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Filed Pursuant to Rule 497(e)
Registration File No.: 333-16177
DEAN WITTER
FINANCIAL SERVICES TRUST
PROSPECTUS -- JULY 28, 1997
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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 .............................................. 4
Financial Highlights .................................................. 5
The Fund and its Management ........................................... 6
Investment Objective and Policies ..................................... 6
Risk Considerations .................................................. 8
Investment Restrictions ............................................... 13
Purchase of Fund Shares ............................................... 13
Shareholder Services .................................................. 21
Repurchases and Redemptions ........................................... 23
Dividends, Distributions and Taxes .................................... 24
Performance Information ............................................... 24
Additional Information ................................................ 25
Financial Statements--May 31, 1997 .................................... 26
Report of Independent Accountants ..................................... 33
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Dean Witter Distributors Inc., Distributor
1
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PROSPECTUS SUMMARY
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THE FUND The Fund is organized as a Trust, commonly known as a
Massachusetts business trust, and is an open-end,
diversified management investment company investing at least
65% of its total assets in the equity securities of
companies in the financial services and financial services
related industries.
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SHARES OFFERED Shares of beneficial interest with $0.01 par value (see page
25). The Fund offers four Classes of shares, each with a
different combination of sales charges, ongoing fees and
other features (see pages 13-20).
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MINIMUM The minimum initial investment for each Class is $1,000
PURCHASE ($100 if the account is opened through EasyInvest (Service
Mark) ). Class D shares are only available to persons
investing $5 million or more and to certain other limited
categories of investors. For the purpose of meeting the
minimum $5 million investment for Class D shares, and
subject to the $1,000 minimum initial investment for each
Class of the Fund, an investor's existing holdings of Class
A shares and shares of funds for which Dean Witter
InterCapital Inc. serves as investment manager ("Dean Witter
Funds") that are sold with a front-end sales charge, and
concurrent investments in Class D shares of the Fund and
other Dean Witter Funds that are multiple class funds, will
be aggregated. The minimum subsequent investment is $100
(see page 13).
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INVESTMENT The investment objective of the Fund is long-term capital
OBJECTIVE appreciation (see page 6).
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INVESTMENT Dean Witter InterCapital Inc., the Investment Manager of the
MANAGER Fund, and its wholly-owned subsidiary, Dean Witter Services
Company Inc., serve in various investment management,
advisory, management and administrative capacities to 100
investment companies and other portfolios with net assets
under management of approximately $96.6 billion at June 30,
1997 (see page 6).
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MANAGEMENT The Investment Manager receives a monthly fee at the annual
FEE rate of 0.75% of daily net assets (see page 6).
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DISTRIBUTOR AND Dean Witter Distributors Inc. (the "Distributor"). The Fund
DISTRIBUTION FEE has adopted a distribution plan pursuant to Rule 12b-1 under
the Investment Company Act (the "12b-1 Plan") with respect
to the distribution fees paid by the Class A, Class B and
Class C shares of the Fund to the Distributor. The entire
12b-1 fee payable by Class A and a portion of the 12b-1 fee
payable by each of Class B and Class C equal to 0.25% of the
average daily net assets of the Class are currently each
Characterized as a service fee within the meaning of the
National Association of Securities Dealers, Inc. guidelines.
The remaining portion of the 12b-1 fee, if any, is
characterized as an asset-based sales charge (see pages 13
and 19).
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ALTERNATIVE Four classes of shares are offered:
PURCHASE o Class A shares are offered with a front-end sales charge,
ARRANGEMENTS starting at 5.25% and reduced for larger purchases.
Investments of $1 million or more (and investments by
certain other limited categories of investors) are not
subject to any sales charge at the time of purchase but a
contingent deferred sales charge ("CDSC") of 1.0% may be
imposed on redemptions within one year of purchase. The Fund
is authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the
Fund's Class A shares and servicing shareholder accounts
pursuant to the Fund's 12b-1 Plan. Reimbursement may in no
event exceed an amount equal to payments at an annual rate
of 0.25% of average daily net assets of the Class (see
pages 13, 16 and 19).
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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 13, 17 and 19).
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
13 and 19).
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2
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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 13 and 19).
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DIVIDENDS AND Dividends and capital gains, if any, will be distributed at
CAPITAL GAINS least annually. The Fund may, however, determine to retain
DISTRIBUTIONS all or part of any net long-term capital gains in any year
for reinvestment. Dividends and capital gains distributions
paid on shares of a Class are automatically reinvested in
additional shares of the same Class at net asset value
unless the shareholder elects to receive cash (see page 29).
