<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1996
REGISTRATION NOS.: 33-48189
811-6683
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 5 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ ]
AMENDMENT NO. 6 [X]
DEAN WITTER HEALTH SCIENCES TRUST
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
SHELDON CURTIS, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copy to:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
immediately upon filing pursuant to paragraph (b)
on September 25, 1996 pursuant to paragraph (b)
X
60 days after filing pursuant to paragraph (a)
on (date) pursuant to paragraph (a) of rule 485.
The Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Section (a)(1) of Rule 24f-2 under the
Investment Company Act of 1940. The Registrant filed the Rule 24f-2 Notice
for its fiscal year ended July 31, 1996, with the Securities and Exchange
Commission August 29, 1996.
Amending the Prospectus and updating financial statements
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A PART
A
ITEM CAPTION PROSPECTUS
- -------------- -----------------------------------------------------
<S> <C> <C>
1. .... Cover Page
2. .... Summary of Fund Expenses; Prospectus Summary
3. .... Financial Highlights; Performance Information
4. .... Investment Objective and Policies; Risk
Considerations; The Fund and its Management; Cover
Page; Investment Restrictions; Prospectus Summary;
Financial Highlights
5. .... The Fund and Its Management; Back Cover;
Investment Objective and Policies
6. .... Dividends, Distributions and Taxes; Additional
Information
7. .... Purchase of Fund Shares; Shareholder Services
8. .... Repurchases and Redemptions; Shareholder Services
9. .... Not Applicable
</TABLE>
<TABLE>
<CAPTION>
PART B
ITEM STATEMENT OF ADDITIONAL INFORMATION
- -------------- ------------------------------------------------------
<S> <C> <C>
10. .... Cover Page
11. .... Table of Contents
12. .... The Fund and Its Management
13. .... Investment Practices and Policies; Investment
Restrictions; Portfolio Transactions and Brokerage
14. .... The Fund and Its Management; Trustees and
Officers
15. .... Trustees and Officers
16. .... The Fund and Its Management; Purchase of
Fund Shares; Custodian and Transfer
Agent; Independent Accountants
17. .... Portfolio Transactions and Brokerage
18. .... Description of Shares; Validity of
Shares of Beneficial Interest
19. .... Redemptions and Repurchases;
Statement of Assets and Liabilities;
Shareholder Services
20. .... Dividends, Distributions and Taxes
21. .... Not applicable
22. .... Dividends, Distributions and Taxes
23. .... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in
Part C of this Registration Statement.
<PAGE>
PROSPECTUS -- SEPTEMBER 25, 1996
- -----------------------------------------------------------------------------
Dean Witter Health Sciences Trust (the "Fund") is an open-end,
non-diversified management investment company whose investment objective is
capital appreciation. The Fund seeks to achieve its objective by investing in
securities of companies in the health sciences industry throughout the world.
(See "Investment Objective and Policies.")
Shares of the Fund are continuously offered at net asset value. However,
redemptions and/or repurchases are subject in most cases to a contingent
deferred sales charge, scaled down from 5% to 1% of the amount redeemed, if
made within six years of purchase, which charge will be paid to the Fund's
Distributor, Dean Witter Distributors Inc. See "Redemptions and
Repurchases--Contingent Deferred Sales Charge." In addition, the Fund pays
the Distributor a distribution fee pursuant to a Plan of Distribution at the
annual rate of 1% of the lesser of the (i) average daily aggregate net sales
or (ii) average daily net assets of the Fund. See "Purchase of Fund
Shares--Plan of Distribution."
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated September 25, 1996, 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
HEALTH SCIENCES 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 .............................................. 3
Financial Highlights .................................................. 4
The Fund and its Management ........................................... 4
Investment Objective and Policies ..................................... 5
Risk Considerations .................................................. 10
Investment Restrictions ............................................... 12
Purchase of Fund Shares ............................................... 13
Shareholder Services .................................................. 15
Redemptions and Repurchases ........................................... 18
Dividends, Distributions and Taxes .................................... 20
Performance Information ............................................... 21
Additional Information ................................................ 21
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND
THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dean Witter Distributors Inc.
Distributor
<PAGE>
PROSPECTUS SUMMARY
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
--------------- ---------------------------------------------------------------------------
The The Fund is organized as a Massachusetts business trust, and is an
Fund open-end, non-diversified management investment company which invests in
securities of companies in the health sciences industry throughout the
world.
- --------------- ---------------------------------------------------------------------------
Shares At net asset value next determined following receipt of an order (see page
Offered 13). Shares redeemed within six years of purchase are subject to a
contingent deferred sales charge under most circumstances (see
page 18).
- --------------- ---------------------------------------------------------------------------
Minimum The minimum initial investment is $1,000 ($100 if the account is opened
Purchase through EasyInvest (Service Mark) ) and the minimum subsequent investment
is $100 (see page 13).
- --------------- ---------------------------------------------------------------------------
Investment The investment objective of the Fund is capital appreciation.
Objective
- --------------- ---------------------------------------------------------------------------
Investment The Fund will seek to achieve its investment objective by investing at
Policies least 65% of its total assets in the equity securities of health science
companies throughout the world. The Fund's portfolio will primarily consist
of common stocks, preferred stocks, convertible preferred stocks,
securities convertible into common stocks and warrants. The Fund may also
invest in investment grade debt securities when the Investment Manager
believes that such securities present a favorable opportunity for capital
appreciation and in various other financial instruments, such as options,
futures and options on futures, to hedge against adverse price movements in
the securities held in its portfolio, as well as in the securities it might
wish to purchase, and the currencies in which they are denominated (see
pages 5 through 12).
- --------------- ---------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of
Manager the Fund, and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to ninety-nine investment companies and other
portfolios with assets of approximately $84.6 billion at August 31, 1996
(see page 4).
- --------------- ---------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee at the annual rate of 1.0% of
Fee daily net assets, scaled down to 0.95% on assets over $500 million (see
page 5).
- --------------- ---------------------------------------------------------------------------
Dividends and Dividends from net investment income and distributions from net capital
Capital Gains gains, if any, are paid at least once a year. Long-term capital gains may
Distributions be retained for reinvestment by the Fund. Dividends and capital gains
distributions are automatically invested in additional shares at net asset
value unless the shareholder elects to receive cash (see page 20).
- --------------- ---------------------------------------------------------------------------
Distributor For its services as Distributor, which include payment of sales commissions
and to account executives and various other promotional and sales related
Distribution expenses, Dean Witter Distributors Inc. (the "Distributor") receives from
Fee the Fund a distribution fee accrued daily and payable monthly at the rate
of 1.0% per annum of the lesser of (i) the Fund's average daily aggregate
net sales or (ii) the Fund's average daily net assets. This fee compensates
the Distributor for the services provided in distributing shares of the
Fund and for sales related expenses (see page 13). The Distributor also
receives the proceeds of any contingent deferred sales charges (see page
18).
- --------------- ---------------------------------------------------------------------------
Redemption-- At net asset value; redeemable involuntarily if total value of the account
Contingent is less than $100 or, if the account was opened through EasyInvest (Service
Deferred Mark), if after twelve months the shareholder has invested less than $1,000
Sales in the account. Although no commission or sales load is imposed upon the
Charge purchase of shares, a contingent deferred sales charge (scaled down from 5%
to 1%) is imposed on any redemption of shares, if after such redemption,
the aggregate current value of an account with the Fund is less than the
aggregate amount of the investor's purchase payments made during the six
years preceding the redemption. However, there is no charge imposed on
redemption of shares purchased through reinvestment of dividends or
distributions (see page 18).
- --------------- ---------------------------------------------------------------------------
Risks The value of the Fund's portfolio securities, and therefore the net asset
value of the Fund's shares, will fluctuate with changes in the market value
of its portfolio securities. Unlike more widely diversified mutual funds,
the Fund is subject to industry risk, i.e., the possibility that a
particular group of related stocks will decline in price. In addition, the
health sciences industry generally is subject to substantial government
regulation; accordingly, changes in government policies or regulation could
have a material effect on the demand for products and services offered by
health science companies and, therefore, could affect the performance of
the Fund. It should be recognized that the foreign securities and markets
in which the Fund invests pose different and greater risks than those
customarily associated with domestic securities and their markets.
Furthermore, investors should consider other risks associated with a
portfolio which contains international securities, including fluctuations
in foreign currency exchange rates (i.e., if a substantial portion of the
Fund's assets are denominated in foreign currencies which decrease in value
with respect to the U.S. dollar, the value of the investor's shares and the
distributions made on those shares will, likewise, decrease in value),
foreign securities exchange controls and foreign tax rates, as well as
investments in forward currency contracts, options and futures contracts
(see pages 10 through 12).
</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus
and in the Statement of Additional Information.
2
<PAGE>
SUMMARY OF FUND EXPENSES
- -----------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder
of the Fund will incur. The expenses and fees set forth in the table are for
the fiscal year ending July 31, 1996.
Shareholder Transaction Expenses
- ----------------------------------
Maximum Sales Charge Imposed on Purchases ............................. None
Maximum Sales Charge Imposed on Reinvested Dividends .................. None
Deferred Sales Charge (as a percentage of the lesser of original
purchase price or redemption proceeds) ................................ 5.0%
A contingent deferred sales charge is imposed at the following
declining rates:
<TABLE>
<CAPTION>
<S> <C>
Year Since Purchase Payment
Made Percentage
- ----------------------------------- --------------
First .......................... 5.0%
Second ......................... 4.0%
Third .......................... 3.0%
Fourth ......................... 2.0%
Fifth .......................... 2.0%
Sixth .......................... 1.0%
Seventh and thereafter ......... None
</TABLE>
Redemption Fees ................................................. None
Exchange Fee .................................................... None
Annual Fund Operating Expenses (as a Percentage of Net Assets)
-------------------------------------------------------------
Management Fees ................................................. 1.00%
12b-1 Fees* ..................................................... 1.00%
Other Expenses .................................................. 0.20%
Total Fund Operating Expenses ................................... 2.20%
- ------------
* A portion of the 12b-1 fee equal to 0.25% of the Fund's average daily
net assets is characterized as a service fee within the meaning of the
National Association of Securities Dealers, Inc. ("NASD") guidelines
(see "Purchase of Fund Shares").
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------- -------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period: $72 $99 $138 $253
You would pay the following expenses on the same investment assuming no
redemption: .......................................................... $22 $69 $118 $253
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND 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," "Plan of Distribution" and "Repurchases and
Redemptions."
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
3
<PAGE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in
conjunction with the financial statements and notes thereto and the
unqualified report of independent accountants which are contained in the
Statement of Additional Information. Further information about the
performance of the Fund is contained in the Fund's Annual Report to
Shareholders, which may be obtained without charge upon request to the Fund.
FOR THE
PERIOD
OCTOBER
30, 1992*
FOR THE YEAR ENDED JULY 31 THROUGH
------------------------------- JULY 31,
1996 1995 1994 1993
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of period........................ $ 12.88 $ 9.32 $ 9.22 $ 10.00
--------- --------- --------- ----------
Net investment loss............... (0.26) (0.24) (0.22) (0.08)
Net realized and unrealized
gain (loss)...................... 3.44 3.80 0.32 (0.70)
--------- --------- --------- ----------
Total from investment operations.. 3.18 3.56 0.10 (0.78)
--------- --------- --------- ----------
Less distributions from net
realized gain.................... (1.09) -- -- --
--------- --------- --------- ----------
Net asset value, end of period.... $ 14.97 $ 12.88 $ 9.32 $ 9.22
--------- --------- --------- ----------
--------- --------- --------- ----------
TOTAL INVESTMENT RETURN+.......... 24.84% 38.20% 1.08% (7.80)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................... 2.20% 2.30% 2.30% 2.38%(2)
Net investment loss............... (2.03)% (2.05)% (2.06)% (1.38)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands..................... $442,876 $273,735 $228,573 $231,646
Portfolio turnover rate........... 63% 145% 106% 55%(1)
Average commission rate paid...... $0.0562 -- -- --
- ---------------------
* 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.
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Dean Witter Health Sciences Trust (the "Fund") is an open-end,
non-diversified management investment company. The Fund is a trust of the
type commonly known as a "Massachusetts business trust" and was organized
under the laws of The Commonwealth of Massachusetts on May 26, 1992.
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 Dean Witter,
Discover & Co. ("DWDC"), a balanced financial services organization providing
a broad range of nationally marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, manage-
4
<PAGE>
ment and administrative capacities to ninety-nine investment companies,
thirty of which are listed on the New York Stock Exchange, with combined
assets of approximately $81.8 billion at August 31, 1996. The Investment
Manager also manages portfolios of pension plans, other institutions and
individuals which aggregated approximately $2.8 billion at such date.
