<PAGE> 1
DEAN WITTER FINANCIAL SERVICES TRUST
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS November 30, 1997
DEAR SHAREHOLDER:
The six-month period ended November 30, 1997, was a volatile one for the stock
market, with the Dow Jones Industrial Average experiencing its largest one-day
point drop in history of 554 points on Monday, October 27. Yet overall the
period was positive for the market and the Dow ended the six months with a gain
of 12.6 percent and the Standard & Poor's 500 Composite Stock Price Index gained
13.6 percent.
Financial stocks fared even better with the Standard & Poor's Financial Index
gaining 19.3 percent for the period. Within this segment of the market, the
brokerage index was the best performing subsegment, increasing 39.0 percent as
many investment banks, both public and private, were acquired. The savings and
loan index was the second best-performing subsegment and returned a strong 30.0
percent. Next, was the bank index, which increased 19.9 percent as consolidation
continued with deal valuations reaching new heights of over five times book
value. The laggard of the group was the insurance index, up 13.6 percent. This
was mainly due to a number of insurers announcing disappointing third quarter
results.
PERFORMANCE AND PORTFOLIO STRATEGY
For the six months ended November 30, 1997, Dean Witter Financial Services Trust
Class B returned 25.67 percent versus 13.6 percent for the Standard & Poor's 500
Composite Stock Price Index and 21.96 percent for the Lipper Financial Services
Funds Index. Since its inception on February 26, 1997, Dean Witter Financial
Services Trust Class B is number 7 of 30 funds (top 23 percent) in the Lipper
Financial Services Funds category.
Dean Witter Financial Services Trust has been well positioned to benefit from
consolidation in the financial services industry. The Fund's heaviest
overweighting during most of the first half of the fiscal year was in
brokerages, as they are a relatively scarce asset for those banks and insurance
companies wanting to add to their expertise in wealth management, distribution
and investment banking.
We eliminated money center banks in November, as earnings increases for these
banks may be less robust in 1998, given the disruption in the emerging markets.
We were market weighted in regional banks for most
<PAGE> 2
DEAN WITTER FINANCIAL SERVICES TRUST
LETTER TO THE SHAREHOLDERS November 30, 1997, continued
of the first half and used the Fund's gains from the brokerage stocks to
increase our exposure to the regionals, mainly in the southeastern United States
where there is strong economic growth and good opportunity for consolidation.
We have been and continue to be underweighted in insurance stocks as
competition, particularly on the commercial side, remains fierce. Also,
consolidation savings are smaller in the insurance industry than in banking.
Insurers can typically eliminate 10 to 20 percent of costs in a merger with
experts such as Travelers Group, Inc. often eliminating one-third of costs. In
banking, cost savings are typically 40 to 60 percent.
OUTLOOK
We continue to believe that the Fund's focus on those sectors of financial
services that are best positioned to benefit from consolidation, deregulation
and technology will serve it well. Over the near term, slowing global growth may
actually benefit financial-services stocks by producing a benign interest-rate
environment. We continue to expect low double-digit earnings growth for
financial stocks in 1998, although it is late in the credit cycle and companies
are clearly stretching to maintain their growth at this point.
We continue to believe that consolidation announcements may accelerate, as
companies may want to finish integrating mergers by the beginning of 1999 in
order to focus on the critical testing of computer systems for the Year 2000.
Consolidation has clearly accelerated in Europe recently, as many banks and
insurers position for the European Monetary Union (EMU). Once these integration
activities are completed, alliances and mergers to obtain global reach may
occur.
We appreciate your support of the Dean Witter Financial Services Trust and look
forward to continuing to serve your investment needs and objectives.
