witter U.S. Government Securities Trust
35) Dean Witter Utilities Fund
36) Dean Witter Value-Added Market Series/Equity Portfolio
37) Dean Witter World Wide Income Trust
38) Dean Witter World Wide Investment Trust
5
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 31st day of May, 1997 by and between Dean Witter
Financial Services Trust, an unincorporated business trust organized under
the laws of the Commonwealth of Massachusetts (hereinafter called the
"Fund"), and Dean Witter InterCapital Inc., a Delaware corporation
(hereinafter called the "Investment Manager"):
WHEREAS, The Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (the "Act"); and
WHEREAS, The Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, and engages in the business of
acting as investment adviser; and
WHEREAS, The Fund desires to retain the Investment Manager to render
management and investment advisory services in the manner and on the terms
and conditions hereinafter set forth; and
WHEREAS, The Investment Manager desires to be retained to perform services
on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
1. The Fund hereby retains the Investment Manager to act as investment
manager of the Fund and, subject to the supervision of the Trustees, to
supervise the investment activities of the Fund as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager
shall obtain and evaluate such information and advice relating to the
economy, securities and commodities markets and securities and commodities as
it deems necessary or useful to discharge its duties hereunder; shall
continuously manage the assets of the Fund in a manner consistent with the
investment objectives and policies of the Fund; shall determine the
securities and commodities to be purchased, sold or otherwise disposed of by
the Fund and the timing of such purchases, sales and dispositions; and shall
take such further action, including the placing of purchase and sale orders
on behalf of the Fund, as the Investment Manager shall deem necessary or
appropriate. The Investment Manager shall also furnish to or place at the
disposal of the Fund such of the information, evaluations, analyses and
opinions formulated or obtained by the Investment Manager in the discharge of
its duties as the Fund may, from time to time, reasonably request.
2. The Investment Manager shall, at its own expense, maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary or useful to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Investment
Manager shall be deemed to include persons employed or otherwise retained by
the Investment Manager to furnish statistical and other factual data, advice
regarding economic factors and trends, information with respect to technical
and scientific developments, and such other information, advice and
assistance as the Investment Manager may desire. The Investment Manager
shall, as agent for the Fund, maintain the Fund's records and books of
account (other than those maintained by the Fund's transfer agent, registrar,
custodian and other agencies). All such books and records so maintained shall
be the property of the Fund and, upon request therefor, the Investment
Manager shall surrender to the Fund such of the books and records so
requested.
3. The Fund will, from time to time, furnish or otherwise make available
to the Investment Manager such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as the
Investment Manager may reasonably require in order to discharge its duties
and obligations hereunder.
4. The Investment Manager shall bear the cost of rendering the investment
management and supervisory services to be performed by it under this
Agreement, and shall, at its own expense, pay the
<PAGE>
compensation of the officers and employees, if any, of the Fund, and provide
such office space, facilities and equipment and such clerical help and
bookkeeping services as the Fund shall reasonably require in the conduct of
its business. The Investment Manager shall also bear the cost of telephone
service, heat, light, power and other utilities provided to the Fund.
5. The Fund assumes and shall pay or cause to be paid all other expenses
of the Fund, including without limitation: fees pursuant to any plan of
distribution that the Fund may adopt; the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the
safekeeping of its cash, portfolio securities or commodities and other
property, and any stock transfer or dividend agent or agents appointed by the
Fund; brokers' commissions chargeable to the Fund in connection with
portfolio transactions to which the Fund is a party; all taxes, including
securities or commodities issuance and transfer taxes, and fees payable by
the Fund to federal, state or other governmental agencies; the cost and
expense of engraving or printing certificates representing shares of the
Fund; all costs and expenses in connection with the registration and
maintenance of registration of the Fund and its shares with the Securities
and Exchange Commission and various states and other jurisdictions (including
filing fees and legal fees and disbursements of counsel); the cost and
expense of printing, including typesetting, and distributing prospectuses and
statements of additional information of the Fund and supplements thereto to
the Fund's shareholders; all expenses of shareholders' and Trustees' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; fees and travel expenses of Trustees or members of any advisory
board or committee who are not employees of the Investment Manager or any
corporate affiliate of the Investment Manager; all expenses incident to the
payment of any dividend, distribution, withdrawal or redemption, whether in
shares or in cash; charges and expenses of any outside service used for
pricing of the Fund's shares; charges and expenses of legal counsel,
including counsel to the Trustees of the Fund who are not interested persons
(as defined in the Act) of the Fund or the Investment Manager, and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable 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 related thereto); and all other
charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
6. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Manager, the Fund shall pay to the
Investment Manager monthly compensation determined by applying the annual
rate of 0.75% to the Fund's daily net assets. Except as hereinafter set
forth, compensation under this Agreement shall be calculated and accrued
daily and the amounts of the daily accruals shall be paid monthly as promptly
as possible for the preceding month. Such calculations shall be made by
applying 1/365ths of the annual rates to the Fund's net assets each day
determined as of the close of business on that day or the last previous
business day. If this Agreement becomes effective subsequent to the first day
of a month or shall terminate before the last day of a month, compensation
for that part of the month this Agreement is in effect shall be prorated in a
manner consistent with the calculation of the fees as set forth above.
7. The Investment Manager will use its best efforts in the supervision and
management of the investment activities of the Fund, but in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, the Investment Manager shall not be liable to the Fund
or any of its investors for any error of judgment or mistake of law or for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors.
8. Nothing contained in this Agreement shall prevent the Investment
Manager or any affiliated person of the Investment Manager from acting as
investment adviser or manager for any other person, firm or corporation and
shall not in any way bind or restrict the Investment Manager or any such
affiliated person from buying, selling or trading any securities or
commodities for their own accounts or for the account of others for whom they
may be acting. Nothing in this Agreement shall limit or restrict the right of
any Trustee, officer or employee of the Investment Manager to engage in any
other business or to devote his or her time and attention in part to the
management or other aspects of any other business whether of a similar or
dissimilar nature.
A-2
<PAGE>
9. This Agreement shall remain in effect until April 30, 1999 and from
year to year thereafter provided such continuance is approved at least
annually by the vote of holders of a majority, as defined in the Investment
Company Act of 1940, as amended (the "Act"), of the outstanding voting
securities of the Fund or by the Trustees of the Fund; provided that in
either event such continuance is also approved annually by the vote of a
majority of the Trustees of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party, which vote
must be cast in person at a meeting called for the purpose of voting on such
approval; provided, however, that (a) the Fund may, at any time and without
the payment of any penalty, terminate this Agreement upon thirty days'
written notice to the Investment Manager, either by majority vote of the
Trustees of the Fund or by the vote of a majority of the outstanding voting
securities of the Fund; (b) this Agreement shall immediately terminate in the
event of its assignment (to the extent required by the Act and the rules
thereunder) unless such automatic terminations shall be prevented by an
exemptive order of the Securities and Exchange Commission; and (c) the
Investment Manager may terminate this Agreement without payment of penalty on
thirty days' written notice to the Fund. Any notice under this Agreement
shall be given in writing, addressed and delivered, or mailed post-paid, to
the other party at the principal office of such party.
10. This Agreement may be amended by the parties without the vote or
consent of the shareholders of the Fund to supply any omission, to cure,
correct or supplement any ambiguous, defective or inconsistent provision
hereof, or if they deem it necessary to conform this Agreement to the
requirements of applicable federal laws or regulations, but neither the Fund
nor the Investment Manager shall be liable for failing to do so.
11. This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the latter shall
control.
12. The Investment Manager and the Fund each agree that the name "Dean
Witter," which comprises a component of the Fund's name, is a property right
of Dean Witter Reynolds Inc. The Fund agrees and consents that (i) it will
only use the name "Dean Witter" as a component of its name and for no other
purpose, (ii) it will not purport to grant to any third party the right to
use the name "Dean Witter" for any purpose, (iii) the Investment Manager or
its parent, Morgan Stanley, Dean Witter, Discover & Co., or any corporate
affiliate of the Investment Manager's parent, may use or grant to others the
right to use the name "Dean Witter," or any combination or abbreviation
thereof, as all or a portion of a corporate or business name or for any
commercial purpose, including a grant of such right to any other investment
company, (iv) at the request of the Investment Manager or its parent, the
Fund will take such action as may be required to provide its consent to the
use of the name "Dean Witter," or any combination or abbreviation thereof, by
the Investment Manager or its parent or any corporate affiliate of the
Investment Manager's parent, or by any person to whom the Investment Manager
or its parent or any corporate affiliate of the Investment Manager's parent
shall have granted the right to such use, and (v) upon the termination of any
investment advisory agreement into which the Investment Manager and the Fund
may enter, or upon termination of affiliation of the Investment Manager with
its parent, the Fund shall, upon request by the Investment Manager or its
parent, cease to use the name "Dean Witter" as a component of its name, and
shall not use the name, or any combination or abbreviation thereof, as a part
of its name or for any other commercial purpose, and shall cause its
officers, Trustees and shareholders to take any and all actions which the
Investment Manager or its parent may request to effect the foregoing and to
reconvey to the Investment Manager or its parent any and all rights to such
name.
13. The Declaration of Trust establishing Dean Witter Financial Services
Trust, dated November 8, 1996, a copy of which, together with all amendments
thereto (the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Dean Witter Financial
Services Trust refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of Dean Witter Financial Services Trust shall be
held to any personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim or otherwise, in
connection with the affairs of said Dean Witter Financial Services Trust, but
the Trust Estate only shall be liable.