The Fund has retained the Investment Manager, pursuant to an Investment
Management Agreement, 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 Board of Trustees reviews the various services provided by or
under the direction of the Investment Manager to ensure that the Fund's
general investment policies and programs are being properly carried out and
that administrative services are being provided to the Fund in a satisfactory
manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 1.0% of the daily net assets up to $500 million, scaled down
to 0.95% on assets over $500 million, determined as of the close of each
business day. For the fiscal year ended July 31, 1996, the Fund accrued total
compensation to the Investment Manager amounting to 1.0% of the Fund's daily
net assets and the Fund's total expenses amounted to 2.20% of the Fund's
daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
The investment objective of the Fund is capital appreciation. The
investment objective of the Fund is a fundamental policy and may not be
changed without the approval of the holders of a majority of the Fund's
shares. There is no assurance that the Fund's investment objective will be
achieved.
The Fund will seek to achieve its investment objective by investing at
least 65% of its total assets in the equity securities of health science
companies throughout the world. A health science company is defined as a
company which is principally engaged in the health sciences industry. A
company is deemed to be "principally engaged" if it has at least 50% of its
earnings or revenues derived from health sciences activities, as defined
below, or at least 50% of its assets is devoted to such activities, based
upon the financial statements of the company's most recently reported fiscal
year.
In addition, the Investment Manager may invest in companies other than
health science companies if it considers that such companies have potential
for capital appreciation primarily as a result of particular products,
technology, patents or other market advantages in the health sciences
industry. The Fund does not anticipate that companies not principally engaged
in the health sciences industry will represent more than 20% of the Fund's
investments.
Health sciences activities are defined as activities which consist of the
research, development, production or distribution of products and services by
health science companies which include, but are not limited to, companies
such as: pharmaceutical companies; companies involved in the ownership and/or
operation or delivery of health care services such as hospitals, clinical
test laboratories, convalescent and mental health care facilities,
rehabilitation centers, and products and services for home care; companies
involved in biotechnology, medical diagnostics, biochemical, and nuclear
research and development; and companies that produce and manufacture medical,
dental and optical supplies and equipment.
The Fund's portfolio will primarily consist of common stocks. The Fund may
also invest up to 35% of its total assets in preferred stock and in
investment grade domestic and foreign debt securi-
5
<PAGE>
ties of any type of issuer (such as foreign and domestic corporations and
foreign and domestic governments and their political subdivisions), including
bonds, notes, debentures and debt securities convertible into equity if the
Investment Manager believes that such securities present a favorable
opportunity for capital appreciation. The term investment grade consists of
debt instruments rated Baa or higher by Moody's Investors Service, Inc.
("Moody's") or BBB or higher by Standard & Poor's Corporation ("S&P") or, if
not rated, determined to be of comparable quality by the Investment Manager.
Investments in securities rated either Baa by Moody's or BBB by S&P may have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make
principal and interest payments than would be the case with investments in
securities with higher credit ratings. If a debt instrument held by the Fund
is rated BBB or Baa and is subsequently downgraded by a rating agency, the
Fund will retain such security in its portfolio until the Investment Manager
determines that it is practicable to sell the security without undue market
or tax consequences to the Fund. In the event that such downgraded securities
constitute 5% or more of the Fund's total assets, the Investment Manager will
sell immediately sufficient securities to reduce the total to below 5%. The
Fund may invest in various other financial instruments such as warrants and
forward foreign currency exchange contracts, futures and options, including
stock index futures contracts and related options in an attempt to hedge its
portfolio (see below).
Foreign Securities. While the Fund expects that, from time to time, a
significant portion of its investments will be in securities of U.S.
companies, the Fund's Investment Manager believes that a portfolio comprised
only of U.S. securities does not provide the greatest potential for capital
appreciation from an investment in the health sciences industry. It believes
that a worldwide focus is necessary if the Fund is to take advantage of the
increasing opportunities presented by health science companies headquartered
throughout the world. The Fund may invest substantially in securities
denominated in one or more currencies. The Investment Manager believes that
by investing worldwide, the Fund can better position itself to take advantage
of available health sciences investment opportunities (see "Risk
Considerations").
The Fund may also invest in securities of foreign issuers in the form of
American Depository Receipts (ADRs), European Depository Receipts (EDRs) or
other similar securities convertible into securities of foreign issuers.
These securities may not necessarily be denominated in the same currency as
the securities into which they may be converted. ADRs are receipts typically
issued by a United States bank or trust company evidencing ownership of the
underlying securities. EDRs are European receipts evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
United States securities markets and EDRs, in bearer form, are designed for
use in European securities markets.
Private Placements/Illiquid Securities. The Fund may invest up to 5% of
its total assets in securities that are subject to restrictions on resale
(referred to as private placements or restricted securities) because they
have not been registered under the Securities Act of 1933, as amended, or
which are otherwise not readily marketable. (Securities eligible for resale
pursuant to Rule 144A of the Securities Act, and determined to be liquid
pursuant to the procedures adopted by the Board of Trustees, are not subject
to the foregoing restriction.) If a restricted security is determined to be
"liquid," such security will not be included within the category "illiquid
securities," which is limited by the Fund's investment policies to 15% of the
Fund's net assets. Investing in Rule 144A securities could have the effect of
increasing the level of Fund illiquidity to the extent the Fund, at a
particular point in time, may be unable to find qualified institutional
buyers interested in purchasing such securities. Generally, OTC options and
the assets used as "cover" for written OTC options are illiquid securities.
However, the Fund is permitted to treat the securities it uses as cover for
written OTC options as liquid provided it
6
<PAGE>
follows a procedure whereby it will sell OTC options only to qualified
dealers who agree that the Fund may repurchase such options at a maximum
price to be calculated pursuant to a predetermined formula set forth in the
option agreement. See "Investment Practices and Policies" in the Statement of
Additional Information.
There may be periods during which 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 greater than 35% of its
total assets are invested in cash (U.S. dollars, foreign currencies or
multinational currency units) and/or invest any portion of its assets in high
quality debt securities or money market instruments of U.S. or foreign
issuers. Under such circumstances, the money market instruments in which the
Fund may invest are securities issued or guaranteed by U.S. or foreign
governments; American bank obligations; Eurodollar certificates of deposit;
obligations of American savings institutions; fully insured certificates of
deposit; and commercial paper of American issuers rated within the two
highest grades by Moody's or S&P or, if not rated, are issued by a company
having an outstanding debt issue rated at least AA by S&P or Aa by Moody's.
The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940, as amended (the "Act"), and as such is not
limited by the Act in the proportion of its assets that it may invest in the
obligations of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code. See "Dividends, Distributions and
Taxes." In order to qualify, among other requirements, the Fund will limit
its investments so that at the close of each quarter of the taxable year, (i)
not more than 25% of the market value of the Fund's total assets will be
invested in the securities of a single issuer, and (ii) with respect to 50%
of the market value of its total assets, not more than 5% will be invested in
the securities of a single issuer and the Fund will not own more than 10% of
the outstanding voting securities of a single issuer. To the extent that a
relatively high percentage of the Fund's assets may be invested in the
securities of a limited number of issuers, the Fund's portfolio securities
may be more susceptible to any single economic, political or regulatory
occurrence than the portfolio securities of a diversified investment company.
The limitations described in this paragraph are not fundamental policies and
may be revised to the extent applicable Federal income tax requirements are
revised.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS.
A forward foreign currency exchange contract ("forward contract") involves
an obligation to purchase or sell a currency at a future date, which may be
any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. The Fund may enter into
forward contracts as a hedge against fluctuations in future foreign exchange
rates.
The Fund will enter into forward contracts under various circumstances.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in"
the price of the security in U.S. dollars or some other foreign currency
which the Fund is temporarily holding in its portfolio. At other times, when,
for example, it is believed 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 portfolio securities (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
7
<PAGE>
be selected when it is determined that the foreign currency in which the
portfolio securities are denominated has insufficient liquidity or is trading
at a discount as compared with some other foreign currency with which it
tends to move in tandem.
In addition, when the Fund anticipates purchasing securities at some time
in the future, and wishes to lock in the current exchange rate of the
currency in which those securities are denominated against the U.S. dollar or
some other foreign currency, it 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. Lastly, the
Fund is permitted to enter into forward contracts with respect to currencies
in which certain of its portfolio securities are denominated and on which
options have been written (see "Options and Futures Transactions").
OPTIONS AND FUTURES TRANSACTIONS.
Call and put options on U.S. Treasury notes, bonds and bills, on various
foreign currencies and on equity securities are listed on several U.S. and
foreign securities exchanges and 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 ("OCC"). Ownership of a listed call option gives the Fund the
right to buy from the OCC (in the U.S.) or other clearing corporation or
exchange, the underlying security or currency covered by the option at the
stated exercise price (the price per unit of the underlying security or
currency) by filing an exercise notice prior to the expiration date of the
option. The writer (seller) of the option would then have the obligation to
sell, to the OCC (in the U.S.) or other clearing corporation or exchange, the
underlying security or currency at that exercise price prior to the
expiration date of the option, regardless of its then current market price.
Ownership of a listed put option would give the Fund the right to sell the
underlying security or currency to the OCC (in the U.S.) or other clearing
corporation or exchange at the stated exercise price. Upon notice of exercise
of the put option, the writer of the option would have the obligation to
purchase the underlying security or currency from the OCC (in the U.S.) or
other clearing corporation or exchange at the exercise price.
Futures Contracts. The Fund may purchase and sell futures contracts that
are currently traded, or may in the future be traded, on U.S. and foreign
commodity exchanges on common stocks, such underlying fixed-income securities
as U.S. Treasury bonds, notes, and bills and/or any foreign government
fixed-income security ("interest rate" futures), on various currencies
("currency" futures) and on such indexes of U.S. or foreign equity and
fixed-income securities as may exist or come into being, such as the Standard
& Poor's 500 Index or the Financial Times Equity Index ("index" futures). As
a futures contract purchaser, the Fund incurs an obligation to take delivery
of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of
the underlying obligation at a specified time in return for an agreed upon
price.
Options on Futures Contracts. The Fund may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position.
OTHER INVESTMENT POLICIES
Repurchase Agreements. The Fund may enter into repurchase agreements,
which may be viewed as a type of secured lending by the Fund, and which
typically involve the acquisition by the Fund of debt securities, from a
selling financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying
security at a specified price and at a fixed time in the future, usually not
more than seven days from the date of purchase. While repurchase agreements
involve certain risks not associated with direct investments in debt secu-
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<PAGE>
rities, including the risks of default or bankruptcy of the selling financial
institution, the Fund follows procedures designed to minimize such risks. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions and maintaining
adequate collateralization.
When-Issued and Delayed Delivery Securities and Forward Commitments. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after the date of the commitment.
There is no overall limit on the percentage of the Fund's assets which may be
committed to the purchase of securities on a when-issued, delayed delivery,
or forward commitment basis. An increase in the percentage of the Fund's
assets committed to the purchase of securities on a when-issued, delayed
delivery, or forward commitment basis may increase the volatility of the
Fund's net asset value.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. There is no overall limit on
the percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when, as
and if issued" basis may increase the volatility of its net asset value.
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
cash equivalents, which are maintained in a segregated account pursuant to
applicable regulations and that are at least equal to the market value,
determined daily, of the loaned securities.
Except as specifically noted, all investment objectives, policies and
practices discussed above are not fundamental policies of the Fund and, as
such, may be changed without shareholder approval.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers, the views of
Trustees of the Fund and others regarding economic developments and interest
rate trends, and the Investment Manager's own analysis of factors they deem
relevant. The Fund's portfolio is managed within InterCapital's Growth Group,
which manages twenty-six funds and fund portfolios, with approximately $10.9
billion in assets as of August 31, 1996. Ronald J. Worobel, Senior Vice
President of InterCapital and a member of InterCapital's Growth Group, has
been the primary portfolio manager since the Fund's inception and has been a
portfolio manager at InterCapital since June, 1992. He was formerly the
Managing Director at MacKay-Shields Financial Corp.
Personnel of the Investment Manager have substantial experience in the use
of the investment techniques described above under the heading "Options and
Futures Transactions," which techniques require skills different from those
needed to select the portfolio securities underlying various options and
futures contracts.
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Orders for transactions in portfolio securities and commodities may be
placed for the Fund with a number of brokers and dealers, including Dean
Witter Reynolds Inc. ("DWR"). Pursuant to an order of the Securities and
Exchange Commission, the Fund may effect principal transactions in certain
money market instruments with DWR, a broker-dealer affiliate of InterCapital.
In addition, the Fund may incur brokerage commissions on transactions
conducted through DWR.
It is not anticipated that the Fund's portfolio turnover rate will exceed
100% in any one year. Short-term gains and losses taxable at ordinary income
rates may result from such portfolio transactions. See "Dividends,
Distributions and Taxes" for a full discussion of the tax implications of the
Fund's trading policy. A more extensive discussion of the Fund's portfolio
brokerage policies is set forth in the Statement of Additional Information.