Shares acquired by dividend and distribution reinvestment
will not be subject to any sales charge or CDSC (see pages
21 and 24).
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REDEMPTION Shares are redeemable by the shareholder at net asset value
less any applicable CDSC on Class A, Class B or Class C
shares. An account may be involuntarily redeemed if the
total value of the account is less than $100 or, if the
account was opened through EasyInvest (Service Mark), if
after twelve months the shareholder has invested less than
$1,000 in the account (see page 23).
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RISK The net asset value of the Fund's shares will fluctuate with
CONSIDERATIONS changes in the market value of the Fund's portfolio
securities. The market value of the Fund's portfolio
securities will increase or decrease due to 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 8). 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 7-12). 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 8-12) before making an
investment in the Fund.
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The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus
and in the Statement of Additional Information.
3
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The estimated expenses and fees set forth in the table
are based on the expenses and fees for the fiscal year ending May 31, 1998.
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CLASS A CLASS B CLASS C CLASS D
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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>
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(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.
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EXAMPLES 1 YEAR 3 YEARS
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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
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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.
4
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FINANCIAL HIGHLIGHTS
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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 this Prospectus
commencing on page 36. 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.
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FOR THE PERIOD
FEBRUARY 26, 1997*
THROUGH
MAY 31, 1997
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PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 10.00
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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>
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* 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
5
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THE FUND AND ITS MANAGEMENT
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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
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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 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
6
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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 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 con vertible 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
7
<PAGE>
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 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
availability 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 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
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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 developments. During an economic
downturn or substantial period of rising interest rates, highly leveraged
issuers may experience financial stress which would adversely affect their
ability to service their principal and interest payment obligations, to meet
their projected business goals or to obtain additional financing. If the
issuer of a fixed-income security owned by the Fund defaults, the Fund may
incur additional expenses to seek recovery. In addition, periods of economic
uncertainty and change can be expected to result in an increased volatility
of market prices of lower rated 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
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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 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
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receive their full value at maturity. The interest earned on such securities
is, implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as
income each year even though the Fund receives no interest payments in cash
on the security during the year.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on portfolio
securities 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, 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
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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 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
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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.
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 at net asset
value without a front-end sales charge, and Class D shares may be sold to
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certain other categories of investors, in each case as may be described in
the then current prospectus of the Fund. See "Alternative Purchase
Arrangements--Selecting a Particular Class" for a discussion of factors to
consider in selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million or more and
to certain other limited categories of investors. For the purpose of meeting
the minimum $5 million initial investment for Class D shares, and subject to
the $1,000 minimum initial investment for each Class of the Fund, an
investor's existing holdings of Class A shares of the Fund and other Dean
Witter Funds that are multiple class funds ("Dean Witter Multi-Class Funds")
and shares of Dean Witter Funds sold with a front-end sales charge ("FSC
Funds") and concurrent investments in Class D shares of the Fund and other
Dean Witter Multi-Class Funds will be aggregated. Subsequent purchases of
$100 or more may be made by sending a check, payable to Dean Witter 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 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
14
<PAGE>
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 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.
<PAGE>
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
- --------- ------------------------- ------------- --------------------
<S> <C> <C> <C>
A MAXIMUM 5.25% 0.25% No
INITIAL SALES CHARGE
REDUCED FOR
PURCHASES OF
$25,000 AND OVER;
SHARES SOLD WITHOUT
AN INITIAL SALES
CHARGE GENERALLY
SUBJECT TO A 1.0%
CDSC DURING FIRST
year.