Sincerely,
/S/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 3
DEAN WITTER FINANCIAL SERVICES TRUST
PORTFOLIO OF INVESTMENTS November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (87.4%)
Annuities (3.8%)
20,000 Hartford Financial Services
Group Inc. ................. $ 1,675,000
25,400 Hartford Life, Inc. (Class
A).......................... 974,725
35,000 Lincoln National Corp. ...... 2,498,125
70,000 Nationwide Financial
Services, Inc. (Class A).... 2,393,125
55,000 SunAmerica, Inc. ............ 2,227,500
------------
9,768,475
------------
Asset Management (2.2%)
100,000 Affiliated Managers Group,
Inc.*....................... 2,500,000
18,000 Franklin Resources, Inc. .... 1,617,750
23,000 Price (T. Rowe) Associates,
Inc. ....................... 1,495,000
------------
5,612,750
------------
Banks - Foreign (0.9%)
840,000 Credito Italiano SPA
(Italy)..................... 2,296,528
------------
Banks - Midwest (8.5%)
24,000 Comerica, Inc. .............. 2,044,500
35,000 Fifth Third Bancorp. ........ 2,445,625
32,000 First Chicago NBD Corp. ..... 2,504,000
18,000 Firstar Corp. ............... 702,000
40,000 National City Corp. ......... 2,670,000
170,000 Norwest Corp. ............... 6,364,375
17,000 Old Kent Financial Corp. .... 1,149,625
65,000 TCF Financial Corp. ......... 3,843,125
------------
21,723,250
------------
Banks - Money Center (0.2%)
9,000 NationsBank Corp. ........... 540,562
------------
Banks - Northeast (7.3%)
65,000 Bank of New York Co., Inc. .. 3,493,750
17,000 CoreStates Financial Corp. .. 1,314,312
46,000 Mellon Bank Corp. ........... 2,607,625
92,000 North Fork Bancorporation,
Inc. ....................... 2,794,500
23,500 PNC Bank Corp. .............. 1,264,594
72,000 State Street Corp. .......... 4,284,000
60,000 Summit Bancorp............... 2,797,500
5,000 Wilmington Trust Corp. ...... 290,000
------------
18,846,281
------------
Banks - Southeast (15.7%)
48,000 AmSouth Bancorportion........ 2,499,000
30,000 Barnett Banks, Inc. ......... 2,111,250
79,000 Compass Bancshares Inc. ..... 3,155,062
50,000 Crestar Financial Corp. ..... 2,568,750
50,000 First American Corp. ........ $ 2,462,500
70,500 First of America Bank Corp... 4,141,875
42,000 First Tennessee National
Corp. ...................... 2,496,375
70,000 First Union Corp. ........... 3,412,500
53,000 First Virginia Banks, Inc. .. 2,534,062
140,000 Hibernia Corp. (Class A)..... 2,537,500
50,000 Mercantile Bancorporation,
Inc......................... 2,600,000
72,000 National Commerce
Bancorporation.............. 2,133,000
46,000 Provident Bankshares Corp. .. 2,714,000
42,000 Southtrust Corp. ............ 2,289,000
41,000 Union Planters Corp. ........ 2,531,750
------------
40,186,624
------------
Banks - West (6.4%)
60,000 City National Corp. ......... 1,950,000
77,500 First Security Corp. ........ 2,625,312
28,000 Imperial Bancorp.*........... 1,307,250
30,000 U.S. Bancorp................. 3,226,875
9,000 Wells Fargo & Co. ........... 2,765,250
25,000 Westamerica Bancorporation... 2,281,250
55,000 Zions Bancorporation......... 2,206,875
------------
16,362,812
------------
Brokerage (10.0%)
28,000 Bear Stearns Companies,
Inc. ....................... 1,162,000
87,500 Edwards (A.G.), Inc. ........ 2,964,062
15,000 Everen Capital Corp. ........ 598,125
45,300 Hambrecht & Quist Group,
Inc.*....................... 1,738,387
34,600 Legg Mason, Inc. ............ 1,673,775
36,000 Lehman Brothers Holdings,
Inc. ....................... 1,820,250
25,000 McDonald & Co. Investments,
Inc. ....................... 673,438
42,000 Merrill Lynch & Co., Inc. ... 2,947,875
57,000 Morgan Keegan, Inc. ......... 1,143,563
48,000 Paine Webber Group, Inc. .... 1,614,000
36,000 Raymond James Financial,
Inc. ....................... 1,284,750
84,500 Schwab (CHARLES) Corp. ...... 3,258,531
93,000 Travelers Group, Inc. ....... 4,696,500
------------
25,575,256
------------
Credit Card (2.5%)
44,700 American Express Co. ........ 3,525,713
65,000 Providian Financial Corp. ... 2,864,063
------------
6,389,776
------------
Disability Insurance (1.8%)
70,000 Provident Companies, Inc. ... 2,296,875
48,000 UNUM Corp. .................. 2,277,000
------------