The expenses of the Fund relating to its portfolio management are likely
to be greater than those incurred by other investment companies investing
primarily in securities issued by domestic issuers as custodial costs,
brokerage commissions and other transaction charges related to investing on
foreign markets are generally higher than in the United States.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in the
market value of its portfolio securities. Dividends payable by the Fund will
vary in relation to the amount of income earned on portfolio securities.
Health Sciences Industry. Investors should consider that the assets of the
Fund are subject to "industry risk" because investments will be concentrated
in a particular group of related stocks. The concentration of investments in
the health sciences industry may cause the value of the Fund's shares to
fluctuate more widely than those funds investing in a greater variety of
industries. The Investment Manager believes, however, that the Fund's
concentration of investments in the health sciences industry also may provide
it with the potential to achieve greater long-term performance than
investments in a variety of industries. In addition, the health sciences
industry generally is subject to substantial government regulation;
accordingly, changes in government policies or regulation could have a
material effect on the demand for products and services offered by health
science companies, thereby affecting the performance of the Fund. In
addition, the products and services offered by such companies may be subject
to rapid obsolescence caused by technological and scientific advances.
While the Fund's portfolio normally will include securities of established
suppliers of traditional products and services, the Fund may invest in
smaller companies which can benefit from the development of new products and
services. These smaller companies may present greater opportunities for
capital appreciation, but may also involve greater risks, than large,
established issuers. Such smaller companies may have limited product lines,
markets or financial resources, and their securities may trade less
frequently and in more limited volume than the securities of larger, more
established companies. As a result, the prices of the securities of such
smaller companies may fluctuate to a greater degree than the prices of the
securities of other issuers.
Foreign Securities. Investors should carefully consider the risks of the
Fund's investing in securities of foreign issuers and securities denominated
in non-U.S. currencies. Fluctuations in the relative rates of exchange
between the currencies of different nations will affect the value of the
Fund's investments. Changes in foreign currency exchange rates relative to
the U.S. dollar will affect the U.S. dollar value of the Fund's assets
denominated in that currency and may thereby adversely 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 fac-
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<PAGE>
tors. 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 contracts or futures contracts (see below). The Fund may
incur certain costs in connection with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer
of Fund assets and any effects of foreign social, economic or political
instability. Political and economic developments in Europe, especially as
they relate to changes in the structure of the European Economic Community
and the anticipated development of a unified common market, may have profound
effects upon the value of a large segment of the Fund's portfolio. Continued
progress in the evolution of, for example, a united European common market
may be slowed by unanticipated political or social events and may, therefore,
adversely affect the value of certain of the securities held in the Fund's
portfolio. Foreign companies are not subject to the regulatory requirements
of U.S. companies and, are subject to different risks relating to claims and
litigation. Regulation of the health sciences industry in foreign countries
is different from that in the U.S. and there are differences in environmental
and securities regulation. There is less publicly available information about
foreign companies as well. Moreover, foreign companies are not subject to
uniform accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies.
The price changes of securities of foreign issuers may be more volatile
than comparable securities of U.S. issuers. Furthermore, foreign exchanges
and broker-dealers are generally subject to less government and exchange
scrutiny and regulation than their American counterparts. Brokerage
commissions, dealer concessions and other transaction costs may be higher on
foreign markets than in the U.S. In addition, differences in clearance and
settlement procedures on foreign markets may occasion delays in settlements
of Fund trades effected in such markets. Inability to dispose of portfolio
securities due to settlement delays could result in losses to the Fund due to
subsequent declines in value of such securities and the inability of the Fund
to make intended security purchases due to settlement problems could result
in a failure of the Fund to make potentially advantageous investments.
To hedge against adverse price movements in the securities held in its
portfolio and the currencies in which they are denominated (as well as in the
securities it might wish to purchase and their denominated currencies) the
Fund may engage in transactions in forward foreign currency contracts,
options on securities and currencies, and futures contracts and options on
futures contracts on securities, currencies and indexes. The Fund may also
purchase options on securities to facilitate its participation in the
potential appreciation of the value of the underlying securities. A
discussion of these transactions follows and is supplemented by further
disclosure in the Statement of Additional Information.
Forward Foreign Currency Exchange Contracts. If the currency in which the
Fund's portfolio securities (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.
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
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liquid secondary market exists for options or futures contracts of that
series. There is no assurance that such a market will exist, particularly in
the case of OTC options, as such options will generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer.
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such
instruments. One such risk is that the Fund's management could be incorrect
in its expectations as to the direction or extent of various interest rate or
price movements or the time span within which the movements take place. For
example, if the Fund sold futures contracts for the sale of securities in
anticipation of an increase in interest rates, and then interest rates went
down instead, causing bond prices to rise, the Fund would lose money on the
sale.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities, currencies and indices subject to futures contracts (and thereby
the futures contract prices) may correlate imperfectly with the behavior of
the U.S. dollar cash prices of the Fund's portfolio securities and their
denominated currencies. Another such risk is that prices of interest rate
futures contracts may not move in tandem with the changes in prevailing
interest rates against which the Fund seeks a hedge. A correlation may also
be distorted by the fact that the futures market is dominated by short-term
traders seeking to profit from the difference between a contract or security
price objective and their cost of borrowed funds. Such distortions are
generally minor and would diminish as the contract approached maturity.
For additional risk disclosure, please refer to the "Investment Objective
and Policies" section of the Prospectus and to the "Investment Practices and
Policies" section in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities
of the Fund, as defined in the Act. For purposes of the following
limitations: (i) all percentage limitations apply immediately after a
purchase or initial investment, and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
The Fund may not:
1. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry, except the Fund will invest at least 25% of
the value of its total assets in the health sciences industry.
2. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction shall not apply to any
obligation issued or guaranteed by the United States Government, its
agencies or instrumentalities.
3. Purchase or sell commodities or commodities contracts except that the
Fund may purchase or write interest rate, currency and stock and bond
index futures contracts and related options thereon.
4. Pledge its assets or assign or otherwise encumber them except to
secure permitted borrowings. (For the purpose of this restriction,
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<PAGE>
collateral arrangements with respect to the writing of options and
collateral arrangements with respect to initial or variation margin for
futures are not deemed to be pledges of assets.)
5. Purchase securities on margin (but the Fund may obtain short-term
loans as are necessary for the clearance of transactions). The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the
purchase of a security on margin.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment
Manager, shares of the Fund are distributed by the Distributor and offered by
DWR and other dealers which have entered into Selected Dealers 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 minimum initial purchase is $1,000. Minimum subsequent purchases of
$100 or more may be made by sending a check, payable to Dean Witter Health
Sciences Trust, directly to Dean Witter Trust Company (the "Transfer Agent")
at P.O. Box 1040, Jersey City, N.J. 07303 or by contacting an account
executive of DWR or of another Selected Broker-Dealer. The minimum initial
purchase in the case of investments through EasyInvest (Service Mark), an
automatic purchase plan (see "Shareholder Services"), is $100, provided that
the schedule of automatic investments will result in investments totalling at
least $1,000 within the first twelve months. In the case of investments made
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. The offering price will be the
net asset value per share next determined following receipt of an order (see
"Determination of Net Asset Value" below).
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. While no sales charge is imposed at the time
shares are purchased, a contingent deferred sales charge may be imposed at
the time of redemption (see "Redemptions and Repurchases"). Sales personnel
are compensated for selling shares of the Fund at the time of their sale by
the Distributor and/or Selected Broker-Dealer. In addition, some sales
personnel of the Selected Broker-Dealer will receive non-cash compensation as
special sales incentives, including trips, educational and/or business
seminars and merchandise. The Fund and the Distributor reserve the right to
reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan"), under which the Fund pays the Distributor a fee, which
is accrued daily and payable monthly, at an
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<PAGE>
annual rate of 1.0% of the lesser of: (a) the average daily aggregate gross
sales of the Fund's shares since the inception of the Fund (not including
reinvestments of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been
imposed or waived; or (b) the Fund's average daily net assets. This fee is
treated by the Fund as an expense in the year it is accrued. The service fee
is a payment made for personal service and/or the maintenance of shareholder
accounts.
Amounts paid under the Plan are paid to the Distributor for the services
provided and the expenses borne by the Distributor 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
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 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 incurred.
For the fiscal year ended July 31, 1996, the Fund accrued payments under
the Plan amounting to $3,864,860 which amount is equal to 1.0% of the Fund's
average daily net assets for the fiscal year. These payments accrued under
the Plan were calculated pursuant to clause (b) of the compensation formula
under the Plan. Of the amount accrued under the Plan, 0.25% of the Fund's
average daily net assets is characterized as a service fee within the meaning
of NASD guidelines. The service fee is a payment made for personal service
and/or the maintenance of shareholder accounts.
At any given time, the expenses in distributing 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 contingent deferred sales charges paid by
investors upon the redemption of shares (see "Redemptions and
Repurchases--Contingent Deferred Sales Charge"). For example, if the
Distributor incurred $1 million in expenses in distributing shares of the
Fund and $750,000 had been received by the Distributor 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 $16,178,097 at July 31, 1996, which was equal to
3.66% of the Fund's net assets on such date. Because there is no requirement
under the Plan that the Distributor be reimbursed for all its expenses or any
requirement that the Plan be continued from year to year, this excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made
to the Distributor under the Plan and the proceeds of contingent deferred
sales charges paid by investors upon redemption of shares, if for any reason
the Plan is terminated, the Trustees will consider at that time the manner in
which to treat such expenses. Any cumulative expenses incurred, but not yet
recovered through distribution fees or contingent deferred sales charges, may
or may not be recovered through future distribution fees or contingent
deferred sales charges.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes
prior to 4:00 p.m., at such earlier time), on each day that the New York
Stock Exchange is open by taking the value of all assets of the Fund,
subtracting all its liabilities, dividing by the number of shares outstanding
and adjusting to the nearest cent. 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.
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<PAGE>
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 or quoted by NASDAQ is valued at its
latest sale price on that exchange or quotation service prior to the time
when assets are valued; if there were no sales that day, the security is
valued at the latest bid price (in cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated as
the primary market pursuant to procedures adopted by the Trustees); and (2)
all other portfolio securities for which over-the-counter market quotations
are readily available are valued at the latest available bid price prior to
the time of valuation. When market quotations are not readily available,
including circumstances under which it is determined by the Investment
Manager that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in
good faith under procedures established by and under the general supervision
of the Fund's Trustees. 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 morning of valuation. Dividends receivable
are accrued as of the ex-dividend date or as of the time that the relevant
ex-dividend date and amounts become known.
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 Fund, (or, if specified by the shareholder, any other open-end
investment company for which InterCapital serves as investment manager
[collectively, with the Fund, the "Dean Witter Funds"]), unless the
shareholder requests that they be paid in cash. Shares so acquired are not
subject to the imposition of a contingent deferred sales charge upon their
redemption (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 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 30 days after the payment date.
Shares so acquired are not subject to the imposition of a contingent deferred
sales charge upon their redemption (see "Redemptions and Repurchases").
EasyInvest (Service Mark). Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account, on a
semi-monthly, monthly or quarterly basis, to the Fund's 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 current net asset value. The
Withdrawal Plan provides for monthly or quarterly (March, June, September,
December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable
contingent deferred sales charge will be imposed on shares redeemed under the
Withdrawal Plan (see "Redemptions and Repurchases--Contingent Deferred Sales
Charge"). Therefore, any
15
<PAGE>
shareholder participating in the Withdrawal Plan will have sufficient shares
redeemed from his or her account so that the proceeds (net of any applicable
contingent deferred sales charge) to the shareholder will be the designated
monthly or quarterly amount.
Shareholders should contact their DWR or other Selected Broker-Dealer
Account Executive or the Transfer Agent for further information about any of
the above services.
Tax Sheltered Retirement Plans. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of
such plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their DWR or other Selected
Broker-Dealer account executive or the Transfer Agent.
Exchange Privilege. The Fund makes available to its shareholders an
"Exchange Privilege" allowing the exchange of shares of the Fund for shares
of other Dean Witter Funds sold with a contingent deferred sales charge
("CDSC funds") and for shares of Dean Witter Short-Term U.S. Treasury Trust,
Dean Witter Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund,
Dean Witter Balanced Growth Fund, Dean Witter Balanced Income Fund and Dean
Witter Intermediate Term U.S. Treasury Trust and five Dean Witter Funds which
are money market funds (the foregoing eleven non-CDSC funds are hereinafter
collectively referred to in this section as the "Exchange Funds"). Exchanges
may be made after the shares of the Fund acquired by purchase (not by
exchange or dividend reinvestment) have been held for thirty days. There is
no waiting period for exchanges of shares acquired by exchange or dividend
reinvestment.