A-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written in New York, New York.
DEAN WITTER FINANCIAL SERVICES TRUST
By: /s/
................................
Attest:
..................................
DEAN WITTER INTERCAPITAL INC.
By:
................................
Attest:
..................................
A-4
<PAGE>
DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 31st day of May, 1997 between each of the
open-end investment companies to which Dean Witter InterCapital Inc. acts as
investment manager, that are listed on Schedule A, as may be amended from
time to time (each, a "Fund" and collectively, the "Funds"), and Dean Witter
Distributors Inc., a Delaware corporation (the "Distributor").
W I T N E S S E T H:
WHEREAS, each Fund is registered as an open-end investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and it is in
the interest of each Fund to offer its shares for sale continuously, and
WHEREAS, each Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of each Fund's
transferable shares, of $0.01 par value (the "Shares"), to commence on the
date listed above, in order to promote the growth of each Fund and facilitate
the distribution of its shares.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Appointment of the Distributor.
(a) Each Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Fund to sell Shares to the public on the terms set
forth in this Agreement and that Fund's prospectus and the Distributor hereby
accepts such appointment and agrees to act hereunder. Each Fund, during the
term of this Agreement, shall sell Shares to the Distributor upon the terms
and conditions set forth herein.
(b) The Distributor agrees to purchase Shares, as principal for its own
account, from each Fund and to sell Shares as principal to investors, and
securities dealers, including Dean Witter Reynolds Inc. ("DWR"), an affiliate
of the Distributor, upon the terms described herein and in that Fund's
prospectus (the "Prospectus") and statement of additional information
included in the Fund's registration statement (the "Registration Statement")
most recently filed from time to time with the Securities and Exchange
Commission (the "SEC") and effective under the Securities Act of 1933, as
amended (the "1933 Act"), and the 1940 Act or as the Prospectus may be
otherwise amended or supplemented and filed with the SEC pursuant to Rule 497
under the 1933 Act.
SECTION 2 Exclusive Nature of Duties. The Distributor shall be the
exclusive principal underwriter and distributor of each Fund, except that the
exclusive rights granted to the Distributor to sell the Shares shall not
apply to Shares issued by each Fund: (i) in connection with the merger or
consolidation of any other investment company or personal holding company
with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company
by the Fund; (ii) pursuant to reinvestment of dividends or capital gains
distributions; or (iii) pursuant to the reinstatement privilege afforded
redeeming shareholders.
SECTION 3. Purchase of Shares from each Fund.
(a) The Distributor shall have the right to buy from each Fund the Shares
needed, but not more than the Shares needed (except for clerical errors in
transmission), to fill unconditional orders for Shares placed with the
Distributor by investors or securities dealers. The price which the
Distributor shall pay for the Shares so purchased from the Fund shall be the
net asset value, determined as set forth in the Prospectus, used in
determining the public offering price on which such orders were based.
(b) The Shares are to be resold by the Distributor at the public offering
price of Shares as set forth in the Prospectus, to investors or to securities
dealers, including DWR, who have entered into selected dealer agreements with
the Distributor upon the terms and conditions set forth in Section 7 hereof
("Selected Dealers").
(c) Each Fund shall have the right to suspend the sale of the Shares at
times when redemption is suspended pursuant to the conditions set forth in
Section 4(f) hereof. Each Fund shall also have the right
<PAGE>
to suspend the sale of the Shares if trading on the New York Stock Exchange
shall have been suspended, if a banking moratorium shall have been declared
by federal or New York authorities, or if there shall have been some other
extraordinary event which, in the judgment of a Fund, makes it impracticable
to sell its Shares.
(d) Each Fund, or any agent of a Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by a Fund; provided, however, that a
Fund will not arbitrarily or without reasonable cause refuse to accept orders
for the purchase of Shares. The Distributor will confirm orders upon their
receipt, and each Fund (or its agent) upon receipt of payment therefor and
instructions will deliver share certificates for such Shares or a statement
confirming the issuance of Shares. Payment shall be made to the Fund in New
York Clearing House funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Fund (or its agent).
(e) With respect to Shares sold by any Selected Dealer, the Distributor is
authorized to direct each Fund's transfer agent to receive instructions
directly from the Selected Dealer on behalf of the Distributor as to
registration of Shares in the names of investors and to confirm issuance of
the Shares to such investors. The Distributor is also authorized to instruct
the transfer agent to receive payment directly from the Selected Dealer on
behalf of the Distributor, for prompt transmittal to each Fund's custodian,
of the purchase price of the Shares. In such event the Distributor shall
obtain from the Selected Dealer and maintain a record of such registration
instructions and payments.
SECTION 4. Repurchase or Redemption of Shares.
(a) Any of the outstanding Shares of a Fund may be tendered for redemption
at any time, and each Fund agrees to redeem its Shares so tendered in
accordance with the applicable provisions set forth in its Prospectus. The
price to be paid to redeem the Shares shall be equal to the net asset value
determined as set forth in the Prospectus less, in the case of a Fund whose
Shares are offered with a contingent deferred sales charge ("CDSC"), any
applicable CDSC. Upon any redemption of Shares the Fund shall pay the total
amount of the redemption price in New York Clearing House funds in accordance
with applicable provisions of the Prospectus.
(b) In the case of a Fund whose Shares are offered with a front-end sales
charge, the redemption by a Fund of any of its Shares purchased by or through
the Distributor will not affect the applicable front-end sales charge secured
by the Distributor or any Selected Dealer in the course of the original sale,
except that if any Shares are tendered for redemption within seven business
days after the date of the confirmation of the original purchase, the right
to the applicable front-end sales charge shall be forfeited by the
Distributor and the Selected Dealer which sold such Shares.
(c) In the case of a Fund whose Shares are offered with a CDSC, the
proceeds of any redemption of Shares shall be paid by each Fund as follows:
(i) any applicable CDSC shall be paid to the Distributor or to the Selected
Dealer, or, when applicable, pursuant to the Rules of the Association of the
National Association of Securities Dealers, Inc. ("NASD"), retained by the
Fund and (ii) the balance shall be paid to the redeeming shareholders, in
each case in accordance with applicable provisions of its Prospectus in New
York Clearing House funds. The Distributor is authorized to direct a Fund to
pay directly to the Selected Dealer any CDSC payable by a Fund to the
Distributor in respect of Shares sold by the Selected Dealer to the redeeming
shareholders.
(d) The Distributor is authorized, as agent for the Fund, to repurchase
Shares, represented by a share certificate which is delivered to any office
of the Distributor in accordance with applicable provisions set forth in each
Fund's Prospectus. The Distributor shall promptly transmit to the transfer
agent of the Fund for redemption all Shares so delivered. The Distributor
shall be responsible for the accuracy of instructions transmitted to the
Fund's transfer agent in connection with all such repurchases.
(e) The Distributor is authorized, as agent for each Fund, to repurchase
Shares held in a shareholder's account with a Fund for which no share
certificate has been issued, upon the telephonic request of the shareholders,
or at the discretion of the Distributor. The Distributor shall promptly
transmit to the
2
<PAGE>
transfer agent of the Fund, for redemption, all such orders for repurchase of
Shares. Payment for Shares repurchased may be made by a Fund to the
Distributor for the account of the shareholder. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Fund's
transfer agent in connection with all such repurchases.
(f) Redemption of its Shares or payment by a Fund may be suspended at
times when the New York Stock Exchange is closed, when trading on said
Exchange is restricted, when an emergency exists as a result of which
disposal by a Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for a Fund fairly to determine the value of
its net assets, or during any other period when the SEC, by order, so
permits.
(g) With respect to its Shares tendered for redemption or repurchase by
any Selected Dealer on behalf of its customers, the Distributor is authorized
to instruct the transfer agent of a Fund to accept orders for redemption or
repurchase directly from the Selected Dealer on behalf of the Distributor and
to instruct the Fund to transmit payments for such redemptions and
repurchases directly to the Selected Dealer on behalf of the Distributor for
the account of the shareholder. The Distributor shall obtain from the
Selected Dealer, and shall maintain, a record of such orders. The Distributor
is further authorized to obtain from the Fund, and shall maintain, a record
of payment made directly to the Selected Dealer on behalf of the Distributor.
SECTION 5. Duties of the Fund.
(a) Each Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of its Shares, including
one certified copy, upon request by the Distributor, of all financial
statements prepared by the Fund and examined by independent accountants. Each
Fund shall, at the expense of the Distributor, make available to the
Distributor such number of copies of its Prospectus as the Distributor shall
reasonably request.
(b) Each Fund shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares and to register Shares under the 1933 Act, to the end that
there will be available for sale such number of Shares as investors may
reasonably be expected to purchase.
(c) Each Fund shall use its best efforts to pay the filing fees for an
appropriate number of its Shares to be sold under the securities laws of such
states as the Distributor and the Fund may approve. Any qualification to sell
its Shares in a state may be withheld, terminated or withdrawn by a Fund at
any time in its discretion. As provided in Section 8(c) hereof, such filing
fees shall be paid by the Fund. The Distributor shall furnish any information
and other material relating to its affairs and activities as may be required
by a Fund in connection with the sale of its Shares in any state.
(d) Each Fund shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of its annual
and interim reports.
SECTION 6. Duties of the Distributor.