4,573,875
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 4
DEAN WITTER FINANCIAL SERVICES TRUST
PORTFOLIO OF INVESTMENTS November 30, 1997 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<C> <S> <C>
Financial Services (4.5%)
50,000 Associates First Capital
Corp. (Class A)............. $ 3,212,500
60,000 Automatic Data Processing,
Inc. ....................... 3,375,000
37,000 General Electric Co. ........ 2,728,750
92,000 Ocwen Financial Corp.*....... 2,231,000
------------
11,547,250
------------
Insurance Brokers (1.0%)
28,000 Marsh & McLennan Companies,
Inc. ....................... 2,084,250
10,000 Poe & Brown, Inc. ........... 407,500
------------
2,491,750
------------
Insurance - Foreign (1.0%)
30,000 Aegon N.V. (ADR)
(Netherlands)............... 2,550,000
------------
Life Insurance (2.3%)
34,000 Protective Life Corp. ....... 1,908,250
50,000 ReliaStar Financial Corp. ... 1,850,000
55,000 Torchmark Corp. ............. 2,244,688
------------
6,002,938
------------
Multiline Insurance (2.5%)
25,000 American International Group,
Inc. ....................... 2,520,313
84,000 Equitable Companies, Inc. ... 4,005,750
------------
6,526,063
------------
On Line Trade (2.6%)
32,000 America Online, Inc.*........ 2,416,000
120,000 Checkfree Corp.*............. 3,127,500
50,000 E*TRADE Group, Inc.*......... 1,250,000
------------
6,793,500
------------
Property - Casualty Insurance (0.5%)
14,000 Allstate Corp. .............. 1,202,250
------------
Real Estate Related (5.6%)
75,000 Fannie Mae................... 3,960,938
93,000 Freddie Mac.................. 3,836,250
31,100 LaSalle Partners, Inc.*...... 1,078,781
87,000 Security Capital Group,
Inc. - (Class B)*........... 2,794,875
120,000 Trammell Crow Co.*........... 2,640,000
------------
14,310,844
------------
Reinsurers (3.5%)
20,500 Ace, Ltd. (Bermuda).......... $ 2,034,625
50,000 Everest Reinsurance Holdings,
Inc. ....................... 1,896,875
16,500 Exel Limited (Bermuda)....... 1,014,750
9,800 General Re Corp. ............ 1,945,300
39,000 Vesta Insurance Group, Inc. . 2,140,125
------------
9,031,675
------------
Real Estate Investment Trust (0.3%)
31,100 American Health Properties,
Inc. ....................... 808,600
------------
Specialty Insurance (1.9%)
30,000 Executive Risk, Inc. ........ 1,950,000
100,000 Mutual Risk Management Ltd.
(Bermuda)................... 2,793,750
------------
4,743,750
------------
Technology (0.4%)
25,000 Vitesse Semiconductor
Corp.*...................... 1,112,500
------------
Thrifts - Northeast (0.6%)
50,000 Dime Bancorp, Inc. .......... 1,212,500
5,000 GreenPoint Financial Corp. .. 333,125
------------
1,545,625
------------
Thrifts - West (1.4%)
20,000 Ahmanson (H.F.) & Co. ....... 1,190,000
40,000 Golden State Bancorp Inc.*... 1,332,500
17,000 Washington Mutual, Inc. ..... 1,170,875
------------
3,693,375
------------
TOTAL COMMON STOCKS
(Identified Cost
$185,745,807)................ 224,236,309
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
DEAN WITTER FINANCIAL SERVICES TRUST
PORTFOLIO OF INVESTMENTS November 30, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATION (9.5%)
$23,500 U.S. Treasury Bond
6.375% due 08/15/27
(Identified Cost
$24,198,672)................ $ 24,433,655
------------
SHORT-TERM INVESTMENTS (3.7%)
U.S. GOVERNMENT AGENCY (a) (1.6%)
4,000 Federal Home Loan Banks 5.46%
due 12/02/97
(Amortized Cost
$3,999,393)................. 3,999,393
------------
REPURCHASE AGREEMENT (2.1%)
5,537 The Bank of New York 5.375%
due 12/01/97 (dated
11/28/97; proceeds
$5,539,336) (b) (Identified
Cost $5,536,856)............ 5,536,856
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $9,536,249)... 9,536,249
------------
<CAPTION>
VALUE
<S> <C>
TOTAL INVESTMENTS
(Identified Cost
$219,480,728) (c)................ 100.6% 258,206,213
LIABILITIES)IN EXCESS OF
OTHER ASSETS....................... (0.6) (1,432,025)
---- ------------
NET ASSETS......................... 100.0% $256,774,188
===== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* 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) Collateralized by $6,820,483 Government National
Mortgage Assoc. II ARM 7.00% due 04/20/26 valued
at $5,647,593.