An exchange to another CDSC fund or any Exchange Fund that is not a money
market fund is on the basis of the next calculated net asset value per share
of each fund after the exchange order is received. When exchanging into a
money market fund from the Fund, shares of the Fund are redeemed out of the
Fund at their next calculated net asset value and the proceeds of the
redemption are used to purchase shares of the money market fund at their net
asset value determined the following business day. Subsequent exchanges
between any of the money market funds and any of the CDSC funds can be
effected on the same basis. No contingent deferred sales charge ("CDSC") is
imposed at the time of any exchange, although any applicable CDSC will be
imposed upon ultimate redemption. Shares of the Fund acquired in exchange for
shares of another CDSC fund having a different CDSC schedule than that of
this Fund will be subject to the CDSC schedule of this Fund, even if such
shares are subsequently re-exchanged for shares of the CDSC fund originally
purchased. During the period of time the shareholder remains in the Exchange
Fund (calculated from the last day of the month in which the Exchange Fund
shares were acquired), the holding period (for the purpose of determining the
rate of the CDSC) is frozen. If those shares are subsequently reexchanged for
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
CDSC fund are reacquired. Thus, the CDSC is based upon the time (calculated
as described above) the shareholder was invested in a CDSC fund (see
"Redemptions and Repurchases--Contingent Deferred Sales Charge"). However, in
the case of shares of the Fund exchanged into an Exchange Fund, upon a
redemption of shares which results in a CDSC being imposed, a credit (not to
exeed the amount of the CDSC) will be given in an amount equal to the
Exchange Fund 12b-1 distribution fees incurred on or after that date which
are attributable to those shares. (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.)
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds") but shares of the Fund, however
16
<PAGE>
acquired, may not be exchanged for shares of front-end sales charge funds.
Shares of a CDSC fund acquired in exchange for shares of a front-end sales
charge fund (or in exchange for shares of other Dean Witter Funds for which
shares of a front-end sales charge fund have been exchanged) are not subject
to any CDSC upon their redemption.
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 may be
exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another
Selected Broker-Dealer are referred to their account executive regarding
restrictions on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. An exchange will be treated
for federal income tax purposes the same as a repurchase or redemption of
shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in
situations where there is an exchange of shares within ninety days after the
shares are purchased. The Exchange Privilege is only available in states
where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean
Witter Funds (for which the Exchange Privilege is available) pursuant to this
Exchange Privilege by contacting their account executive (no Exchange
Privilege Authorization Form is required). Other shareholders (and those
shareholders who are clients of DWR or another Selected Broker-Dealer but who
wish to make exchanges directly by writing or telephoning the Transfer Agent)
must complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Transfer Agent,
to initiate an exchange. If the Authorization Form is used, exchanges may be
made in writing or by contacting the Transfer Agent at (800) 869-NEWS
(toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name,
mailing address, social security or other tax identification number and DWR
or other Selected Broker-Dealer account number (if any). Telephone
instructions may also be recorded. If such procedures are not employed, the
Fund may be liable for any losses due to unauthorized or fraudulent
instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 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
17
<PAGE>
should contact his or her DWR or other Selected Broker-Dealer account
executive, if appropriate, or make a written exchange request. Shareholders
are advised that during periods of drastic economic or market changes it is
possible that the telephone exchange procedures may be difficult to
implement, although this has not been the experience of the 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.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. Shares of the Fund can be redeemed for cash at any time at the
net asset value per share next determined; however, such redemption proceeds
will be reduced by the amount of any applicable contingent deferred sales
charges (see below). If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, N.J. 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.
Contingent Deferred Sales Charge. 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 charge upon
redemption. Shares redeemed sooner than six years after purchase will,
however, be subject to a charge upon redemption. This charge is called a
"contingent deferred sales charge" ("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 table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE AS A
PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE 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>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the six years preceding the redemption;
(ii) the current net asset value of shares purchased more than six 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 Dean Witter Funds sold with a front-end
sales charge or of other Dean Witter Funds acquired in exchange for such
shares. Moreover, in determining whether a CDSC is applicable it will be
assumed that amounts described in (i), (ii) and (iii) above (in that order)
are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held in
a qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination
of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a
"key employee" of a "top heavy" plan, following attainment of age 59 1/2);
(B) distributions from an IRA or 403(b) Custodial Account following
attainment of age 59 1/2 or (C) a tax-free return of an excess contribution
to an IRA; and
18
<PAGE>
(3) all redemptions of shares held for the benefit of a participant in a
corporate or self-employed retirement plan qualified under Section 401(k) 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 Dean Witter Trust
Company, an affiliate of the Investment Manager, serves as recordkeeper or
Trustee ("Eligible 401(k) Plan"), provided that either: (A) the plan
continues to be an Eligible 401(k) 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.
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 next computed (see "Purchase of Fund Shares")
after such repurchase order is received by DWR or other Selected
Broker-Dealer, reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund, the
Distributor, DWR or other Selected Broker-Dealers. The offer by DWR and other
Selected Broker-Dealers to repurchase shares may be suspended without notice
by them at any time. In that event, shareholders may redeem their shares
through the Fund's Transfer Agent as set forth above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption
suspended under unusual circumstances, e.g., when normal trading is not
taking place on the New York Stock Exchange. If the shares to be redeemed
have recently been purchased by check, payment of the redemption proceeds may
be delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent). Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
account executive regarding restrictions on redemption of shares of the Fund
pledged in their margin accounts.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 30 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 at net asset value next determined after a
reinstatement request, together with the proceeds, is received by the
Transfer Agent and receive a pro-rata credit for any CDSC paid in connection
with such redemption or repurchase.
Involuntary Redemption. The Fund reserves the right, on sixty days'
notice, to redeem at their net asset value the shares of any shareholder
(other than shares held in an Individual Retirement Account or Custodial
Account under Section 403(b)(7) of the Internal Revenue Code) whose shares,
due to redemptions by the shareholder, have a value of less than $100 or such
lesser amount as may be fixed by the Board of Trustees or, in the case of an
account opened through EasyInvest (Service Mark) , if after twelve months the
shareholder has invested less than $1,000 in the account. However, before the
Fund redeems such shares and sends the proceeds to the shareholder it will
notify the shareholder that the value of the shares is less than the
applicable
19
<PAGE>
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 intends to distribute substantially
all of its net investment income and net realized short-term and long-term
capital gains, if any, at least once each year. The Fund may, however,
determine either to distribute or to retain all or part of any net long-term
capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in
additional Fund shares 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.
(See "Shareholder Services--Automatic Investment of Dividends and
Distributions".)
Taxes. Because the Fund intends to distribute all of its net investment
income and any net short-term and long-term capital gains to shareholders and
to otherwise qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code, it is not expected that the Fund will be required
to pay any federal income tax on such income and capital gains.
Gains or losses on the Fund's transactions in certain listed options and
on futures and options on futures generally are treated as 60% long-term gain
or loss and 40% short-term gain or loss. When the Fund engages in options and
futures transactions, various tax regulations applicable to the Fund may have
the effect of causing the Fund to recognize a gain or loss for tax purposes
before that gain or loss is realized, or to defer recognition of a realized
loss for tax purposes. Recognition, for tax purposes, of an unrealized loss
may result in a lesser amount of the Fund's net realized gains being
available for distribution.
As a regulated investment company, the Fund is subject to the requirement
that less than 30% of its gross income be derived from the sale of certain
investments held for less than three months. This requirement may limit the
Fund's ability to engage in options and futures transactions.
Shareholders who are required to pay taxes on their income will normally
have to pay federal income taxes, and any applicable state and/or local
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 and net short-term capital gains, are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash. Any dividends
declared in the last quarter of any calendar year which are paid in the
following calendar year prior to February 1 will be deemed, for tax purposes,
to have been received by the shareholder in the prior calendar year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. It is anticipated that only a small
portion, if any, of the Fund's distributions may be eligible for the
dividends received deduction to corporate shareholders.
After the end of the calendar year, shareholders will receive full
information on their dividends and capital gains distributions for tax
purposes, including information as to the portion taxable as ordinary income
and the portion taxable as long-term capital gains.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
20
<PAGE>
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 has made 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 deduct their pro rata portion of such taxes
from their taxable income or claim United States foreign tax credits 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.
The foregoing discussion relates solely to the federal income tax
consequences of an investment in the Fund. Distributions may also be subject
to state and local taxes; therefore, each shareholder is advised to consult
his or her own tax adviser.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. 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 the Fund of $1,000 over a period of one, five and ten years, or
over the life of the Fund, if less than any of the foregoing. Average annual
total return reflects all income earned by the Fund, any appreciation or
depreciation of the Fund's assets, all expenses incurred by the Fund and all
sales charges which would be incurred by redeeming 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 over
different periods of time by means of aggregate, average, and year-by-year or
other types of total return figures. The Fund may also advertise a growth of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of the
Fund. Such calculations may or may not reflect the deduction of the
contingent deferred sales charge which, if reflected, would reduce the
performance quoted. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indices 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.
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. The Trustees
themselves have the power to alter the number and the terms of office of the
Trustees (as provided for in the Declaration of Trust), and they may at any
time lengthen or shorten their own terms or make their terms of unlimited
duration and appoint their own successors, provided that always at least a
majority of the Trustees has been elected by the shareholders of the Fund.
Under certain circumstances the Trustees may be removed by action of the
Trustees. The shareholders also have the right under certain circumstances to
remove the Trustees. The voting rights of shareholders are not cumulative, so
that holders of more than 50 percent of the shares voting can, if they
choose, elect all Trustees being elected, while the holders of the remaining
shares would be unable to elect any Trustees.
21
<PAGE>
Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Fund, requires that Fund obligations include such disclaimer, and provides
for indemnification out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability,
and the nature of the Fund's assets and operations, the possibility of the
Fund being unable to meet its obligations is remote and, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
Code of Ethics. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code
of Ethics adopted by those companies. The Code of Ethics is intended to
ensure that the interests of shareholders and other clients are placed ahead
of any personal interest, that no undue personal benefit is obtained from a
person's employment activities and that actual and potential conflicts of
interest are avoided. To achieve these goals and comply with regulatory
requirements, the Code of Ethics requires, among other things, that personal
securities transactions by employees of the companies be subject to an
advance clearance process to monitor that no Dean Witter Fund is engaged at
the same time in a purchase or sale of the same security. The Code of Ethics
bans the purchase of securities in an initial public offering and prohibits
engaging in futures and options transactions and profiting on short-term
trading (that is, a purchase within sixty days of a sale or a sale within
sixty days of a purchase) of a security. In addition, investment personnel
may not purchase or sell a security for their personal account within thirty
days before or after any transaction in any Dean Witter Fund managed by them.
Any violations of the Code of Ethics are subject to sanctions, including
reprimand, demotion or suspension or termination of employment. The Code of
Ethics comports with regulatory requirements and the recommendations in the
1994 report by the Investment Company Institute Advisory Group on Personal
Investing.
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.
22
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS
Dean Witter Liquid Asset Fund Inc.
Dean Witter U.S. Government Money Market Trust
Dean Witter Tax-Free Daily Income Trust
Dean Witter California Tax-Free Daily Income Trust
Dean Witter New York Municipal Money Market Trust
EQUITY FUNDS
Dean Witter American Value Fund
Dean Witter Natural Resource Development Securities Inc.
Dean Witter Dividend Growth Securities Inc.
Dean Witter Developing Growth Securities Trust
Dean Witter World Wide Investment Trust
Dean Witter Value-Added Market Series
Dean Witter Utilities Fund
Dean Witter Capital Growth Securities
Dean Witter European Growth Fund Inc.
Dean Witter Precious Metals and Minerals Trust
Dean Witter Pacific Growth Fund Inc.
Dean Witter Health Sciences Trust
Dean Witter Global Dividend Growth Securities
Dean Witter Global Utilities Fund
Dean Witter International Small Cap Fund
Dean Witter Balanced Growth Fund
Dean Witter Mid-Cap Growth Fund
Dean Witter Capital Appreciation Fund
Dean Witter Information Fund
Dean Witter Japan Fund
Dean Witter Income Builder Fund
Dean Witter Special Value Fund
FIXED-INCOME FUNDS
Dean Witter High Yield Securities Inc.
Dean Witter Tax-Exempt Securities Trust
Dean Witter U.S. Government Securities Trust
Dean Witter Federal Securities Trust
Dean Witter Convertible Securities Trust
Dean Witter California Tax-Free Income Fund
Dean Witter New York Tax-Free Income Fund
Dean Witter World Wide Income Trust
Dean Witter Intermediate Income Securities
Dean Witter Global Short-Term Income Fund Inc.