(a) The Distributor shall sell shares of each Fund through DWR and may
sell shares through other securities dealers and its own Account Executives,
and shall devote reasonable time and effort to promote sales of the Shares,
but shall not be obligated to sell any specific number of Shares. The
services of the Distributor hereunder are not exclusive and it is understood
that the Distributor may act as principal underwriter for other registered
investment companies, so long as the performance of its obligations hereunder
is not impaired thereby. It is also understood that Selected Dealers,
including DWR, may also sell shares for other registered investment
companies.
(b) Neither the Distributor nor any Selected Dealer shall give any
information or make any representations, other than those contained in the
Registration Statement or related Prospectus and any sales literature
specifically approved by the appropriate Fund.
(c) The Distributor agrees that it will at all times comply with the
applicable terms and limitations of the Rules of the Association of the NASD.
3
<PAGE>
SECTION 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into selected dealer
agreements with Selected Dealers for the sale of Shares. In making agreements
with Selected Dealers, the Distributor shall act only as principal and not as
agent for a Fund. Shares sold to Selected Dealers shall be for resale by such
dealers only at the public offering price set forth in the Prospectus. With
respect to Funds whose Shares are offered with a front-end sales charge, in
such agreement the Distributor shall have the right to fix the portion of the
applicable front-end sales charge which may be allocated to the Selected
Dealers.
(b) Within the United States, the Distributor shall offer and sell Shares
only to Selected Dealers that are members in good standing of the NASD.
(c) The Distributor shall adopt and follow procedures, as approved by each
Fund, for the confirmation of sales of its Shares to investors and Selected
Dealers, the collection of amounts payable by investors and Selected Dealers
on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the NASD, as such requirements
may from time to time exist.
SECTION 8. Payment of Expenses.
(a) Each Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of legal counsel including counsel to the
Directors/Trustees of each Fund who are not interested persons (as defined in
the 1940 Act) of the Fund or the Distributor, and independent accountants, in
connection with the preparation and filing of any required Registration
Statements and Prospectuses and all amendments and supplements thereto, and
the expense of preparing, printing, mailing and otherwise distributing
prospectuses and statements of additional information, annual or interim
reports or proxy materials to shareholders.
(b) The Distributor shall bear all expenses incurred by it in connection
with its duties and activities under this Agreement including the payment to
Selected Dealers of any sales commissions, service fees and other expenses
for sales of a Fund's Shares (except such expenses as are specifically
undertaken herein by a Fund) incurred or paid by Selected Dealers, including
DWR. The Distributor shall bear the costs and expenses of preparing, printing
and distributing any supplementary sales literature used by the Distributor
or furnished by it for use by Selected Dealers in connection with the
offering of the Shares for sale. Any expenses of advertising incurred in
connection with such offering will also be the obligation of the Distributor.
It is understood and agreed that, so long as a Fund's Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1 Plan") continues in
effect, any expenses incurred by the Distributor hereunder may be paid in
accordance with the terms of such Rule 12b-1 Plan.
(c) Each Fund shall pay the filing fees, and, if necessary or advisable in
connection therewith, bear the cost and expense of qualifying each Fund as a
broker or dealer, in such states of the United States or other jurisdictions
as shall be selected by the Fund and the Distributor pursuant to Section 5(c)
hereof and the cost and expenses payable to each such state for continuing to
offer Shares therein until the Fund decides to discontinue selling Shares
pursuant to Section 5(c) hereof.
SECTION 9. Indemnification.
(a) Each Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and
reasonable counsel fees incurred in connection therewith) arising by reason
of any person acquiring any Shares, which may be based upon the 1933 Act, or
on any other statute or at common law, on the ground that the Registration
Statement or related Prospectus and Statement of Additional Information, as
from time to time amended and supplemented, or the annual or interim reports
to shareholders of a Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of a
Fund in
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favor of the Distributor and any such controlling persons to be deemed to
protect the Distributor or any such controlling persons thereof against any
liability to a Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties
or by reason of reckless disregard of its obligations and duties under this
Agreement; or (ii) is a Fund to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or any
such controlling persons, as the case may be, shall have notified the Fund in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. Each Fund will be entitled to participate at its
own expense in the defense, or, if it so elects, to assume the defense, of
any such suit brought to enforce any such liability, but if a Fund elects to
assume the defense, such defense shall be conducted by counsel chosen by it
and satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them, but,
in case the Fund does not elect to assume the defense of any such suit, it
will reimburse the Distributor or such controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of
any counsel retained by them. Each Fund shall promptly notify the Distributor
of the commencement of any litigation or proceedings against it or any of its
officers or Directors/Trustees in connection with the issuance or sale of the
Shares.
(b) (i) The Distributor shall indemnify and hold harmless each Fund and
each of its Directors/ Trustees and officers and each person, if any, who
controls the Fund against any loss, liability, claim, damage, or expense
described in the indemnity contained in subsection (a) of this Section, but
only with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to a Fund in writing by or on behalf
of the Distributor for use in connection with the Registration Statement or
related Prospectus and Statement of Additional Information, as from time to
time amended, or the annual or interim reports to shareholders.
(ii) The Distributor shall indemnify and hold harmless each Fund and
each Fund's transfer agent, individually and in its capacity as the Fund's
transfer agent, from and against any claims, damages and liabilities which
arise as a result of actions taken pursuant to instructions from, or on
behalf of, the Distributor to: (1) redeem all or a part of shareholder
accounts in the Fund pursuant to Section 4(g) hereof and pay the proceeds to,
or as directed by, the Distributor for the account of each shareholder whose
Shares are so redeemed; and (2) register Shares in the names of investors,
confirm the issuance thereof and receive payment therefor pursuant to Section
3(e) hereof.
(iii) In case any action shall be brought against a Fund or any person
so indemnified by this Section 9(b) in respect of which indemnity may be
sought against the Distributor, the Distributor shall have the rights and
duties given to a Fund, and the Fund and each person so indemnified shall
have the rights and duties given to the Distributor, by the provisions of
subsection (a) of this Section 9.
(c) If the indemnification provided for in this Section 9 is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages, liabilities or expenses
(or actions in respect thereof) referred to herein, then each indemnifiying
party shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by a Fund on the one hand and the
Distributor on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of a Fund on the one hand and the Distributor on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses (or actions
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in respect thereof), as well as any other relevant equitable considerations.
The relative benefits received by a Fund on the one hand and the Distributor
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Fund
bear to the total compensation received by the Distributor, in each case as
set forth in the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by a Fund or the Distributor
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Each Fund and
the Distributor agree that it would not be just and equitable if contribution
were determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) referred to above shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such claim. Notwithstanding the provisions of
this subsection (c), the Distributor shall not be required to contribute any
amount in excess of the amount by which the total price at which the Shares
distributed by it to the public were offered to the public exceeds the amount
of any damages which it has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
SECTION 10. Duration and Termination of this Agreement. This Agreement
shall become effective with respect to a Fund as of the date first above
written and shall remain in force until April 30, 1998, and thereafter, but
only so long as such continuance is specifically approved at least annually
by (i) the Board of Directors/Trustees of each Fund, or by the vote of a
majority of the outstanding voting securities of the Fund, cast in person or
by proxy, and (ii) a majority of those Directors/Trustees who are not parties
to this Agreement or interested persons of any such party and who have no
direct or indirect financial interest in this Agreement or in the operation
of the Fund's Rule 12b-1 Plan or in any agreement related thereto, cast in
person at a meeting called for the purpose of voting upon such approval.
This Agreement may be terminated at any time without the payment of any
penalty, by the Directors/Trustees of a Fund, by a majority of the
Directors/Trustees of a Fund who are not interested persons of the Fund and
who have no direct or indirect financial interest in this Agreement, or by
vote of a majority of the outstanding voting securities of a Fund, or by the
Distributor, on sixty days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested person," when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
SECTION 11. Amendments of this Agreement. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the
Directors/Trustees of a Fund, or by the vote of a majority of outstanding
voting securities of a Fund, and (ii) a majority of those Directors/Trustees
of a Fund who are not parties to this Agreement or interested persons of any
such party and who have no direct or indirect financial interest in this
Agreement or in any Agreement related to the Fund's Rule 12b-1 Plan, cast in
person at a meeting called for the purpose of voting on such approval.
SECTION 12. Additional Funds. If at any time another Fund desires to
appoint the Distributor as its principal underwriter and distributor under
this Agreement, it shall notify the Distributor in writing. If the
Distributor is willing to serve as the Fund's principal underwriter and
distributor under this Agreement, it shall notify the Fund in writing,
whereupon such other Fund shall become a Fund hereunder.
SECTION 13. Governing Law. This Agreement shall be construed in accordance
with the law of the State of New York and the applicable provisions of the
1940 Act. To the extent the applicable law of the State of New York, or any
of the provisions herein, conflicts with the applicable provisions of the
1940 Act, the latter shall control.
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SECTION 14. Personal Liability. With respect to any Fund that is organized
as an unincorporated business trust under the laws of the Commonwealth of
Massachusetts, its Declaration of the Trust (each, a "Declaration") is on
file in the office of the Secretary of the Commonwealth of Massachusetts.
Each Declaration provides that the name of the Fund refers to the Trustees
under the Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent of any
Fund shall be held to any personal liability, nor shall resort be had to
their private property for the satisfaction of any obligation or claim or
otherwise, in connection with the affairs of any Fund, but the Trust Estate
only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first written in New York, New York.