- --------- ------------------------- ------------- --------------------
B Masiumu 5.0% 1.0% B shares convert
CDSC during the first to A shares
year decreasing automatically
to 0 six years after
approximately
ten years
- --------- ------------------------- ------------- --------------------
C 1.0% CDSC during 1.0% No
first year
- --------- ------------------------- ------------- --------------------
D None None No
- --------- ------------------------- ------------- --------------------
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees
for each Class of shares and "Determination of Net Asset Value,"
15
<PAGE>
"Dividends, Distributions and Taxes" and "Shareholder Services--Exchange
Privilege" for other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--
CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase (calculated from the last day of the month in which the
shares were purchased), except for certain specific circumstances. The CDSC
will be assessed on an amount equal to the lesser of the current market value
or the cost of the shares being redeemed. The CDSC will not be imposed (i) in
the circumstances set forth below in the section "Contingent Deferred Sales
Charge Alternative--Class B Shares--CDSC Waivers," except that the references
to six years in the first paragraph of that section shall mean one year in
the case of Class A shares, and (ii) in the circumstances identified in the
section "Additional Net Asset Value Purchase Options" below. Class A shares
are also subject to an annual 12b-1 fee of up to 0.25% of the average daily
net assets of the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
-------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
- -------------------- --------------- ---------------
<S> <C> <C>
Less than $25,000 .. 5.25% 5.54%
$25,000 but less
than $50,000 ...... 4.75% 4.99%
$50,000 but less
than $100,000 ..... 4.00% 4.17%
$100,000 but less
than $250,000 ..... 3.00% 3.09%
$250,000 but less
than $1 million .. 2.00% 2.04%
$1 million and over 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the
sales charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or
her spouse and their children under the age of 21 purchasing shares for his,
her or their own accounts; (c) a trustee or other fiduciary purchasing shares
for a single trust estate or a single fiduciary account; (d) a pension,
profit-sharing or other employee benefit plan qualified or non-qualified
under Section 401 of the Internal Revenue Code; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Internal Revenue Code; (f)
employee benefit plans qualified under Section 401 of the Internal Revenue
Code of a single employer or of employers who are "affiliated persons" of
each other within the meaning of Section 2(a)(3)(c) of the Act; and for
investments in Individual Retirement Accounts of employees of a single
employer through Systematic Payroll Deduction plans; or (g) any other
organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced sales
charges in accordance with the above schedule by combining purchases of Class
A shares of the Fund in single transactions with the purchase of Class A
shares of other Dean Witter Multi-Class Funds and shares of FSC Funds. The
sales charge payable on the purchase of the Class A shares of the Fund, the
Class A shares of the other Dean Witter Multi-Class Funds and the shares of
the FSC Funds will be at their respective rates applicable to the total
amount of the combined concurrent purchases of such shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single
transaction, together with shares of the Fund and other Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Dean Witter Funds acquired in exchange for those
shares, and including in each case shares acquired through reinvestment of
dividends and distributions), which are held at the time of such transaction,
amounts to $25,000 or more. If such investor has a cumulative net asset value
of shares of FSC Funds and Class A and Class D shares equal to at least $5
million, such investor is eligible to purchase Class D shares subject to the
$1,000 minimum initial investment requirement of that Class of the Fund. See
"No Load Alternative--Class D Shares" below.
<PAGE>
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.
16
<PAGE>
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.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE
ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, will be imposed on most
Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain employer-sponsored
benefit plans, three years) preceding the redemption. In addition, Class B
shares are subject to an annual 12b-1 fee of 1.0% of the average daily net
assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may,
however, be subject to a CDSC which will be a percentage of the dollar amount
of shares redeemed and will be assessed on an amount equal to the lesser of
the current market value or the cost of the shares being redeemed. The size
of this percentage will depend upon how long the shares have been held, as
set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First...................... 5.0%
Second..................... 4.0%
Third...................... 3.0%
Fourth..................... 2.0%
Fifth...................... 2.0%
Sixth...................... 1.0%
Seventh and thereafter .... None
</TABLE>
In the case of Class B shares of the Fund held by 401 (k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal
Revenue Code for which 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
17
<PAGE>
which will depend on how long the shares have been held, as set forth in the
following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First ..................... 2.0%
Second .................... 2.0%
Third ..................... 1.0%
Fourth and thereafter .... None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which represents
an increase in value of shares purchased within the six years (or, in the
case of shares held by certain employer-sponsored benefit plans, three years)
preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption; and
(iii) the current net asset value of shares purchased through reinvestment of
dividends or distributions 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 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.
<PAGE>
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.
18
<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.
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.
19
<PAGE>
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 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,
20
<PAGE>
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.
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 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
21
<PAGE>
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 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
22
<PAGE>
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.
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,
23
<PAGE>
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.
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. 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
24
<PAGE>
depreciation of the Fund's assets, all expenses incurred by the applicable
Class and all sales charges which would be incurred by shareholders, for the
stated periods. It also assumes reinvestment of all dividends and
distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average, and
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each Class of
shares of the Fund. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc.).
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, 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 purchase) 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.
25
<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
--------------
<PAGE>
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
--------------
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
--------------
SEE NOTES TO FINANCIAL STATEMENTS
26
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
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>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------
<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
--------------
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>
<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
27
<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>
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.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS 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
28
<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 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.
29
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1997, continued
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.
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.
30
<PAGE>
DEAN WITTER FINANCIAL SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1997, continued
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.
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.
31
<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.
32
<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
33
<PAGE>
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<PAGE>
(This page has been left blank intentionally.)
<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.