Dean Witter Multi-State Municipal Series Trust
Dean Witter Premier Income Trust
Dean Witter Short-Term U.S. Treasury Trust
Dean Witter Diversified Income Trust
Dean Witter Limited Term Municipal Trust
Dean Witter Short-Term Bond Fund
Dean Witter High Income Securities
Dean Witter National Municipal Trust
Dean Witter Balanced Income Fund
Dean Witter Hawaii Municipal Trust
Dean Witter Intermediate Term
U.S. Treasury Trust
ASSET ALLOCATION FUNDS
Dean Witter Strategist Fund
Dean Witter Global Asset Allocation Fund
ACTIVE ASSETS ACCOUNT PROGRAM
Active Assets Money Trust
Active Assets Tax-Free Trust
Active Assets California Tax-Free Trust
Active Assets Government Securities Trust
DEAN WITTER RETIREMENT SERIES
Liquid Asset Series
U.S. Government Money Market Series
U.S. Government Securities Series
Intermediate Income Securities Series
American Value Series
Capital Growth Series
Dividend Growth Series
Stategist Series
Utilities Series
Value-Added Market Series
Global Equity Series
<PAGE>
Dean Witter
Health Sciences Trust
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Ronald J. Worobel
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Dean Witter
Health Sciences
Trust
PROSPECTUS--SEPTEMBER 25, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 25, 1996
DEAN WITTER
HEALTH
SCIENCES
TRUST
- -----------------------------------------------------------------------------
Dean Witter Health Sciences Trust (the "Fund") is an open-end,
non-diversified management investment company whose investment objective is
capital appreciation. The Fund seeks to achieve its investment objective by
investing in securities of companies in the health sciences industry
throughout the world.
A Prospectus for the Fund dated September 25, 1996, which provides the
basic information you should know before investing in the Fund, may be
obtained without charge from the Fund at the address or telephone numbers
listed below or from the Fund's Distributor, Dean Witter Distributors Inc.,
or from Dean Witter Reynolds Inc. at any of its branch offices. This
Statement of Additional Information is not a Prospectus. It contains
information in addition to and more detailed than that set forth in the
Prospectus. It is intended to provide additional information regarding the
activities and operations of the Fund, and should be read in conjunction with
the Prospectus.
Dean Witter
Health Sciences Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
The Fund and its Management................................................... 3
Trustees and Officers .........................................................6
Investment Practices and Policies.............................................12
Investment Restrictions ......................................................25
Portfolio Transactions and Brokerage ........................................ 26
Purchase of Fund Shares ......................................................28
Shareholder Services..........................................................31
Redemptions and Repurchases.................................................. 36
Dividends, Distributions and Taxes .......................................... 38
Performance Information ......................................................39
Description of Shares ........................................................40
Custodian and Transfer Agent................................................. 41
Independent Accountants ......................................................41
Reports to Shareholders ......................................................41
Legal Counsel ................................................................41
Experts.......................................................................41
Registration Statement ...................................................... 42
Financial Statements--July 31, 1996 ........................................ 43
Report of Independent Accountants............................................ 55
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the laws of the Commonwealth of
Massachusetts on May 26, 1992.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or
"InterCapital"), a Delaware corporation, whose address is Two World Trade
Center, New York, New York 10048, is the Fund's Investment Manager.
InterCapital is a wholly-owned subsidiary of Dean Witter, Discover & Co.
("DWDC"), a Delaware corporation. In an internal reorganization which took
place in January, 1993, InterCapital assumed the investment advisory,
administrative and management activities previously performed by the
InterCapital Division of Dean Witter Reynolds Inc. ("DWR"), a broker-dealer
affiliate of InterCapital. (As hereinafter used in this Statement of
Additional Information, the terms "InterCapital" and "Investment Manager"
refer to DWR's InterCapital Division prior to the internal reorganization and
to Dean Witter InterCapital Inc. thereafter.) The daily management of the
Fund and research relating to the Fund's portfolio are conducted by or under
the direction of officers of the Fund and of the Investment Manager, subject
to review by the Fund's Board of Trustees. In addition, Trustees of the Fund
provide guidance on economic factors and interest rate trends. Information as
to these Trustees and Officers is contained under the caption "Trustees and
Officers".
InterCapital is also the investment manager or investment adviser of the
following management investment companies: Dean Witter Liquid Asset Fund
Inc., InterCapital Income Securities Inc., InterCapital Insured Municipal
Bond Trust, InterCapital Quality Municipal Investment Trust, InterCapital
Insured Municipal Trust, Dean Witter High Yield Securities Inc., Dean Witter
Tax-Free Daily Income Trust, Dean Witter Developing Growth Securities Trust,
Dean Witter Tax-Exempt Securities Trust, Dean Witter Natural Resource
Development Securities Inc., Dean Witter Dividend Growth Securities Inc.,
Dean Witter American Value Fund, Dean Witter U.S. Government Money Market
Trust, Dean Witter Variable Investment Series, Dean Witter World Wide
Investment Trust, Dean Witter Select Municipal Reinvestment Fund, Dean Witter
U.S. Government Securities Trust, Dean Witter California Tax-Free Income
Fund, Dean Witter New York Tax-Free Income Fund, Dean Witter Convertible
Securities Trust, Dean Witter Federal Securities Trust, Dean Witter
Value-Added Market Series, High Income Advantage Trust, High Income Advantage
Trust II, High Income Advantage Trust III, Dean Witter Government Income
Trust, Dean Witter Utilities Fund, Dean Witter California Tax-Free Daily
Income Trust, Dean Witter Strategist Fund, Dean Witter World Wide Income
Trust, Dean Witter Intermediate Income Securities, Dean Witter New York
Municipal Money Market Trust, Dean Witter Capital Growth Securities, Dean
Witter European Growth Fund Inc., Dean Witter Precious Metals and Minerals
Trust, Dean Witter Global Short-Term Income Fund Inc., Dean Witter Pacific
Growth Fund Inc., Dean Witter Multi-State Municipal Series Trust, Dean Witter
Premier Income Trust, Dean Witter Short-Term U.S. Treasury Trust, Dean Witter
Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter
Global Utilities Fund, Dean Witter National Municipal Trust, Dean Witter High
Income Securities, Dean Witter International SmallCap Fund, Dean Witter
Mid-Cap Growth Fund, InterCapital Quality Municipal Income Trust, Dean Witter
Diversified Income Trust, Dean Witter Retirement Series, InterCapital Insured
Municipal Income Trust, InterCapital California Insured Municipal Income
Trust, InterCapital Quality Municipal Securities, InterCapital California
Quality Municipal Securities, InterCapital New York Quality Municipal
Securities, InterCapital Insured Municipal Securities, InterCapital Insured
California Municipal Securities, Dean Witter Global Dividend Growth
Securities, Dean Witter Select Dimensions Investment Series, Dean Witter
Balanced Growth Fund, Dean Witter Balanced Income Fund, Dean Witter Hawaii
Municipal Trust, Dean Witter Capital Appreciation Fund, Active Assets Money
Trust, Active Assets Tax-Free Trust, Active Assets California Tax-Free Trust,
Active Assets Government Securities Trust, Dean Witter Intermediate Term U.S.
Treasury Trust, Dean Witter Information Fund, Dean Witter Japan Fund, Dean
Witter Income Builder Fund, Dean Witter Special Value Fund, Municipal Income
Trust,
3
<PAGE>
Municipal Income Trust II, Municipal Income Trust III, Municipal Income
Opportunities Trust, Municipal Income Opportunities Trust II, Municipal
Income Opportunities Trust III, Prime Income Trust and Municipal Premium
Income Trust. The foregoing investment companies, together with the Fund, are
collectively referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital serves as manager for the following investment
companies for which TCW Funds Management, Inc. is the investment adviser:
TCW/DW Core Equity Trust, TCW/DW North American Government Income Trust,
TCW/DW Latin American Growth Fund, TCW/DW Income and Growth Fund, TCW/DW
Small Cap Growth Fund, TCW/DW Total Return Trust, TCW/DW Balanced Fund,
TCW/DW Mid-Cap Equity Trust, TCW/DW Global Telecom Trust, TCW/DW Emerging
Markets Opportunities Trust, TCW/DW Term Trust 2000, TCW/DW Term Trust 2002
and TCW/DW Term Trust 2003 (the "TCW/DW Funds"). InterCapital also serves as:
(i) sub-adviser to Templeton Global Opportunities Trust, an open-end
investment company; (ii) administrator of The BlackRock Strategic Term Trust
Inc., a closed-end investment company; and (iii) sub-administrator of
MassMutual Participation Investors and Templeton Global Governments Income
Trust, closed-end investment companies.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage
the investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help, bookkeeping and certain legal services as the Fund
may reasonably require in the conduct of its business, including the
preparation of prospectuses, proxy statements and reports required to be
filed with Federal and state securities commissions (except insofar as the
participation or assistance of independent accountants and attorneys is, in
the opinion of the Investment Manager, necessary or desirable). In addition,
the Investment Manager pays the salaries of all personnel, including officers
of the Fund, who are employees of the Investment Manager. The Investment
Manager also bears the cost of telephone service, heat, light, power and
other utilities provided to the Fund.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to
the Fund which were previously performed directly by InterCapital. On April
17, 1995, DWSC was reorganized in the State of Delaware, necessitating the
entry into a new Services Agreement by InterCapital and DWSC on such date.
The foregoing internal reorganizations did not result in any change in the
nature or scope of the administrative services being provided to the Fund or
any of the fees being paid by the Fund for the overall services being
performed under the terms of the existing Agreement.
Expenses not expressly assumed by the Investment Manager under the
Agreement (see "The Fund and its Management" in the Prospectus), or by the
Distributor of the Fund's shares, Dean Witter Distributors Inc.
("Distributors" or the "Distributor") (see "Purchase of Fund Shares" in the
Prospectus) will be paid by the Fund. The expenses borne by the Fund include,
but are not limited to: expenses of the Plan of Distribution pursuant to Rule
12b-1 (see "The Distributor"), charges and expenses of any registrar,
custodian, stock transfer and dividend disbursing agent; brokerage
commissions; taxes; engraving and printing of share certificates;
registration costs of the Fund and its shares under Federal and state
securities laws; the cost and expense of printing, including typesetting, and
distributing prospectuses and statements of additional information of the
Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
of proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees
of the Investment Manager or any corporate affiliate of the Investment
Manager; all expenses incident to any dividend, withdrawal or
4
<PAGE>
redemption options; charges and expenses of any outside service used for
pricing of the Fund's shares; fees and expenses of legal counsel, including
counsel to the Trustees who are not interested persons of the Fund or of the
Investment Manager (not including compensation or expenses of attorneys who
are employees of the Investment Manager) and independent accountants;
membership dues of industry associations; interest on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Trustees) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification relating thereto); and all other costs of the
Fund's operation.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
annual rate of 1.0% to the net assets of the Fund up to $500 million, scaled
down to 0.95% of the portion of daily net assets exceeding $500 million,
determined as of the close of each business day. For the fiscal years ended
July 31, 1994, 1995, and 1996, the Fund accrued to the Investment Manager
total compensation of $2,603,442, $2,477,072, and $3,862,384, respectively.
Total operating expenses of the Fund are subject to applicable limitations
under rules and regulations of states where the Fund is authorized to sell
its shares. Therefore, operating expenses are effectively subject to the most
restrictive applicable limitations as the same may be amended from time to
time. Presently, the most restrictive limitation to which the Fund is subject
is as follows: if, in any fiscal year, the Fund's total operating expenses,
exclusive of taxes, interest, brokerage fees, distribution fees and
extraordinary expenses (to the extent permitted by applicable state
securities laws and regulations), exceed 2 1/2% of the first $30,000,000 of
average daily net assets, 2% of the next $70,000,000 and 1 1/2% of any excess
over $100,000,000, the Investment Manager will reimburse the Fund for the
amount of such excess. Such amount, if any, will be calculated daily and
credited on a monthly basis. During the fiscal years ended July 31, 1994,
1995, and 1996, the Fund's expenses did not exceed the expense limitation.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors. The Agreement in no way restricts the Investment
Manager from acting as investment manager or adviser to others.
The Agreement was initially approved by the Board of Trustees on July 29,
1992, and by DWR, the then sole shareholder of the Fund on July 31, 1992. At
their meeting held on October 30, 1992, the Trustees of the Fund, including
all the Trustees of the Fund who are not parties to the Investment Management
Agreement or "interested persons" (as defined in the Investment Company Act
of 1940 [the "Act"]) of any such party (the "Independent Trustees"), approved
the assumption by InterCapital of DWR's rights and duties under the
Investment Management Agreement, which assumption took place upon the
reorganization described above. The Trustees of the Fund, including all of
the Independent Trustees, also approved a new investment management agreement
between the Fund and InterCapital, which took effect on June 30, 1993 upon
the spin-off by Sears, Roebuck & Co. of its remaining shares of DWDC. The
terms of the new Agreement are substantially identical in all material
respects to those of the initial Agreement. The Agreement may be terminated
at any time, without penalty, on thirty days' notice by the Board of Trustees
of the Fund, by the holders of a majority, as defined in the Investment
Company Act of 1940, as amended (the "Act"), of the outstanding shares of the
Fund, or by the Investment Manager. The Agreement will automatically
terminate in the event of its assignment (as defined in the Act).