ON BEHALF OF THE FUNDS SET FORTH ON
SCHEDULE A, ATTACHED HERETO
By:
....................................
DEAN WITTER DISTRIBUTORS INC.
By:
....................................
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<PAGE>
DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
SCHEDULE A
AT MAY 31, 1997
1) Dean Witter American Value Fund
2) Dean Witter Balanced Growth Fund
3) Dean Witter Balanced Income Fund
4) Dean Witter California Tax-Free Income Fund
5) Dean Witter Capital Appreciation Fund
6) Dean Witter Capital Growth Securities
7) Dean Witter Convertible Securities Trust
8) Dean Witter Developing Growth Securities Trust
9) Dean Witter Diversified Income Trust
10) Dean Witter Dividend Growth Securities Inc.
11) Dean Witter European Growth Fund Inc.
12) Dean Witter Federal Securities Trust
13) Dean Witter Financial Services Trust
14) Dean Witter Global Asset Allocation Fund
15) Dean Witter Global Dividend Growth Securities
16) Dean Witter Global Utilities Fund
17) Dean Witter Health Sciences Trust
18) Dean Witter High Yield Securities Inc.
19) Dean Witter Income Builder Fund
20) Dean Witter Information Fund
21) Dean Witter Intermediate Income Securities
22) Dean Witter International SmallCap Fund
23) Dean Witter Japan Fund
24) Dean Witter Managers' Select Fund
25) Dean Witter Market Leader Trust
26) Dean Witter Mid-Cap Growth Fund
27) Dean Witter Natural Resource Development Securities Inc.
28) Dean Witter New York Tax-Free Income Fund
29) Dean Witter Pacific Growth Fund Inc.
30) Dean Witter Precious Metals and Minerals Trust
31) Dean Witter Special Value Fund
32) Dean Witter Strategist Fund
33) Dean Witter Tax-Exempt Securities Trust
34) Dean Witter U.S. Government Securities Trust
35) Dean Witter Utilities Fund
36) Dean Witter Value-Added Market Series/Equity Portfolio
37) Dean Witter World Wide Income Trust
38) Dean Witter World Wide Investment Trust
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<PAGE>
DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 28th day of July, 1997 between each of the
open-end investment companies to which Dean Witter InterCapital Inc. acts as
investment manager, that are listed on Schedule A, as may be amended from
time to time (each, a "Fund" and collectively, the "Funds"), and Dean Witter
Distributors Inc., a Delaware corporation (the "Distributor").
W I T N E S S E T H:
WHEREAS, each Fund is registered as an open-end investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and it is in
the interest of each Fund to offer its shares for sale continuously, and
WHEREAS, each Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of each Fund's
transferable shares, of $0.01 par value (the "Shares"), to commence on the
date listed above, in order to promote the growth of each Fund and facilitate
the distribution of its shares.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Appointment of the Distributor.
(a) Each Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Fund to sell Shares to the public on the terms set
forth in this Agreement and that Fund's prospectus and the Distributor hereby
accepts such appointment and agrees to act hereunder. Each Fund, during the
term of this Agreement, shall sell Shares to the Distributor upon the terms
and conditions set forth herein.
(b) The Distributor agrees to purchase Shares, as principal for its own
account, from each Fund and to sell Shares as principal to investors, and
securities dealers, including Dean Witter Reynolds Inc. ("DWR"), an affiliate
of the Distributor, upon the terms described herein and in that Fund's
prospectus (the "Prospectus") and statement of additional information
included in the Fund's registration statement (the "Registration Statement")
most recently filed from time to time with the Securities and Exchange
Commission (the "SEC") and effective under the Securities Act of 1933, as
amended (the "1933 Act"), and the 1940 Act or as the Prospectus may be
otherwise amended or supplemented and filed with the SEC pursuant to Rule 497
under the 1933 Act.
SECTION 2 Exclusive Nature of Duties. The Distributor shall be the
exclusive principal underwriter and distributor of each Fund, except that the
exclusive rights granted to the Distributor to sell the Shares shall not
apply to Shares issued by each Fund: (i) in connection with the merger or
consolidation of any other investment company or personal holding company
with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company
by the Fund; (ii) pursuant to reinvestment of dividends or capital gains
distributions; or (iii) pursuant to the reinstatement privilege afforded
redeeming shareholders.
SECTION 3. Purchase of Shares from each Fund. The Shares are offered in
four classes (each, a "Class"), as described in the Prospectus, as amended or
supplemented from time to time.
(a) The Distributor shall have the right to buy from each Fund the Shares
of the particular class needed, but not more than the Shares needed (except
for clerical errors in transmission), to fill unconditional orders for Shares
of the applicable class placed with the Distributor by investors or
securities dealers. The price which the Distributor shall pay for the Shares
so purchased from the Fund shall be the net asset value, determined as set
forth in the Prospectus, used in determining the public offering price on
which such orders were based.
(b) The Shares are to be resold by the Distributor at the public offering
price of Shares of the applicable class as set forth in the Prospectus, to
investors or to securities dealers, including DWR, who have entered into
selected dealer agreements with the Distributor upon the terms and conditions
set forth in Section 7 hereof ("Selected Dealers").
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(c) Each Fund shall have the right to suspend the sale of the Shares at
times when redemption is suspended pursuant to the conditions set forth in
Section 4(f) hereof. Each Fund shall also have the right to suspend the sale
of the Shares if trading on the New York Stock Exchange shall have been
suspended, if a banking moratorium shall have been declared by federal or New
York authorities, or if there shall have been some other extraordinary event
which, in the judgment of a Fund, makes it impracticable to sell its Shares.
(d) Each Fund, or any agent of a Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by a Fund; provided, however, that a
Fund will not arbitrarily or without reasonable cause refuse to accept orders
for the purchase of Shares. The Distributor will confirm orders upon their
receipt, and each Fund (or its agent) upon receipt of payment therefor and
instructions will deliver share certificates for such Shares or a statement
confirming the issuance of Shares. Payment shall be made to the Fund in New
York Clearing House funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Fund (or its agent).
(e) With respect to Shares sold by any Selected Dealer, the Distributor is
authorized to direct each Fund's transfer agent to receive instructions
directly from the Selected Dealer on behalf of the Distributor as to
registration of Shares in the names of investors and to confirm issuance of
the Shares to such investors. The Distributor is also authorized to instruct
the transfer agent to receive payment directly from the Selected Dealer on
behalf of the Distributor, for prompt transmittal to each Fund's custodian,
of the purchase price of the Shares. In such event the Distributor shall
obtain from the Selected Dealer and maintain a record of such registration
instructions and payments.
SECTION 4. Repurchase or Redemption of Shares.
(a) Any of the outstanding Shares of a Fund may be tendered for redemption
at any time, and each Fund agrees to redeem its Shares so tendered in
accordance with the applicable provisions set forth in its Prospectus. The
price to be paid to redeem the Shares shall be equal to the net asset value
determined as set forth in the Prospectus less any applicable contingent
deferred sales charge ("CDSC"). Upon any redemption of Shares the Fund shall
pay the total amount of the redemption price in New York Clearing House funds
in accordance with applicable provisions of the Prospectus.
(b) The redemption by a Fund of any of its Class A Shares purchased by or
through the Distributor will not affect the applicable front-end sales charge
secured by the Distributor or any Selected Dealer in the course of the
original sale, except that if any Class A Shares are tendered for redemption
within seven business days after the date of the confirmation of the original
purchase, the right to the applicable front-end sales charge shall be
forfeited by the Distributor and the Selected Dealer which sold such Shares.
(c) The proceeds of any redemption of Class A, Class B or Class C Shares
shall be paid by each Fund as follows: (i) any applicable CDSC shall be paid
to the Distributor or to the Selected Dealer, or, when applicable, pursuant
to the Rules of the Association of the National Association of Securities
Dealers, Inc. ("NASD"), retained by the Fund and (ii) the balance shall be
paid to the redeeming shareholders, in each case in accordance with
applicable provisions of its Prospectus in New York Clearing House funds. The
Distributor is authorized to direct a Fund to pay directly to the Selected
Dealer any CDSC payable by a Fund to the Distributor in respect of Class A,
Class B, or Class C Shares sold by the Selected Dealer to the redeeming
shareholders.
(d) The Distributor is authorized, as agent for the Fund, to repurchase
Shares, represented by a share certificate which is delivered to any office
of the Distributor in accordance with applicable provisions set forth in each
Fund's Prospectus. The Distributor shall promptly transmit to the transfer
agent of the Fund for redemption all Shares so delivered. The Distributor
shall be responsible for the accuracy of instructions transmitted to the
Fund's transfer agent in connection with all such repurchases.
(e) The Distributor is authorized, as agent for each Fund, to repurchase
Shares held in a shareholder's account with a Fund for which no share
certificate has been issued, upon the telephonic request of the shareholders,
or at the discretion of the Distributor. The Distributor shall promptly
transmit to the
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<PAGE>
transfer agent of the Fund, for redemption, all such orders for repurchase of
Shares. Payment for Shares repurchased may be made by a Fund to the
Distributor for the account of the shareholder. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Fund's
transfer agent in connection with all such repurchases.
(f) Redemption of its Shares or payment by a Fund may be suspended at
times when the New York Stock Exchange is closed, when trading on said
Exchange is restricted, when an emergency exists as a result of which
disposal by a Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for a Fund fairly to determine the value of
its net assets, or during any other period when the SEC, by order, so
permits.