(c) The aggregate cost for federal income tax
purposes approximates identified cost. The
aggregate gross unrealized appreciation is
$39,086,765, and the aggregate gross unrealized
depreciation is $361,280, resulting in net
unrealized appreciation of $38,725,485.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
DEAN WITTER FINANCIAL SERVICES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1997 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (identified cost $219,480,728).... $258,206,213
Receivable for:
Shares of beneficial interest sold................................ 854,079
Interest.......................................................... 442,147
Dividends......................................................... 150,921
Deferred organizational expenses...................................... 92,395
Prepaid expenses and other assets..................................... 82,090
------------
TOTAL ASSETS...................................................... 259,827,845
------------
LIABILITIES:
Payable for:
Investments purchased............................................. 2,503,115
Plan of distribution fee.......................................... 205,125
Investment management fee......................................... 154,169
Shares of beneficial interest repurchased......................... 27,789
Organizational expenses............................................... 109,000
Accrued expenses and other payables................................... 54,459
------------
TOTAL LIABILITIES................................................. 3,053,657
------------
NET ASSETS........................................................ $256,774,188
============
COMPOSITION OF NET ASSETS:
Paid-in-capital....................................................... $207,787,418
Net unrealized appreciation........................................... 38,725,485
Net investment loss................................................... (123,234)
Accumulated undistributed net realized gain........................... 10,384,519
------------
NET ASSETS........................................................ $256,774,188
============
CLASS A SHARES:
Net Assets............................................................ $712,990
Shares Outstanding (unlimited authorized, $.01 par value)............. 56,279
NET ASSET VALUE PER SHARE......................................... $12.67
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value).................. $13.37
============
CLASS B SHARES:
Net Assets............................................................ $255,198,256
Shares Outstanding (unlimited authorized, $.01 par value)............. 20,205,095
NET ASSET VALUE PER SHARE......................................... $12.63
============
CLASS C SHARES:
Net Assets............................................................ $847,256
Shares Outstanding (unlimited authorized, $.01 par value)............. 67,051
NET ASSET VALUE PER SHARE......................................... $12.64
============
CLASS D SHARES:
Net Assets............................................................ $15,686
Shares Outstanding (unlimited authorized, $.01 par value)............. 1,237
NET ASSET VALUE PER SHARE......................................... $12.68
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
DEAN WITTER FINANCIAL SERVICES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended November 30, 1997* (unaudited)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $6,805 foreign withholding tax)...................... $ 1,483,061
Interest............................................................... 376,494
-----------
TOTAL INCOME....................................................... 1,859,555
-----------
EXPENSES
Plan of distribution fee (Class A shares).............................. 401
Plan of distribution fee (Class B shares).............................. 1,114,556
Plan of distribution fee (Class C shares).............................. 1,835
Investment management fee.............................................. 838,529
Transfer agent fees and expenses....................................... 141,185
Registration fees...................................................... 75,844
Professional fees...................................................... 23,243
Shareholder reports and notices........................................ 22,721
Custodian fees......................................................... 13,412
Organizational expenses................................................ 10,931
Trustees' fees and expenses............................................ 7,046
Other.................................................................. 617
-----------
TOTAL EXPENSES..................................................... 2,250,320
-----------
NET INVESTMENT LOSS................................................ (390,765)
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain...................................................... 13,640,585
Net change in unrealized appreciation.................................. 34,152,814
-----------
NET GAIN........................................................... 47,793,399
-----------
NET INCREASE........................................................... $47,402,634
===========
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
DEAN WITTER FINANCIAL SERVICES TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
FOR THE SIX FEBRUARY 26, 1997*
MONTHS ENDED THROUGH
NOVEMBER 30, 1997** MAY 31, 1997
- -----------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss)..................... $ (390,765) $ 261,857
Net realized gain (loss)......................... 13,640,585 (3,256,066)
Net change in unrealized appreciation............ 34,152,814 4,572,671
------------ ------------
NET INCREASE................................. 47,402,634 1,578,462
Net increase from transactions in shares of
beneficial interest............................. 32,720,979 174,972,113
------------ ------------
NET INCREASE................................. 80,123,613 176,550,575
NET ASSETS:
Beginning of period.............................. 176,650,575 100,000
------------ ------------
END OF PERIOD
(Including a net investment loss of $123,234
and undistributed net investment income of
$267,531, respectively)...................... $ 256,774,188 $176,650,575
============ ============
</TABLE>
- ---------------------
* Commencement of operations.
** Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
DEAN WITTER FINANCIAL SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1997 (unaudited)
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. On July 28,
1997, the Fund commenced offering three additional classes of shares, with the
then current shares designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the 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
<PAGE> 10
DEAN WITTER FINANCIAL SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1997 (unaudited) continued
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. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the 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
<PAGE> 11
DEAN WITTER FINANCIAL SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1997 (unaudited) continued
net realized capital gains. To the extent they exceed net investment income and
net realized capital gains for tax purposes, they are reported as distributions
of paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- 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. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 1.0% of the average daily
net assets of Class B; and (iii) Class C -- up to 1.0% of the average daily net
assets of Class C. In the case of Class A shares, amounts paid under the Plan
are paid to the Distributor for services provided. In the case of Class B and
Class C shares, amounts paid under the Plan are paid to the Distributor for
services provided and the expenses borne by it and others in the distribution of
the shares of these Classes, including the payment of commissions for sales of
these Classes and incentive compensation to, and expenses of, the account
executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment
Manager and Distributor, and others who engage in or support distribution of the
shares or who service shareholder
<PAGE> 12
DEAN WITTER FINANCIAL SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1997 (unaudited) continued
accounts, including overhead and telephone expenses; printing and distribution
of prospectuses and reports used in connection with the offering of these shares
to other than current shareholders; and preparation, printing and distribution
of sales literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan, in the case of Class B shares, to
compensate DWR and other selected broker-dealers for their opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $10,430,430 at November 30, 1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended November 30, 1997, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the period ended November 30,
1997, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $316,253, and $54, respectively
and received approximately $23,000 in front-end sales charges from sales of the
Fund's Class A shares. The respective shareholders pay such charges which are
not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended November 30, 1997 aggregated
$142,053,895 and $102,701,404, respectively. Included in the aforementioned are
purchases of U.S. Government securities of $31,713,259.
<PAGE> 13
DEAN WITTER FINANCIAL SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1997 (unaudited) continued
For the six months ended November 30, 1997, the Fund incurred brokerage
commissions of $48,200 with DWR for portfolio transactions executed on behalf of
the Fund.
For the six months ended November 30, 1997, the Fund incurred brokerage
commissions of $11,075 with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager, for portfolio transactions executed on behalf of the Fund.
At November 30, 1997, the Fund's payable for investments purchased included
unsettled trades with Morgan Stanley & Co., Inc. of $1,626,965.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At November 30, 1997, the Fund had transfer agent
fees and expenses payable of approximately $2,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FEBRUARY 26, 1997*
NOVEMBER 30, 1997 THROUGH
--------------------------- MAY 31, 1997
(unaudited) ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES**
Sold.......................................................... 57,712 $ 690,559 -- --
Repurchased................................................... (1,433) (17,637) -- --
---------- ------------ ---------- ------------
Net increase - Class A........................................ 56,279 672,922 -- --
---------- ------------ ---------- ------------
CLASS B SHARES
Sold.......................................................... 9,622,497 112,772,596 19,038,217 $188,928,099
Repurchased................................................... (6,997,654) (81,547,237) (1,467,965) (13,955,986)
---------- ------------ ---------- ------------
Net increase - Class B........................................ 2,624,843 31,225,359 17,570,252 174,972,113
---------- ------------ ---------- ------------
CLASS C SHARES**
Sold.......................................................... 69,134 833,465 -- --
Repurchased................................................... (2,083) (25,558) -- --
---------- ------------ ---------- ------------
Net increase - Class C........................................ 67,051 807,907 -- --
---------- ------------ ---------- ------------
CLASS D SHARES**
Sold.......................................................... 1,237 14,791 -- --
---------- ------------ ---------- ------------
Net increase in Fund.......................................... 2,749,410 $ 32,720,979 17,570,252 $174,972,113
=========== ============== =========== ==============
</TABLE>
- ---------------------
* Commencement of operations.