Under its terms, the Agreement had an initial term ending April 30, 1994
and provides that it will continue in effect from year to year thereafter,
provided such continuance of the Agreement is approved at least annually by
the vote of the holders of a majority, as defined in the Act, of the
outstanding shares of the Fund, or by the Board of Trustees of the Fund;
provided that in either event such continuance is approved annually by the
vote of a majority of the Trustees of the Fund who are not parties to the
Agreement or "interested persons" (as defined in the Act) of any such party,
which vote must be cast in
5
<PAGE>
person at a meeting called for the purpose of voting on such approval. At
their meeting held on April 17, 1996, the Fund's Board of Trustees, including
all of the Independent Trustees, amended the Agreement to provide a
breakpoint in the management fee that reduces the compensation received by
the Investment Manager under the Agreement on assets exceeding $500 million
and approved continuation of the Agreement, as so amended, until April 30,
1997.
The Fund has acknowledged that the name "Dean Witter" is a property right
of DWR. The Fund has agreed that DWR or its parent company may use, or at any
time permit others to use, the name "Dean Witter". The Fund has also agreed
that in the event the Agreement between InterCapital and the Fund is
terminated, or if the affiliation between the Investment Manager and its
parent Company is terminated, the Fund will eliminate the name "Dean Witter"
from its name if DWR or its parent company shall so request.
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the 82 Dean Witter Funds and 13 TCW/DW Funds are shown
below:
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
<S> <C>
Michael Bozic (55).......................... Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee of
c/o Levitz Furniture Corporation the Dean Witter Funds; formerly President and Chief Executive
6111 Broken Sound Parkway, N.W. Officer of Hills Department Stores (May, 1991-July, 1995);
Boca Raton, Florida formerly variously Chairman, Chief Executive Officer,
President and Chief Operating Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck and Co.; Director of
Eaglemark Financial Services, Inc., the United Negro College
Fund and Weirton Steel Corporation.
Charles A. Fiumefreddo* (63).................. Chairman, Chief Executive Officer and Director of InterCapital,
Chairman, President, Distributors and DWSC; Executive Vice President and Director
Chief Executive Officer and Trustee of DWR; Chairman, Director or Trustee, President and Chief
Two World Trade Center Executive Officer of the Dean Witter Funds; Chairman, Chief
New York, New York Executive Officer and Trustee of the TCW/DW Funds; Chairman
and Director of Dean Witter Trust Company ("DWTC"); Director
and/or officer of various DWDC subsidiaries.
Edwin J. Garn (63).......................... Director or Trustee of the Dean Witter Funds; formerly United
Trustee States Senator (R-Utah) (1974-1992) and Chairman, Senate
c/o Huntsman Chemical Corporation Banking Committee (1980-1986); formerly Mayor of Salt Lake
500 Huntsman Way City, Utah (1972-1974); formerly Astronaut, Space Shuttle
Salt Lake City, Utah Discovery (April 12-19, 1985); Vice Chairman, Huntsman Chemical
Corporation (since January, 1993); Director of Franklin Quest
(time management systems) and John Alden Financial Corp; member
of the board of various civic and charitable organizations.
6
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
John R. Haire (71).......................... Chairman of the Audit Committee and Chairman of the Committee
Trustee of the Independent Directors or Trustees and Director or Trustee
Two World Trade Center of the Dean Witter Funds; Chairman of the Audit Committee
New York, New York and Chairman of the Committee of the Independent Trustees
and Trustee of the TCW/DW Funds; formerly President, Council
for Aid to Education (1978-1989) and Chairman and Chief Executive
Officer of Anchor Corporation, an Investment Adviser
(1964-1978); Director of Washington National Corporation
(insurance).
Dr. Manuel H. Johnson (47).................. Senior Partner, Johnson Smick International, Inc., a consulting
Trustee firm; Koch Professor of International Economics and Director
c/o Johnson Smick International, Inc. of the Center for Global Market Studies at George Mason
1133 Connecticut Avenue, N.W. University; Co-Chairman and a founder of the Group of Seven
Washington, DC Council (G7C), an international economic commission; Director
or Trustee of the Dean Witter Funds; Trustee of the TCW/DW
Funds; Director of NASDAQ (since June, 1995); Director of
Greenwich Capital Markets, Inc. (broker-dealer); formerly
Vice Chairman of the Board of Governors of the Federal Reserve
System (1986-1990) and Assistant Secretary of the U.S. Treasury
(1982-1986).
Michael E. Nugent (60)...................... General Partner, Triumph Capital, L.P., a private investment
Trustee partnership; Director or Trustee of the Dean Witter Funds;
c/o Triumph Capital, L.P. Trustee of the TCW/DW Funds; formerly Vice President, Bankers
237 Park Avenue Trust Company and BT Capital Corporation (1984-1988); Director
New York, New York of various business organizations.
Philip J. Purcell* (53)..................... Chairman of the Board of Directors and Chief Executive Officer
Trustee of DWDC, DWR, and Novus Credit Services Inc.; Director of
Two World Trade Center InterCapital, DWSC, and Distributors; Director or Trustee
New York, New York of the Dean Witter Funds; Director and/or officer of various
DWDC subsidiaries.
John L. Schroeder (66)...................... Retired; Director or Trustee of the Dean Witter Funds; Trustee
Trustee of the TCW/DW Funds; Director of Citizens Utilities Company;
c/o Gordon Altman Butowsky Weitzen formerly Executive Vice President and Chief Investment Officer
Shalov & Wein of the Home Insurance Company (August, 1991-September, 1995);
Counsel to the Independent Trustees formerly Chairman and Chief Investment Officer of Axe-Houghton
114 West 47th Street Management and the Axe-Houghton Funds (1983-1991) and President
New York, New York of USF&G Financial Services, Inc. (June, 1990-June, 1991).
7
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
Sheldon Curtis (64) ......................... Senior Vice President, Secretary, and General Counsel of
Vice President, InterCapital and DWSC; Senior Vice President and Secretary
Secretary and General Counsel of DWTC; Senior Vice President, Assistant Secretary and
Two World Trade Center Assistant General Counsel of Distributors; Assistant Secretary
New York, New York of DWR; Vice President, Secretary and General Counsel of the
Dean Witter Funds and the TCW/DW Funds.
Ronald J. Worobel (54) ...................... Senior Vice President of InterCapital (since June 1993); Vice
Vice President President of various Dean Witter Funds; formerly Vice President
Two World Trade Center of InterCapital (June, 1992-June, 1993) and Managing Director,
New York, New York MacKay-Shields Financial Corp. (February, 1989- June, 1992).
Thomas F. Caloia (50) ....................... First Vice President and Assistant Treasurer of InterCapital
Treasurer and DWSC; Treasurer of the Dean Witter Funds and the TCW/DW
Two World Trade Center Funds.
</TABLE>
New York, New York
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Robert S. Giambrone, Senior Vice President of InterCapital,
DWSC, Distributors and DWTC, and Director of DWTC, Joseph J. McAlinden,
Executive Vice President and Chief Investment Officer of InterCapital and
Director of DWTC, and Kenton J. Hinchliffe, Ira N. Ross and Paul D. Vance,
Senior Vice Presidents of InterCapital, are Vice Presidents of the Fund.
Marilyn K. Cranney and Barry Fink, First Vice Presidents and Assistant
General Counsels of InterCapital and DWSC, LouAnne D. McInnis and Ruth Rossi,
Vice Presidents and Assistant General Counsels of InterCapital and DWSC, and
Carsten Otto, a Staff Attorney with InterCapital, are Assistant Secretaries
of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES AND THE COMMITTEES
The Board of Trustees consists of eight (8) trustees. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of
this Statement of Additional Information, there are a total of 81 Dean Witter
Funds, comprised of 122 portfolios. As of August 31, 1996, the Dean Witter
Funds had total net assets of approximately $76.3 billion and more than five
million shareholders.
Six Trustees (75% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own
any stock or other securities issued by InterCapital's parent company, DWDC.
These are the "disinterested" or "independent" Trustees. The other two
Trustees (the "management Trustees") are affiliated with InterCapital. Four
of the six independent Trustees are also Independent Trustees of the TCW/DW
Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Dean Witter Funds seek as Independent
Trustees individuals of distinction and experience in business and finance,
government service or academia; these are people whose advice and counsel are
in demand by others and for whom there is often competition. To accept a
position on the Funds' Boards, such individuals may reject other attractive
assignments because the Funds make substantial demands on their time. Indeed,
by serving on the Funds' Boards, certain Trustees who would otherwise be
qualified and in demand to serve on bank boards would be prohibited by law
from doing so.
All of the Independent Trustees serve as members of the Audit Committee
and the Committee of the Independent Trustees. Three of them also serve as
members of the Derivatives Committee. During the
8
<PAGE>
calendar year ended December 31, 1995, the three Committees held a combined
total of fifteen meetings. The Committees hold some meetings at
InterCapital's offices and some outside InterCapital. Management Trustees or
officers do not attend these meetings unless they are invited for purposes of
furnishing information or making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading
among Funds in the same complex; and approving fidelity bond and related
insurance coverage and allocations, as well as other matters that arise from
time to time. The Independent Trustees are required to select and nominate
individuals to fill any Independent Trustee vacancy on the Board of any Fund
that has a Rule 12b-1 plan of distribution. Most of the Dean Witter Funds
have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing
engagement; approving professional services provided by the independent
accountants and other accounting firms prior to the performance of such
services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of
the Fund's system of internal controls; and preparing and submitting
Committee meeting minutes to the full Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect
to derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and
the Funds' operations and management. He screens and/or prepares written
materials and identifies critical issues for the Independent Trustees to
consider, develops agendas for Committee meetings, determines the type and
amount of information that the Committees will need to form a judgment on
various issues, and arranges to have that information furnished to Committee
members. He also arranges for the services of independent experts and
consults with them in advance of meetings to help refine reports and to focus
on critical issues. Members of the Committees believe that the person who
serves as Chairman of both Committees and guides their efforts is pivotal to
the effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Manager and other service
providers. In effect, the Chairman of the Committees serves as a combination
of chief executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee and, since
July 1, 1996, as Chairman of the Committee of the Independent Trustees and
the Audit Committee of the TCW/DW Funds. The current Committee Chairman has
had more than 35 years experience as a senior executive in the investment
company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having
9
<PAGE>
different groups of individuals serving as Independent Trustees for each of
the Funds or even of sub-groups of Funds. They believe that having the same
individuals serve as Independent Trustees of all the Funds tends to increase
their knowledge and expertise regarding matters which affect the Fund complex
generally and enhances their ability to negotiate on behalf of each Fund with
the Fund's service providers. This arrangement also precludes the possibility
of separate groups of Independent Trustees arriving at conflicting decisions
regarding operations and management of the Funds and avoids the cost and
confusion that would likely ensue. Finally, having the same Independent
Trustees serve on all Fund Boards enhances the ability of each Fund to
obtain, at modest cost to each separate Fund, the services of Independent
Trustees, and a Chairman of their Committees, of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee
of the Independent Trustees an additional annual fee of $1,200). The Fund
also reimburses such Trustees for travel and other out-of-pocket expenses
incurred by them in connection with attending such meetings. Trustees and
officers of the Fund who are or have been employed by the Investment Manager
or an affiliated company receive no compensation or expense reimbursement
from the Fund.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended July 31, 1996.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME OF INDEPENDENT COMPENSATION
TRUSTEE FROM THE FUND
- -------------------------- ---------------
<S> <C>
Michael Bozic ............. $1,750
Edwin J. Garn ............. 1,850
John R. Haire ............. 3,963(1)
Dr. Manuel H. Johnson .... 1,800
Michael E. Nugent ......... 1,700
John L. Schroeder ......... 1,800
</TABLE>
(1) Of Mr. Haire's compensation from the Fund, $3,150 was paid to him as
Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($750).
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1995 for
services to the 79 Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 11 TCW/DW Funds that were in operation at
December 31, 1995. With respect to Messrs. Haire, Johnson, Nugent and
Schroeder, the TCW/DW Funds are included solely because of a limited exchange
privilege between those Funds and five Dean Witter Money Market Funds. Mr.
Schroeder was elected as a Trustee of the TCW/DW Funds on April 20, 1995.