(g) With respect to its Shares tendered for redemption or repurchase by
any Selected Dealer on behalf of its customers, the Distributor is authorized
to instruct the transfer agent of a Fund to accept orders for redemption or
repurchase directly from the Selected Dealer on behalf of the Distributor and
to instruct the Fund to transmit payments for such redemptions and
repurchases directly to the Selected Dealer on behalf of the Distributor for
the account of the shareholder. The Distributor shall obtain from the
Selected Dealer, and shall maintain, a record of such orders. The Distributor
is further authorized to obtain from the Fund, and shall maintain, a record
of payment made directly to the Selected Dealer on behalf of the Distributor.
SECTION 5. Duties of the Fund.
(a) Each Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of its Shares, including
one certified copy, upon request by the Distributor, of all financial
statements prepared by the Fund and examined by independent accountants. Each
Fund shall, at the expense of the Distributor, make available to the
Distributor such number of copies of its Prospectus as the Distributor shall
reasonably request.
(b) Each Fund shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares and to register Shares under the 1933 Act, to the end that
there will be available for sale such number of Shares as investors may
reasonably be expected to purchase.
(c) Each Fund shall use its best efforts to pay the filing fees for an
appropriate number of its Shares to be sold under the securities laws of such
states as the Distributor and the Fund may approve. Any qualification to sell
its Shares in a state may be withheld, terminated or withdrawn by a Fund at
any time in its discretion. As provided in Section 8(c) hereof, such filing
fees shall be paid by the Fund. The Distributor shall furnish any information
and other material relating to its affairs and activities as may be required
by a Fund in connection with the sale of its Shares in any state.
(d) Each Fund shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of its annual
and interim reports.
SECTION 6. Duties of the Distributor.
(a) The Distributor shall sell shares of each Fund through DWR and may
sell shares through other securities dealers and its own Account Executives,
and shall devote reasonable time and effort to promote sales of the Shares,
but shall not be obligated to sell any specific number of Shares. The
services of the Distributor hereunder are not exclusive and it is understood
that the Distributor may act as principal underwriter for other registered
investment companies, so long as the performance of its obligations hereunder
is not impaired thereby. It is also understood that Selected Dealers,
including DWR, may also sell shares for other registered investment
companies.
(b) Neither the Distributor nor any Selected Dealer shall give any
information or make any representations, other than those contained in the
Registration Statement or related Prospectus and any sales literature
specifically approved by the appropriate Fund.
(c) The Distributor agrees that it will at all times comply with the
applicable terms and limitations of the Rules of the Association of the NASD.
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<PAGE>
SECTION 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into selected dealer
agreements with Selected Dealers for the sale of Shares. In making agreements
with Selected Dealers, the Distributor shall act only as principal and not as
agent for a Fund. Shares sold to Selected Dealers shall be for resale by such
dealers only at the public offering price set forth in the Prospectus. With
respect to Class A Shares, in such agreement the Distributor shall have the
right to fix the portion of the applicable front-end sales charge which may
be allocated to the Selected Dealers.
(b) Within the United States, the Distributor shall offer and sell Shares
only to Selected Dealers that are members in good standing of the NASD.
(c) The Distributor shall adopt and follow procedures, as approved by each
Fund, for the confirmation of sales of its Shares to investors and Selected
Dealers, the collection of amounts payable by investors and Selected Dealers
on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the NASD, as such requirements
may from time to time exist.
SECTION 8. Payment of Expenses.
(a) Each Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of legal counsel including counsel to the
Directors/Trustees of each Fund who are not interested persons (as defined in
the 1940 Act) of the Fund or the Distributor, and independent accountants, in
connection with the preparation and filing of any required Registration
Statements and Prospectuses and all amendments and supplements thereto, and
the expense of preparing, printing, mailing and otherwise distributing
prospectuses and statements of additional information, annual or interim
reports or proxy materials to shareholders.
(b) The Distributor shall bear all expenses incurred by it in connection
with its duties and activities under this Agreement including the payment to
Selected Dealers of any sales commissions, service fees and other expenses
for sales of a Fund's Shares (except such expenses as are specifically
undertaken herein by a Fund) incurred or paid by Selected Dealers, including
DWR. The Distributor shall bear the costs and expenses of preparing, printing
and distributing any supplementary sales literature used by the Distributor
or furnished by it for use by Selected Dealers in connection with the
offering of the Shares for sale. Any expenses of advertising incurred in
connection with such offering will also be the obligation of the Distributor.
It is understood and agreed that, so long as a Fund's Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1 Plan") continues in
effect, any expenses incurred by the Distributor hereunder may be paid in
accordance with the terms of such Rule 12b-1 Plan.
(c) Each Fund shall pay the filing fees, and, if necessary or advisable in
connection therewith, bear the cost and expense of qualifying each Fund as a
broker or dealer, in such states of the United States or other jurisdictions
as shall be selected by the Fund and the Distributor pursuant to Section 5(c)
hereof and the cost and expenses payable to each such state for continuing to
offer Shares therein until the Fund decides to discontinue selling Shares
pursuant to Section 5(c) hereof.
SECTION 9. Indemnification.
(a) Each Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and
reasonable counsel fees incurred in connection therewith) arising by reason
of any person acquiring any Shares, which may be based upon the 1933 Act, or
on any other statute or at common law, on the ground that the Registration
Statement or related Prospectus and Statement of Additional Information, as
from time to time amended and supplemented, or the annual or interim reports
to shareholders of a Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of a
Fund in
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favor of the Distributor and any such controlling persons to be deemed to
protect the Distributor or any such controlling persons thereof against any
liability to a Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties
or by reason of reckless disregard of its obligations and duties under this
Agreement; or (ii) is a Fund to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or any
such controlling persons, as the case may be, shall have notified the Fund in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. Each Fund will be entitled to participate at its
own expense in the defense, or, if it so elects, to assume the defense, of
any such suit brought to enforce any such liability, but if a Fund elects to
assume the defense, such defense shall be conducted by counsel chosen by it
and satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them, but,
in case the Fund does not elect to assume the defense of any such suit, it
will reimburse the Distributor or such controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of
any counsel retained by them. Each Fund shall promptly notify the Distributor
of the commencement of any litigation or proceedings against it or any of its
officers or Directors/Trustees in connection with the issuance or sale of the
Shares.
(b) (i) The Distributor shall indemnify and hold harmless each Fund and
each of its Directors/ Trustees and officers and each person, if any, who
controls the Fund against any loss, liability, claim, damage, or expense
described in the indemnity contained in subsection (a) of this Section, but
only with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to a Fund in writing by or on behalf
of the Distributor for use in connection with the Registration Statement or
related Prospectus and Statement of Additional Information, as from time to
time amended, or the annual or interim reports to shareholders.
(ii) The Distributor shall indemnify and hold harmless each Fund and
each Fund's transfer agent, individually and in its capacity as the Fund's
transfer agent, from and against any claims, damages and liabilities which
arise as a result of actions taken pursuant to instructions from, or on
behalf of, the Distributor to: (1) redeem all or a part of shareholder
accounts in the Fund pursuant to Section 4(g) hereof and pay the proceeds to,
or as directed by, the Distributor for the account of each shareholder whose
Shares are so redeemed; and (2) register Shares in the names of investors,
confirm the issuance thereof and receive payment therefor pursuant to Section
3(e) hereof.
(iii) In case any action shall be brought against a Fund or any person
so indemnified by this Section 9(b) in respect of which indemnity may be
sought against the Distributor, the Distributor shall have the rights and
duties given to a Fund, and the Fund and each person so indemnified shall
have the rights and duties given to the Distributor, by the provisions of
subsection (a) of this Section 9.
(c) If the indemnification provided for in this Section 9 is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages, liabilities or expenses
(or actions in respect thereof) referred to herein, then each indemnifiying
party shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by a Fund on the one hand and the
Distributor on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of a Fund on the one hand and the Distributor on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses (or actions
5
<PAGE>
in respect thereof), as well as any other relevant equitable considerations.
The relative benefits received by a Fund on the one hand and the Distributor
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Fund
bear to the total compensation received by the Distributor, in each case as
set forth in the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by a Fund or the Distributor
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Each Fund and
the Distributor agree that it would not be just and equitable if contribution
were determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) referred to above shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such claim. Notwithstanding the provisions of
this subsection (c), the Distributor shall not be required to contribute any
amount in excess of the amount by which the total price at which the Shares
distributed by it to the public were offered to the public exceeds the amount
of any damages which it has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
SECTION 10. Duration and Termination of this Agreement. This Agreement
shall become effective with respect to a Fund as of the date first above
written and shall remain in force until April 30, 1998, and thereafter, but
only so long as such continuance is specifically approved at least annually
by (i) the Board of Directors/Trustees of each Fund, or by the vote of a
majority of the outstanding voting securities of the Fund, cast in person or
by proxy, and (ii) a majority of those Directors/Trustees who are not parties
to this Agreement or interested persons of any such party and who have no
direct or indirect financial interest in this Agreement or in the operation
of the Fund's Rule 12b-1 Plan or in any agreement related thereto, cast in
person at a meeting called for the purpose of voting upon such approval.