** For the period July 28, 1997 (issue date) through November 30, 1997.
<PAGE> 14
DEAN WITTER FINANCIAL SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1997 (unaudited) continued
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $2,911,000 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.
<PAGE> 15
DEAN WITTER FINANCIAL SERVICES TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FEBRUARY 26, 1997*
NOVEMBER 30, THROUGH
1997**++ MAY 31, 1997
---------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................................. $ 10.05 $ 10.00
------ ------
Net investment income (loss)..................................................... (0.02) 0.01
Net realized and unrealized gain................................................. 2.60 0.04
------ ------
Total from investment operations................................................. 2.58 0.05
------ ------
Net asset value, end of period................................................... $ 12.63 $ 10.05
====== ======
TOTAL INVESTMENT RETURN+......................................................... 25.67% (1) 0.50%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................................................... 2.01% (2) 2.23%(2)
Net investment income (loss)..................................................... (0.35)%(2) 0.64%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.......................................... $255,198 $176,651
Portfolio turnover rate.......................................................... 49% (1) 17%(1)
Average commission rate paid..................................................... $0.0459 $0.0573
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of the Fund held prior to that date have been
designated Class B shares.
++ The per share amounts were computed using an average number of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 16
DEAN WITTER FINANCIAL SERVICES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
NOVEMBER 30,
1997++
---------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................................................ $ 11.51
------
Net investment income....................................................................................... 0.02
Net realized and unrealized gain............................................................................ 1.14
------
Total from investment operations............................................................................ 1.16
------
Net asset value, end of period.............................................................................. $ 12.67
======
TOTAL INVESTMENT RETURN+.................................................................................... 10.08% (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................................................................... 1.28% (2)
Net investment income....................................................................................... 0.47% (2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................................................................... $713
Portfolio turnover rate..................................................................................... 49% (1)
Average commission rate paid................................................................................ $0.0459
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................................................ $ 11.51
------
Net investment loss......................................................................................... (0.01)
Net realized and unrealized gain............................................................................ 1.14
------
Total from investment operations............................................................................ 1.13
------
Net asset value, end of period.............................................................................. $ 12.64
======
TOTAL INVESTMENT RETURN+.................................................................................... 9.82% (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................................................................... 2.03% (2)
Net investment loss......................................................................................... (0.29)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................................................................... $847
Portfolio turnover rate..................................................................................... 49% (1)
Average commission rate paid................................................................................ $0.0459
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 17
DEAN WITTER FINANCIAL SERVICES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
NOVEMBER 30,
1997++
---------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....................................................................... $ 11.51
------
Net investment income...................................................................................... 0.03
Net realized and unrealized gain........................................................................... 1.14
------
Total from investment operations........................................................................... 1.17
------
Net asset value, end of period............................................................................. $ 12.68
======
TOTAL INVESTMENT RETURN+................................................................................... 10.17%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................................................................... 1.02%(2)
Net investment income...................................................................................... 0.76%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.................................................................... $16
Portfolio turnover rate.................................................................................... 49%(1)
Average commission rate paid............................................................................... $0.0459
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 18
(This Page Intentionally Left Blank)
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
DEAN WITTER FINANCIAL SERVICES TRUST
[Graphic Art Design]
SEMIANNUAL REPORT
NOVEMBER 30, 1997
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Anita H. Kolleeny
Vice President
Michelle Kaufman
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and accordingly they do
not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of the
Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