10
<PAGE>
COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF TOTAL
FOR SERVICE AS COMMITTEES OF COMPENSATION
DIRECTOR OR FOR SERVICE AS INDEPENDENT PAID FOR
TRUSTEE AND TRUSTEE AND DIRECTORS/ SERVICES TO 79
COMMITTEE MEMBER COMMITTEE MEMBER TRUSTEES AND DEAN WITTER
NAME OF INDEPENDENT OF 79 DEAN WITTER OF 11 TCW/DW AUDIT FUNDS AND 11
TRUSTEE FUNDS FUNDS COMMITTEES TCW/DW FUNDS
- -------------------------- ----------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Michael Bozic ............. $126,050 -- -- $126,050
Edwin J. Garn ............. 136,450 -- -- 136,450
John R. Haire ............. 98,450 $82,038 $217,350(2) 397,838
Dr. Manuel H. Johnson .... 136,450 82,038 -- 218,488
Michael E. Nugent ......... 124,200 75,038 -- 199,238
John L. Schroeder ......... 136,450 46,964 -- 183,414
</TABLE>
(2) For the 79 Dean Witter Funds in operation at December 31, 1995. As
noted above, on July 1, 1996, Mr. Haire became Chairman of the
Committee of the Independent Trustees and the Audit Committee of the
TCW/DW Funds in addition to continuing to serve in such positions for
the Dean Witter Funds.
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including the Fund, have adopted a retirement program under
which an Independent Trustee who retires after serving for at least five
years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Dean Witter Fund that has adopted the
retirement program (each such Fund referred to as an "Adopting Fund" and each
such Trustee referred to as an "Eligible Trustee") is entitled to retirement
payments upon reaching the eligible retirement age (normally, after attaining
age 72). Annual payments are based upon length of service. Currently, upon
retirement, each Eligible Trustee is entitled to receive from the Adopting
Fund, commencing as of his or her retirement date and continuing for the
remainder of his or her life, an annual retirement benefit (the "Regular
Benefit") equal to 25.0% of his or her Eligible Compensation plus 0.4166666%
of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years
up to a maximum of 50.0% after ten years of service. The foregoing
percentages may be changed by the Board.(3) "Eligible Compensation" is
one-fifth of the total compensation earned by such Eligible Trustee for
service to the Adopting Fund in the five year period prior to the date of the
Eligible Trustee's retirement. Benefits under the retirement program are not
secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended July 31,
1996 and by the 57 Dean Witter Funds (including the Fund) as of December 31,
1995, and the estimated retirement benefits for the Fund's Independent
Trustees from the Fund as of July 31, 1996 and from the 57 Dean Witter Funds
as of December 31, 1995.
(3) An Eligible Trustee may elect alternate payments of his or her
retirement benefits based upon the combined life expectancy of such
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. The amount estimated to be payable under this
method, through the remainder of the later of the lives of such
Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit. In addition, the Eligible Trustee may elect that the
surviving spouse's periodic payment of benefits will be equal to either
50% or 100% of the previous periodic amount, an election that,
respectively, increases or decreases the previous periodic amount so
that the resulting payments will be the actuarial equivalent of the
Regular Benefit.
11
<PAGE>
RETIREMENT BENEFITS FROM THE FUND AND ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS
--------------------------------
ESTIMATED ANNUAL
RETIREMENT BENEFITS BENEFITS UPON
ACCRUED AS EXPENSES RETIREMENT(4)
-------------------- -------------------
ESTIMATED
CREDITED YEARS ESTIMATED
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
NAME OF INDEPENDENT RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- -------------------------- --------------- --------------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic ............. 10 50.0% $ 412 $ 26,359 $ 950 $ 51,550
Edwin J. Garn ............. 10 50.0 698 41,901 950 51,550
John R. Haire ............. 10 50.0 4,333 261,763 1,961 130,404
Dr. Manuel H. Johnson .... 10 50.0 277 16,748 950 51,550
Michael E. Nugent ......... 10 50.0 523 30,370 950 51,550
John L. Schroeder ......... 8 41.7 802 51,812 792 42,958
</TABLE>
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(4) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (3)
above.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- -----------------------------------------------------------------------------
As stated in the Prospectus, the Fund currently anticipates investing over
65% of its total assets in securities of companies in the health sciences
industry. The Fund's prospectus contains disclosure discussing the risks of
investing in a single industry.
Private Placements/Illiquid Investments. Under a non-fundamental policy,
which may be changed by the Trustees of the Fund, the Fund may invest up to
15% of its net assets in illiquid securities.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act of 1933, which permits the Fund to sell restricted securities
to qualified institutional buyers without limitation. The Trustees of the
Fund have adopted procedures for the Investment Manager to utilize in
determining the liquidity of securities which may be sold pursuant to Rule
144A. In addition, the Trustees have determined that, where such securities
are determined to be liquid under these procedures, investment in such
securities by the Fund shall not be subject to the 15% limitation referred to
above.
The Investment Manager will monitor the liquidity of restricted securities
in the Fund's portfolio under the supervision of the Board of Trustees. In
reaching liquidity decisions, the Investment Manager will consider, among
others, the following factors: (1) the frequency of trades and quotes for the
security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make
a market in the security; and (4) the nature of the security and the nature
of the marketplace trades (e.g., the time needed to dispose of the security,
the method of soliciting offers and the mechanics of the transfer).
Investing in Rule 144A securities could have the effect of increasing the
level of Fund illiquidity to the extent the Fund, at a particular point in
time, may be unable to find qualified institutional buyers interested in
purchasing such securities.
Convertible Securities. The Fund may invest in fixed-income securities
which are convertible into common stock. Convertible securities rank senior
to common stocks in a corporation's capital structure and, therefore, entail
less risk than the corporation's common stock. The value of a convertible
security is a function of its "investment value" (its value as if it did not
have a conversion privilege), and its "conversion value" (the security's
worth if it were to be exchanged for the underlying security, at market
value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when
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<PAGE>
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 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.
Convertible securities may be purchased by the Fund at varying price levels
above their investment values and/or their conversion values in keeping with
the Fund's objectives.
Warrants. The Fund may acquire warrants, including warrants which are
attached to fixed-income securities purchased for its portfolio, and hold
such warrants until the Investment Manager determines it is prudent to sell.
Warrants are, in effect, an option to purchase equity securities at a
specific price, generally valid for a specific period of time, and have no
voting rights, pay no dividends and have no rights with respect to the
corporations issuing them.
U.S. Government Securities. Securities issued by the U.S. Government, its
agencies or instrumentalities in which the Fund may invest include:
(1) U.S. Treasury bills (maturities of one year of less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration, the General Services
Administration, the Maritime Administration and the Small Business
Administration. The maturities of such obligations range from three months
to 30 years.
Neither the value nor the yield of the U.S. Government securities which
may be invested in by the Fund are guaranteed by the U.S. Government. Such
values and yield will fluctuate with changes in prevailing interest rates and
other factors. Generally, as prevailing interest rates rise, the value of any
U.S. Government securities held by the Fund will fall. Such securities with
longer maturities generally tend to produce higher yields and are subject to
greater market fluctuation as a result of changes in interest rates than debt
securities with shorter maturities.
Zero Coupon Treasury Securities. A portion of the U.S. Government
securities purchased by the Fund may be "zero coupon" Treasury securities.
These are U.S. Treasury bills, notes and bonds which have been stripped of
their unmatured interest coupons and receipts or which are certificates
representing interests in such stripped debt obligations and coupons. Such
securities are purchased at a discount from their face amount, giving the
purchaser the right to receive their full value at maturity. A zero coupon
security pays no interest to its holder during its life. Its value to an
investor consists of the difference between its face value at the time of
maturity and the price for which it was acquired, which is generally an
amount significantly less than its face value (sometimes referred to as a
"deep discount" price). The Fund intends to invest in such zero coupon
treasury securities as STRIPS, Treasury Receipts, Physical Coupons, and
Proprietary Receipts. However, the Fund does not intend, during the coming
year, to invest in such securities in amounts totalling more than 5% of its
total assets.
The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant
rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received if prevailing interest rates rise. For this reason, zero
coupon securities are subject to substantially greater market price
fluctuations during periods of changing prevailing interest rates than are
comparable debt securities which make
13
<PAGE>
current distributions of interest. Current federal tax law requires that a
holder (such as the Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though
the Fund receives no interest payments in cash on the security during the
year.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. However, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions from the coupon
portions of the U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in custodial or
trust account).
As stated in the Prospectus, the money market instruments which the Fund
may purchase include U.S. and foreign government securities, bank
obligations, Eurodollar certificates of deposit, obligations of savings
institutions, fully insured certificates of deposit and commercial paper.
Such securities are limited to:
U.S. and Foreign Government Securities. Obligations issued or guaranteed
as to principal and interest by the United States or its agencies (such as
the Export-Import Bank of the United States, Federal Housing Administration
and Government National Mortgage Association) or its instrumentalities (such
as the Federal Home Loan Bank), or by a foreign government, including U.S.
and foreign Treasury bills, notes and bonds;
Bank Obligations. Obligations (including certificates of deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government
and having total assets of $1,000,000,000 or more, and instruments secured by
such obligations, not including obligations of foreign branches of domestic
banks except to the extent below;
Eurodollar Certificates of Deposit. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of
$1,000,000,000 or more;
Obligations of Savings Institutions. Certificates of deposit of savings
and loan associations, having total assets of $1,000,000,000 or more;
Fully Insured Certificates of Deposit. Certificates of deposit of banks
and savings institutions, having total assets of less than $1,000,000,000, if
the principal amount of the obligation is insured by the Federal Deposit
Insurance Corporation, limited to $100,000 principal amount per certificate
and to 10% or less of the Fund's total assets in all such obligations and in
all illiquid assets, in the aggregate;
Commercial Paper. Commercial paper rated within the two highest grades by
S&P or by Moody's or, if not rated, issued by a company having an outstanding
debt issue rated at least AA by S&P or Aa by Moody's.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As discussed in the Prospectus, the Fund may enter into forward foreign
currency exchange contracts ("forward contracts") as a hedge against
fluctuations in future foreign exchange rates. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large, commercial banks) and their
customers. Such forward contracts will only be entered into with United
States banks and their foreign branches or foreign banks whose assets total
$1 billion or more. A forward contract generally has no deposit requirement,
and no commissions are charged at any stage for trades.
When the Investment Manager of the Fund believes that the currency of a
particular foreign country may suffer a substantial movement against the U.S.
dollar, it may enter into a forward contract to purchase or sell, for a fixed
amount of dollars or other currency, the amount of foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign
14
<PAGE>
currency. The Fund will also not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of
the prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the management of the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Fund will be served. The Fund's custodian bank will
place cash, U.S. Government securities, or other appropriate liquid portfolio
securities, in a segregated account of the Fund in an amount equal to the
value of the Fund's total assets committed to the consummation of forward
contracts entered into under the circumstances set forth above. If the value
of the securities placed in the segregated account declines, additional cash
or securities will be placed in the account on a daily basis so that the
value of the account will equal the amount of the Fund's commitments with
respect to such contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign fixed-income securities denominated in a foreign currency against
adverse exchange rate moves vis-a-vis the U.S. dollar, at the maturity of the
forward contract for delivery by the Fund of a foreign currency, the Fund may
either sell the portfolio security and make delivery of the foreign currency,
or it may retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date,
the same amount of the foreign currency. It is impossible to forecast the
market value of portfolio securities at the expiration of the contract.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign currency the
Fund is obligated to deliver and if a decision is made to sell the security
and make delivery of the foreign currency. Conversely, it may be necessary to
sell on the spot market some of the foreign currency received upon the sale
of the portfolio securities if its market value exceeds the amount of foreign
currency the Fund is obligated to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase
of the foreign currency, the Fund will realize a gain to the extent the price
of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Fund will suffer
a loss to the extent the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Fund has written a call option on a fixed-income
security or the currency in which it is denominated, it may wish to enter
into a forward contract to purchase or sell the foreign currency in which the
security is denominated. A forward contract would, for example, hedge the
risk of the security on which a call option has been written declining in
value to a greater extent than the value of the premium received for the
option. The Fund will maintain with its Custodian at all times, cash, U.S.
Government securities and high grade debt obligations in a segregated account
equal in value to all forward contract obligations and option contract
obligations entered into in hedge situations such as this.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will, however, do so from time to time, and
investors should be aware of the costs of currency conversion. Although
foreign exchange dealers
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<PAGE>
do not charge a fee for conversion, they do realize a profit based on the
spread between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund
at one rate, while offering a lesser rate of exchange should the Fund desire
to resell that currency to the dealer.