This Agreement may be terminated at any time without the payment of any
penalty, by the Directors/Trustees of a Fund, by a majority of the
Directors/Trustees of a Fund who are not interested persons of the Fund and
who have no direct or indirect financial interest in this Agreement, or by
vote of a majority of the outstanding voting securities of a Fund, or by the
Distributor, on sixty days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested person," when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
SECTION 11. Amendments of this Agreement. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the
Directors/Trustees of a Fund, or by the vote of a majority of outstanding
voting securities of a Fund, and (ii) a majority of those Directors/Trustees
of a Fund who are not parties to this Agreement or interested persons of any
such party and who have no direct or indirect financial interest in this
Agreement or in any Agreement related to the Fund's Rule 12b-1 Plan, cast in
person at a meeting called for the purpose of voting on such approval.
SECTION 12. Additional Funds. If at any time another Fund desires to
appoint the Distributor as its principal underwriter and distributor under
this Agreement, it shall notify the Distributor in writing. If the
Distributor is willing to serve as the Fund's principal underwriter and
distributor under this Agreement, it shall notify the Fund in writing,
whereupon such other Fund shall become a Fund hereunder.
SECTION 13. Governing Law. This Agreement shall be construed in accordance
with the law of the State of New York and the applicable provisions of the
1940 Act. To the extent the applicable law of the State of New York, or any
of the provisions herein, conflicts with the applicable provisions of the
1940 Act, the latter shall control.
6
<PAGE>
SECTION 14. Personal Liability. With respect to any Fund that is organized
as an unincorporated business trust under the laws of the Commonwealth of
Massachusetts, its Declaration of the Trust (each, a "Declaration") is on
file in the office of the Secretary of the Commonwealth of Massachusetts.
Each Declaration provides that the name of the Fund refers to the Trustees
under the Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent of any
Fund shall be held to any personal liability, nor shall resort be had to
their private property for the satisfaction of any obligation or claim or
otherwise, in connection with the affairs of any Fund, but the Trust Estate
only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first written in New York, New York.
ON BEHALF OF THE FUNDS SET FORTH ON
SCHEDULE A, ATTACHED HERETO
By:
....................................
DEAN WITTER DISTRIBUTORS INC.
By:
....................................
7
<PAGE>
DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
SCHEDULE A
AT JULY 28, 1997
1) Dean Witter American Value Fund
2) Dean Witter Balanced Growth Fund
3) Dean Witter Balanced Income Fund
4) Dean Witter California Tax-Free Income Fund
5) Dean Witter Capital Appreciation Fund
6) Dean Witter Capital Growth Securities
7) Dean Witter Convertible Securities Trust
8) Dean Witter Developing Growth Securities Trust
9) Dean Witter Diversified Income Trust
10) Dean Witter Dividend Growth Securities Inc.
11) Dean Witter European Growth Fund Inc.
12) Dean Witter Federal Securities Trust
13) Dean Witter Financial Services Trust
14) Dean Witter Global Asset Allocation Fund
15) Dean Witter Global Dividend Growth Securities
16) Dean Witter Global Utilities Fund
17) Dean Witter Health Sciences Trust
18) Dean Witter High Yield Securities Inc.
19) Dean Witter Income Builder Fund
20) Dean Witter Information Fund
21) Dean Witter Intermediate Income Securities
22) Dean Witter International SmallCap Fund
23) Dean Witter Japan Fund
24) Dean Witter Managers' Select Fund
25) Dean Witter Market Leader Trust
26) Dean Witter Mid-Cap Growth Fund
27) Dean Witter Natural Resource Development Securities Inc.
28) Dean Witter New York Tax-Free Income Fund
29) Dean Witter Pacific Growth Fund Inc.
30) Dean Witter Precious Metals and Minerals Trust
31) Dean Witter Special Value Fund
32) Dean Witter Strategist Fund
33) Dean Witter Tax-Exempt Securities Trust
34) Dean Witter U.S. Government Securities Trust
35) Dean Witter Utilities Fund
36) Dean Witter Value-Added Market Series/Equity Portfolio
37) Dean Witter World Wide Income Trust
38) Dean Witter World Wide Investment Trust
8
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 1 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
July 3, 1997, relating to the financial statements and financial highlights
of Dean Witter Financial Services Trust, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report
into the Prospectus which constitutes part of this Registration Statement.
We also consent to the references to us under the headings "Independent
Accountants" and "Experts" in such Statement of Additional Information and
to the reference to us under the heading "Financial Highlights" in such
Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 22, 1997
<PAGE>
AMENDED AND RESTATED PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
OF
DEAN WITTER FINANCIAL SERVICES TRUST
WHEREAS, Dean Witter Financial Services Trust (the "Fund") is engaged in
business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, on December 10, 1996, the Fund adopted a Plan of Distribution
pursuant to Rule 12b-1 under the Act, and the Trustees then determined that
there was a reasonable likelihood that adoption of the Plan of Distribution
would benefit the Fund and its shareholders; and
WHEREAS, the Trustees believe that continuation of said Plan of
Distribution, as amended and restated herein, is reasonably likely to
continue to benefit the Fund and its shareholders; and
WHEREAS, the Fund and Dean Witter Distributors Inc. (the "Distributor")
entered into a separate Distribution Agreement dated as of July 28, 1997
(which superseded a Distribution Agreement dated May 31, 1997, which
Agreement in turn superseded an Agreement dated December 10, 1996), pursuant
to which the Fund has employed the Distributor in such capacity during the
continuous offering of shares of the Fund.
NOW, THEREFORE, the Fund hereby amends the Plan of Distribution previously
adopted, and the Distributor hereby agrees to the terms of said Plan of
Distribution (the "Plan"), as amended herein, in accordance with Rule 12b-1
under the Act on the following terms and conditions with respect to the Class
A, Class B and Class C shares of the Fund:
1(a)(i). With respect to Class A and Class C shares of the Fund, the
Distributor hereby undertakes to directly bear all costs of rendering the
services to be performed by it under this Plan and under the Distribution
Agreement, except for those specific expenses that the Trustees determine to
reimburse as hereinafter set forth.
1(a)(ii). The Fund is hereby authorized to reimburse the Distributor, Dean
Witter Reynolds Inc. ("DWR"), its affiliates and other broker-dealers for
distribution expenses incurred by them specifically on behalf of Class A and
Class C shares of the Fund. 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. 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 Trustees who are not "interested
persons" of the Fund, as defined in the Act. 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 the quarterly determinations of the
amounts that may be expended by the Fund, the Distributor shall provide, and
the Trustees shall review, a quarterly budget of projected distribution
expenses to be incurred by the Distributor, DWR, its affiliates or other
broker-dealers on behalf of the Fund together with a report explaining the
purposes and anticipated benefits of incurring such expenses. The Trustees
shall determine the particular expenses, and the portion thereof that may be
borne by the Fund, and in making such determination shall consider the scope
of the Distributor's commitment to promoting the distribution of the Fund's
Class A and Class C shares directly or through DWR, its affiliates or other
broker-dealers.
1(a)(iii). If, as of the end of any calendar year, the actual expenses
incurred by the Distributor, DWR, its affiliates and other broker-dealers on
behalf of Class A or Class C shares of the Fund (including accrued expenses
and amounts reserved for incentive compensation and bonuses) are less than
the amount of payments made by such Class pursuant to this Plan, the
Distributor shall promptly make appropriate reimbursement to the appropriate
Class. If, however, as of the end of any calendar year, the actual expenses
(other than expenses representing a gross sales credit) of the Distributor,
DWR, its
<PAGE>
affiliates and other broker-dealers are greater than the amount of payments
made by Class A or Class C shares of the Fund pursuant to this Plan, such
Class will not reimburse the Distributor, DWR, its affiliates or other
broker-dealers for such expenses through payments accrued pursuant to this
Plan in the subsequent fiscal year. Expenses representing a gross sales
credit may be reimbursed in the subsequent calendar year.
1(b). With respect to Class B shares of the Fund, the Fund shall pay to
the Distributor, as the distributor of securities of which the Fund is the
issuer, compensation for distribution of its Class B shares at the rate of
1.0% per annum of the average daily net assets of Class B. Such compensation
shall be calculated and accrued daily and paid monthly or at such other
intervals as the Trustees shall determine.
The Distributor may direct that all or any part of the amounts receivable
by it under this Plan be paid directly to DWR, its affiliates or other
broker-dealers who provide distribution and shareholder services. All
payments made hereunder pursuant to the Plan shall be in accordance with the
terms and limitations of the Rules of the Association of the National
Association of Securities Dealers, Inc.
2. With respect to expenses incurred by each Class, the amount set forth
in paragraph 1 of this Plan shall be paid for services of the Distributor,
DWR its affiliates and other broker-dealers it may select in connection with
the distribution of the Fund's shares, including personal services to
shareholders with respect to their holdings of Fund shares, and may be spend
by the Distributor, DWR, its affiliates and such broker-dealers on any
activities or expenses related to the distribution of the Fund's shares or
services to shareholders, including, but not limited to: compensation to, and
expenses of, account executives or other employees of the Distributor, DWR,
its affiliates or other broker-dealers; overhead and other branch office
distribution-related expenses and telephone expenses of persons who engage in
or support distribution of shares or who provide personal services to
shareholders; printing of prospectuses and reports for other than existing
shareholders; preparation, printing and distribution of sales literature and
advertising materials and, with respect to Class B, opportunity costs in
incurring the foregoing expenses (which may be calculated as a carrying
charge on the excess of the distribution expenses incurred by the
Distributor, DWR, its affiliates or other broker-dealers over distribution
revenues received by them, such excess being hereinafter referred to as
"carryover expenses"). The overhead and other branch office
distribution-related expenses referred to in this paragraph 2 may include:
(a) the expenses operating the branch offices of the Distributor or other
broker-dealers, including DWR, in connection with the sale of the Fund
shares, including lease costs, the salaries and employee benefits of
operations and sales support personnel, utility costs, communications costs
and the costs of stationery and supplies; (b) the costs of client sales
seminars; (c) travel expenses of mutual fund sales coordinators to promote
the sale of Fund shares; and (d) other expenses relating to branch promotion
of Fund sales. Payments may also be made with respect to distribution
expenses incurred in connection with the distribution of shares, including
personal services to shareholders with respect to holdings of such shares, of
an investment company whose assets are acquired by the Fund in a tax-free
reorganization. It is contemplated that, with respect to Class A shares, the
entire fee set forth in paragraph 1(a) will be characterized as a service fee
within the meaning of the National Association of Securities Dealers, Inc.
guidelines and that, with respect to Class B and Class C shares, payments at
the annual rate of 0.25% will be so characterized.
3. This Plan, as amended and restated, shall not take effect with respect
to any particular Class until it has been approved, together with any related
agreements, by votes of a majority of the Board of Trustees of the Fund and
of the Trustees who are not "interested persons" of the Fund (as defined in
the Act) and have no direct financial interest in the operation of this Plan
or any agreements related to it (the "Rule 12b-1 Trustees"), cast in person
at a meeting (or meetings) called for the purpose of voting on this Plan and
such related agreements.
4. This Plan shall continue in effect with respect to each Class until
April 30, 1998, and from year to year thereafter, provided such continuance
is specifically approved at least annually in the manner provided for
approval of this Plan in paragraph 3 hereof.
5. The Distributor shall provide to the Trustees of the Fund and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made. In this
regard, the Trustees shall request the Distributor to specify such items of
expenses as the Trustees deem appropriate. The Trustees shall consider such
items as they deem relevant in making the determinations required by
paragraph 4 hereof.
2
<PAGE>
6. This Plan may be terminated at any time with respect to a Class by vote
of a majority of the Rule 12b-1 Trustees, or by vote of a majority of the
outstanding voting securities of the Fund. The Plan may remain in effect with
the respect to a particular Class even if the Plan has been terminated in
accordance with this paragraph 6 with respect to any other Class. In the
event of any such termination or in the event of nonrenewal, the Fund shall
have no obligation to pay expenses which have been incurred by the
Distributor, DWR, its affiliates or other broker-dealers in excess of
payments made by the Fund pursuant to this Plan. However, with respect to
Class B, this shall not preclude consideration by the Trustees of the manner
in which such excess expenses shall be treated.
7. This Plan may not be amended with respect to any Class to increase
materially the amount each Class may spend for distribution provided in
paragraph 1 hereof unless such amendment is approved by a vote of at least a
majority (as defined in the Act) of the outstanding voting securities of that
Class, and no material amendment to the Plan shall be made unless approved in
the manner provided for approval in paragraph 3 hereof. Class B shares will
have the right to vote on any material increase in the fee set forth in
paragraph 1(a) above affecting Class A shares.
8. While this Plan is in effect, the selection and nomination of Trustees
who are not interested persons (as defined in the Act) of the Fund shall be
committed to the discretion of the Trustees who are not interested persons.
9. The Fund shall preserve copies of this Plan and any related agreements
and all reports made pursuant to paragraph 5 hereof, for a period of not less
than six years from the date of this Plan, any such agreement or any such
report, as the case may be, the first two years in an easily accessible
place.
10. The Declaration of Trust establishing Dean Witter Financial Services
Trust, dated November 8, 1996, a copy of which, together with all amendments
thereto (the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Dean Witter Financial
Services Trust refers to the Trustees under the Declaration collectively as
Trustees but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of Dean Witter Financial Services Trust shall be
held to any personal liability, nor shall resort be had to their private
property for this satisfaction of any obligation or claim or otherwise, in
connection with the affairs of said Dean Witter Financial Services Trust, but
the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the Fund and the Distributor have executed this
amended and restated Plan of Distribution as of the day and year set forth
below in New York, New York.
Date: December 10, 1996
As Amended on July 28, 1997
DEAN WITTER FINANCIAL SERVICES TRUST
Attest:
By:
.................................. ..................................
DEAN WITTER DISTRIBUTORS INC.
Attest:
By:
.................................. ..................................
3
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
FINANCIAL SERVICES TRUST
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ----------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
<TABLE>
(A)
$1,000 ERV AS OF NUMBER OF AVERAGE ANNUAL CUMULATIVE
INVESTED - P 31-May-97 YEARS - n COMPOUND RETURN - T TOTAL RETURN
- ------------ ----------- --------- ------------------- -------------
<S> <C> <C> <C> <C>
26-Feb-97 $955.00 0.26 N/A -4.50%
</TABLE>
(B) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
(C) AVERAGE ANNUAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL COMPOUND RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
(B) (C)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-May-97 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
26-Feb-97 $1,005.00 0.50% 0.26 N/A
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT-G $100,000 INVESTMENT - G
- ------------ ----------- ---------------------- -------------------- -----------------------
<S> <C> <C> <C> <C>
26-Feb-97 0.50 $10,050 $50,250 $100,500
</TABLE>
<PAGE>
[ARTICLE] 6
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] MAY-31-1997
[PERIOD-END] MAY-31-1997
[INVESTMENTS-AT-COST] 177,048,318
[INVESTMENTS-AT-VALUE] 181,620,989
[RECEIVABLES] 1,276,916
[ASSETS-OTHER] 103,979
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 183,001,884
[PAYABLE-FOR-SECURITIES] 5,777,781
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 573,528
[TOTAL-LIABILITIES] 6,351,309
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 175,066,439
[SHARES-COMMON-STOCK] 17,580,252
[SHARES-COMMON-PRIOR] 10,000
[ACCUMULATED-NII-CURRENT] 267,531
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (3,256,066)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 4,572,671
[NET-ASSETS] 176,650,575
[DIVIDEND-INCOME] 593,863
[INTEREST-INCOME] 577,675
[OTHER-INCOME] 0
[EXPENSES-NET] 909,681
[NET-INVESTMENT-INCOME] 261,857
[REALIZED-GAINS-CURRENT] (3,256,066)
[APPREC-INCREASE-CURRENT] 4,572,671
[NET-CHANGE-FROM-OPS] 1,578,462
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 19,038,217
[NUMBER-OF-SHARES-REDEEMED] (1,467,965)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 176,550,575
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 306,488
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 909,681
[AVERAGE-NET-ASSETS] 157,007,822
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.01
[PER-SHARE-GAIN-APPREC] 0.04
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.05
[EXPENSE-RATIO] 2.23
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
DEAN WITTER
FUNDS
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18F-3
INTRODUCTION
This plan (the "Plan") is adopted pursuant to Rule 18f-3(d) of the
Investment Company Act of 1940, as amended (the "1940 Act"), and will be
effective as of July 28, 1997. The Plan relates to shares of the open-end
investment companies to which Dean Witter InterCapital Inc. acts as
investment manager, that are listed on Schedule A, as may be amended from
time to time (each, a "Fund" and collectively, the "Funds"). The Funds are
distributed pursuant to a system (the "Multiple Class System") in which each
class of shares (each, a "Class" and collectively, the "Classes") of a Fund
represents a pro rata interest in the same portfolio of investments of the
Fund and differs only to the extent outlined below.
I. DISTRIBUTION ARRANGEMENTS
One or more Classes of shares of the Funds are offered for purchase by
investors with the sales load structures described below. In addition,
pursuant to Rule 12b-1 under the 1940 Act, the Funds have each adopted a Plan
of Distribution (the "12b-1 Plan") under which shares of certain Classes are
subject to the service and/or distribution fees ("12b-1 fees") described
below.
1. Class A Shares
Class A shares are offered with a front-end sales load ("FESL"). The
schedule of sales charges applicable to a Fund and the circumstances under
which the sales charges are subject to reduction are set forth in each Fund's
current prospectus. As stated in each Fund's current prospectus, Class A
shares may be purchased at net asset value (without a FESL): (i) in the case
of certain large purchases of such shares; and (ii) by certain limited
categories of investors, in each case, under the circumstances and conditions
set forth in each Fund's current prospectus. Class A shares purchased at net
asset value may be subject to a contingent deferred sales charge ("CDSC") on
redemptions made within one year of purchase. Further information relating to
the CDSC, including the manner in which it is calculated, is set forth in
paragraph 6 below. Class A shares are also subject to payments under each
Fund's 12b-1 Plan to reimburse Dean Witter Distributors Inc., Dean Witter
Reynolds Inc. ("DWR"), its affiliates and other broker-dealers for
distribution expenses incurred by them specifically on behalf of the Class,
assessed at an annual rate of up to 0.25% of average daily net assets. The
entire amount of the 12b-1 fee represents a service fee within the meaning of
National Association of Securities Dealers, Inc. ("NASD") guidelines.
2. Class B Shares
Class B shares are offered without a FESL, but will in most cases be
subject to a six-year declining CDSC which is calculated in the manner set
forth in paragraph 6 below. Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a three-year declining CDSC
which is calculated in the manner set forth in paragraph 6 below. The
schedule of CDSC charges applicable to each Fund is set forth in each Fund's
current prospectus. With the exception of certain of the Funds which have a
different formula described below (Dean Witter American Value Fund, Dean
Witter Natural Resource Development Securities Inc., Dean Witter Strategist
Fund and Dean Witter Dividend Growth Securities
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Inc.) (1), Class B shares are also subject to a fee under each Fund's
respective 12b-1 Plan, assessed at the annual rate of up to 1.0% of either:
(a) the lesser of (i) the average daily aggregate gross sales of the Fund's
Class B shares since the inception of the Fund (not including reinvestment 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 (ii) the average
daily net assets of Class B; or (b) the average daily net assets of Class B.
A portion of the 12b-1 fee equal to up to 0.25% of the Fund's average daily
net assets is characterized as a service fee within the meaning of the NASD
guidelines and the remaining portion of the 12b-1 fee, if any, is
characterized as an asset-based sales charge. Also, Class B shares have a
conversion feature ("Conversion Feature") under which such shares convert to
Class A shares after a certain holding period. Details of the Conversion
Feature are set forth in Section IV below.
3. Class C Shares
Class C shares are offered without imposition of a FESL, but will in most
cases be subject to a CDSC of 1.0% on redemptions made within one year after
purchase. Further information relating to the CDSC is set forth in paragraph
6 below. In addition, Class C shares, under each Fund's 12b-1 Plan, are
subject to 12b-1 payments to reimburse Dean Witter Distributors Inc., DWR,
its affiliates and other broker-dealers for distribution expenses incurred by
them specifically on behalf of the Class, assessed at the annual rate of up
to 1.0% of the average daily net assets of the Class. A portion of the 12b-1
fee equal to up to 0.25% of the Fund's average daily net assets is
characterized as a service fee within the meaning of NASD guidelines. Unlike
Class B shares, Class C shares do not have the Conversion Feature.
4. Class D Shares
Class D shares are offered without imposition of a FESL, CDSC or a 12b-1
fee for purchases of Fund shares by (i) investors meeting an initial minimum
investment requirement and (ii) certain other limited categories of
investors, in each case, as may be approved by the Boards of
Directors/Trustees of the Funds and as disclosed in each Fund's current
prospectus.
5. Additional Classes of Shares
The Boards of Directors/Trustees of the Funds have the authority to create
additional Classes, or change existing Classes, from time to time, in
accordance with Rule 18f-3 under the 1940 Act.
6. Calculation of the CDSC
Any applicable CDSC is calculated based upon the lesser of net asset value
of the shares at the time of purchase or at the time of redemption. The CDSC
does not apply to amounts representing an increase in share value due to
capital appreciation and shares acquired through the reinvestment of
dividends or
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(1) The payments under the 12b-1 Plan for each of Dean Witter American Value
Fund, Dean Witter Natural Resource Development Securities Inc. and Dean
Witter Dividend Growth Securities Inc. are assessed 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's Plan (not including
reinvestment of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since
the Plan's inception upon which a contingent deferred sales charge 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
inception of the Plan. The payments under the 12b-1 Plan for the Dean Witter
Strategist Fund are assessed at the annual rate of: (i) 1% of the lesser of
(a) the average daily aggregate gross sales of the Fund's Class B shares
since the effectiveness of the first amendment of the Plan on November 8,
1989 (not including reinvestment of dividends or capital gains
distributions), less the average daily aggregate net asset value of the
Fund's Class B shares redeemed since the effectiveness of the first amended
Plan, upon which a contingent deferred sales charge 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 the effectiveness of the first
amended 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
effectiveness of the first amended Plan.
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capital gains distributions. The CDSC schedule applicable to a Fund and the
circumstances in which the CDSC is subject to waiver are set forth in each
Fund's prospectus.
II. EXPENSE ALLOCATIONS
Expenses incurred by a Fund are allocated among the various Classes of
shares pro rata based on the net assets of the Fund attributable to each
Class, except that 12b-1 fees relating to a particular Class are 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 Fund's Board of Directors/Trustees.
III. CLASS DESIGNATION
All shares of the Funds held prior to July 28, 1997 (other than the shares
held by certain employee benefit plans established by DWR and its affiliate,
SPS Transaction Services, Inc., shares of Funds offered with a FESL, and
shares of Dean Witter Balanced Growth Fund and Dean Witter Balanced Income
Fund) have been designated Class B shares. Shares held prior to July 28, 1997
by such employee benefit plans have been designated Class D shares. Shares
held prior to July 28, 1997 of Funds offered with a FESL have been designated
Class D shares. In addition, shares of Dean Witter American Value Fund
purchased prior to April 30, 1984, shares of Dean Witter Strategist Fund
purchased prior to November 8, 1989 and shares of Dean Witter Natural
Resource Development Securities Inc. and Dean Witter Dividend Growth
Securities Inc. purchased prior to July 2, 1984 (with respect to such shares
of each Fund, including such proportion of shares acquired through
reinvestment of dividends and capital gains distributions as the total number
of shares acquired prior to each of the preceding dates in this sentence
bears to the total number of shares purchased and owned by the shareholder of
that Fund) have been designated Class D shares. Shares of Dean Witter
Balanced Growth Fund and Dean Witter Balanced Income Fund held prior to July
28, 1997 have been designated Class C shares except that shares of Dean
Witter Balanced Growth Fund and Dean Witter Balanced Income Fund held prior
to July 28, 1997 that were acquired in exchange for shares of an investment
company offered with a CDSC have been designated Class B shares and those
that were acquired in exchange for shares of an investment company offered
with a FESL have been designated Class A shares.
IV. THE CONVERSION FEATURE
Class B shares held before May 1, 1997 will convert to Class A shares in
May, 2007, except that Class B shares which are purchased before July 28,
1997 by trusts for which Dean Witter Trust Company ("DWTC") or Dean Witter
Trust FSB ("DWTFSB") provides discretionary trustee services will convert to
Class A shares on or about August 29, 1997 (the CDSC will not be applicable
to such shares upon the conversion). In all other instances, Class B shares
of each Fund will automatically convert 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. Conversions will be effected once a month. The 10 year
period will be 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.
Except as set forth below, 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 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 (the "Code") and for which DWTC or DWTFSB serves as
Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper,
all Class B shares will convert to Class A shares on the conversion date of
the first shares of a Fund purchased by that plan. In the case of Class B
shares previously exchanged
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for shares of an "Exchange Fund" (as such term is defined in the prospectus
of each Fund), 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 Fund, the
holding period resumes on the last day of the month in which Class B shares
are reacquired.
Effectiveness of the Conversion Feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel to the effect that (i) the conversion of shares does not constitute a
taxable event under the 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 fees under the applicable Fund's 12b-1
Plan.
V. EXCHANGE PRIVILEGES
Shares of each Class may be exchanged for shares of the same Class of the
other Funds and for shares of certain other investment companies without the
imposition of an exchange fee as described in the prospectuses and statements
of additional information of the Funds. The exchange privilege of each Fund
may be terminated or revised at any time by the Fund upon such notice as may
be required by applicable regulatory agencies as described in each Fund's
prospectus.
VI. VOTING
Each Class shall have exclusive voting rights on any matter that relates
solely to its 12b-1 Plan, except that Class B shareholders will have the
right to vote on any proposed material increase in Class A's expenses,
including payments under the Class A 12b-1 Plan, if such proposal is
submitted separately to Class A shareholders. If the amount of expenses,
including payments under the Class A 12b-1 Plan, is increased materially
without the approval of Class B shareholders, the Fund will establish a new
Class A for Class B shareholders whose shares automatically convert on the
same terms as applied to Class A before the increase. In addition, each Class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one Class differ from the interests of any other
Class.
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DEAN WITTER FUNDS
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
SCHEDULE A
AT JULY 28, 1997
1) Dean Witter American Value Fund
2) Dean Witter Balanced Growth Fund
3) Dean Witter Balanced Income Fund
4) Dean Witter California Tax-Free Income Fund
5) Dean Witter Capital Appreciation Fund
6) Dean Witter Capital Growth Securities
7) Dean Witter Convertible Securities Trust
8) Dean Witter Developing Growth Securities Trust
9) Dean Witter Diversified Income Trust
10) Dean Witter Dividend Growth Securities Inc.
11) Dean Witter European Growth Fund Inc.
12) Dean Witter Federal Securities Trust
13) Dean Witter Financial Services Trust
14) Dean Witter Global Asset Allocation Fund
15) Dean Witter Global Dividend Growth Securities
16) Dean Witter Global Utilities Fund
17) Dean Witter Health Sciences Trust
18) Dean Witter High Yield Securities Inc.
19) Dean Witter Income Builder Fund
20) Dean Witter Information Fund
21) Dean Witter Intermediate Income Securities
22) Dean Witter International SmallCap Fund
23) Dean Witter Japan Fund
24) Dean Witter Managers' Select Fund
25) Dean Witter Market Leader Trust
26) Dean Witter Mid-Cap Growth Fund
27) Dean Witter Natural Resource Development Securities Inc.
28) Dean Witter New York Tax-Free Income Fund
29) Dean Witter Pacific Growth Fund Inc.
30) Dean Witter Precious Metals and Minerals Trust
31) Dean Witter Special Value Fund
32) Dean Witter Strategist Fund
33) Dean Witter Tax-Exempt Securities Trust
34) Dean Witter U.S. Government Securities Trust
35) Dean Witter Utilities Fund
36) Dean Witter Value-Added Market Series/Equity Portfolio
37) Dean Witter World Wide Income Trust
38) Dean Witter World Wide Investment Trust
5