OPTIONS AND FUTURES TRANSACTIONS
As discussed in the Prospectus, the Fund may write covered call options
against securities held in its portfolio and purchase options of the same
series to effect closing transactions, and may hedge against potential
changes in the market value of its investments (or anticipated investments)
by purchasing put and call options on portfolio (or eligible portfolio)
securities (and the currencies in which they are denominated) and engaging in
transactions involving futures contracts and options on such contracts.
Options on Foreign Currencies. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the
portfolio securities involved. As a result, the Fund would be enabled to sell
the foreign currency for a fixed amount of U.S. dollars, thereby "locking in"
the dollar value of the portfolio securities (less the amount of the premiums
paid for the options). Conversely, the Fund may purchase call options on
foreign currencies in which securities it anticipates purchasing are
denominated to secure a set U.S. dollar price for such securities and protect
against a decline in the value of the U.S. dollar against such foreign
currency. The Fund may also purchase call and put options to close out
written option positions.
The Fund may also write call options on foreign currency to protect
against potential declines in its portfolio securities which are denominated
in foreign currencies. If the U.S. dollar value of the portfolio securities
falls as a result of a decline in the exchange rate between the foreign
currency in which it is denominated and the U.S. dollar, then a loss to the
Fund occasioned by such value decline would be ameliorated by receipt of the
premium on the option sold. At the same time, however, the Fund gives up the
benefit of any rise in value of the relevant portfolio securities above the
exercise price of the option and, in fact, only receives a benefit from the
writing of the option to the extent that the value of the portfolio
securities falls below the price of the premium received. The Fund may also
write options to close out long call option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. Although the Fund will not
purchase or write such options unless and until, in the opinion of the
management of the Fund, the market for them has developed sufficiently to
ensure that the risks in connection with such options are not greater than
the risks in connection with the underlying currency, there can be no
assurance that a liquid secondary market will exist for a particular option
at any specific time. In addition, options on foreign currencies are affected
by all of those factors which influence foreign exchange rates and
investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and have no relationship to the investment merits of a foreign
security, including foreign securities held in a "hedged" investment
portfolio. Because foreign currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved
in the use of foreign currency options, investors may be disadvantaged by
having to deal in an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at prices that
are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the
16
<PAGE>
interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the
extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may
take place in the underlying markets that are not reflected in the options
market.
Covered Call Writing. As stated in the Prospectus, the Fund is permitted
to write covered call options on portfolio securities and on the U.S. Dollar
and foreign currencies, without limit, in order to aid in achieving its
investment objectives. Generally, a call option is "covered" if the Fund
owns, or has the right to acquire, without additional cash consideration (or
for additional cash consideration held for the Fund by its Custodian in a
segregated account) the underlying security (currency) subject to the option
except that in the case of call options on U.S. Treasury Bills, the Fund
might own U.S. Treasury Bills of a different series from those underlying the
call option, but with a principal amount and value corresponding to the
exercise price and a maturity date no later than that of the security
(currency) deliverable under the call option. A call option is also covered
if the Fund holds a call on the same security as the underlying security
(currency) of the written option, where the exercise price of the call used
for coverage is equal to or less than the exercise price of the call written
or greater than the exercise price of the call written if the mark to market
difference is maintained by the Fund in cash, U.S. Government securities, or
other liquid portfolio securities, which the Fund holds in a segregated
account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these
premiums may better enable the Fund to earn a higher level of current income
than it would earn from holding the underlying securities (currencies) alone.
Moreover, the premium received will offset a portion of the potential loss
incurred by the Fund if the securities (currencies) underlying the option are
ultimately sold (exchanged) by the Fund at a loss. The premium received will
fluctuate with varying economic market conditions. If the market value of the
portfolio securities (or the currencies in which they are denominated) upon
which call options have been written increases, the Fund may receive a lower
total return from the portion of its portfolio upon which calls have been
written than it would have had such calls not been written.
As regards listed options and certain over-the-counter ("OTC") options,
during the option period, the Fund may be required, at any time, to deliver
the underlying security (currency) against payment of the exercise price on
any calls it has written (exercise of certain listed and OTC options may be
limited to specific expiration dates). This obligation is terminated upon the
expiration of the option period or at such earlier time when the writer
effects a closing purchase transaction. A closing purchase transaction is
accomplished by purchasing an option of the same series as the option
previously written. However, once the Fund has been assigned an exercise
notice, the Fund will be unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit
on an outstanding call option, to prevent an underlying security (currency)
from being called, to permit the sale of an underlying security (or the
exchange of the underlying currency) or to enable the Fund to write another
call option on the underlying security (currency) with either a different
exercise price or expiration date or both. The Fund may realize a net gain or
loss from a closing purchase transaction depending upon whether the amount of
the premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be wholly or partially offset by unrealized
appreciation in the market value of the underlying security (currency).
Conversely, a gain resulting from a closing purchase transaction could be
offset in whole or in part or exceeded by a decline in the market value of
the underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised,
the Fund realizes a gain or loss from the sale of the underlying security
(currency) equal to the difference between the purchase price of the
underlying security (currency) and the proceeds of the sale of the security
(currency) plus the premium received for the option less the commission paid.
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<PAGE>
Options written by the Fund will normally have expiration dates of up to
eighteen months from the date written. The exercise price of a call option
may be below, equal to or above the current market value of the underlying
security at the time the option is written. See "Risks of Options
Transactions," below.
Purchasing Call and Put Options. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options in amounts equalling up to 5% of
its total assets. The Fund may purchase a call option in order to close out a
covered call position (see "Covered Call Writing" above), to protect against
an increase in price of a security it anticipates purchasing or, in the case
of a call option on foreign currency, to hedge against an adverse exchange
rate move of the currency in which the security it anticipates purchasing is
denominated vis-a-vis the currency in which the exercise price is
denominated. The purchase of the call option to effect a closing transaction
on a call written over-the-counter may be a listed or an OTC option. In
either case, the call purchased is likely to be on the same securities
(currencies) and have the same terms as the written option. If purchased
over-the-counter, the option would generally be acquired from the dealer or
financial insitution which purchased the call written by the Fund.
The Fund may purchase put options on securities (currencies) which it
holds in its portfolio only to protect itself against a decline in the value
of the security. If the value of the underlying security (currency) were to
fall below the exercise price of the put purchased in an amount greater than
the premium paid for the option, the Fund would incur no additional loss. In
addition, the Fund may sell a put option which it has previously purchased
prior to the sale of the securities (currencies) underlying such option. Such
a sale would result in a net gain or loss depending on whether the amount
received on the sale is more or less than the premium and other transaction
costs paid on the put option which is sold. And such gain or loss could be
offset in whole or in part by a change in the market value of the underlying
security (currency). If a put option purchased by the Fund expired without
being sold or exercised, the premium would be lost.
Risks of Options Transactions. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of
the underlying security (or the value of its denominated currency) increase,
but has retained the risk of loss should the price of the underlying security
(or the value of its denominated currency) decline. The writer has no control
over the time when it may be required to fulfill its obligation as a writer
of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or receive the underlying
securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to
purchase an offsetting OTC option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered
call option writer may not be able to sell an underlying security at a time
when it might otherwise be advantageous to do so.
As discussed in the Prospectus, the Fund's ability to close out its
position as a writer of an option is dependent upon the existence of a liquid
secondary market on Option Exchanges. There is no assurance that such a
market will exist, particularly in the case of OTC options, as such options
will generally only be closed out by entering into a closing purchase
transaction with the purchasing dealer. However, the Fund may be able to
purchase an offsetting option which does not close out its position as a
writer but constitutes an asset of equal value to the obligation under the
option written. If the Fund is not able to either enter into a closing
purchase transaction or purchase an offsetting position, it will be required
to maintain the securities subject to the call, or the collateral underlying
the put, even though it might not be advantageous to do so, until a closing
transaction can be entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes
or series of options or underlying securities; (iv) interruption of the
normal operations on an Exchange; (v)
18
<PAGE>
inadequacy of the facilities of an Exchange or the Options Clearing
Corporation ("OCC") to handle current trading volume; or (vi) a decision by
one or more Exchanges to discontinue the trading of options (or a particular
class or series of options), in which event the secondary market on that
Exchange (or in that class or series of options) would cease to exist,
although outstanding options on that Exchange that had been issued by the OCC
as a result of trades on that Exchange would generally continue to be
exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur
a loss of all or part of its margin deposits with the broker. Similarly, in
the event of the bankruptcy of the writer of an OTC option purchased by the
Fund, the Fund could experience a loss of all or part of the value of the
option. Transactions are entered into by the Fund only with brokers or
financial institutions deemed creditworthy by the Fund's Investment Manager.
Each of the Exchanges has established limitations governing the maximum
number of options on the same underlying security or futures contract
(whether or not covered) which may be written by a single investor, whether
acting alone or in concert with others (regardless of whether such options
are written on the same or different Exchanges or are held or written on one
or more accounts or through one or more brokers). An Exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict
the number of listed options which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
Futures Contracts. As stated in the Prospectus, the Fund may purchase and
sell interest rate, currency, and index futures contracts ("futures
contracts"), that are traded on U.S. and foreign commodity exchanges, on such
underlying securities as U.S. Treasury bonds, notes and bills and/or any
foreign government fixed-income security ("interest rate" futures), on
various currencies ("currency futures") and on such indexes of U.S. and
foreign securities as may exist or come into being ("index" futures).
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. A futures contract
sale is closed out by effecting a futures contract purchase for the same
aggregate amount of the specific type of security (currency) and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the
offsetting purchase price exceeds the sale price, the seller would pay the
difference and would realize a loss. Similarly, a futures contract purchase
is closed out by effecting a futures contract sale for the same aggregate
amount of the specific type of security (currency) and the same delivery
date. If the offsetting sale price exceeds the purchase price, the purchaser
would realize a gain, whereas if the purchase price exceeds the offsetting
sale price, the purchaser would realize a loss. There is no assurance that
the Fund will be able to enter into a closing transaction.
Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid
for premiums for unexpired options on futures contracts exceeds 5% of the
value of the Fund's total assets, after taking into account unrealized gains
and unrealized losses on such con-tracts it has entered into, provided,
however, that in the case of an option that is in-the-money (the exercise
price of the call (put) option is less (more) than the market price of the
underlying security) at the time of purchase, the in-the-money amount may be
excluded in calculating the 5%. However, there is no overall limitation on
the percentage of the Fund's assets which may be subject to a hedge position.
In addition, in accordance with the regulations of the Commodity Futures
Trading Commission ("CFTC") under which the Fund is exempted from
registration as a commodity pool operator, the Fund may only enter into
futures contracts and options on futures contracts transactions for purposes
of hedging a part
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or all of its portfolio. If the CFTC changes its regulations so that the Fund
would be permitted to write options on futures contracts for purposes other
than hedging the Fund's investments without CFTC registration, the Fund may
engage in such transactions for those purposes. Except as described above,
there are no other limitations on the use of futures and options thereon by
the Fund.
Interest Rate Futures Contracts. When the Fund enters into an interest
rate futures contract, it is initially required to deposit with the Fund's
Custodian, in a segregated account in the name of the broker performing the
transaction, an "initial margin" of cash or U.S. Government securities or
other liquid portfolio securities equal to approximately 3% of the contract
amount. Initial margin requirements are established by the Exchanges on which
futures contracts trade and may, from time to time, change. In addition,
brokers may establish margin deposit requirements in excess of those required
by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a brokers' client but is, rather, a good faith deposit on the
futures contract which will be returned to the Fund upon the proper
termination of the futures contract. The margin deposits made are marked to
market daily and the Fund may be required to make subsequent deposits of cash
or U.S. Government securities called "variation margin," with the Fund's
futures contract clearing broker, which are reflective of price fluctuations
in the futures contract. Currently, interest rate futures contracts can be
purchased on debt securities such as U.S. Treasury Bills and Bonds, U.S.
Treasury Notes with Maturities between 6 1/2 and 10 years, GNMA Certificates,
and Bank Certificates of Deposit.
Currency Futures. Generally, foreign currency futures provide for the
delivery of a specified amount of a given currency, on the exercise date, for
a set exercise price denominated in U.S. dollars or other currency. Foreign
currency futures contracts would be entered into for the same reason and
under the same circumstances as forward foreign currency exchange contracts.
The Investment Manager will assess such factors as cost spreads, liquidity
and transaction costs in determining whether to utilize futures contracts or
forward contracts in its foreign currency transactions and hedging strategy.
Currently, currency futures exist for, among other foreign currencies, the
Japanese yen, German marks, Canadian dollars, British pound, Swiss franc, and
European currency unit.
Purchasers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the buying and selling of futures generally.
In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. Further, settlement of a
foreign currency futures contract must occur within the country issuing the
underlying currency. Thus, the Fund must accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign
restrictions or regulation regarding the maintenance of foreign banking
arrangements by U.S. residents and may be required to pay any fees, taxes or
charges associated with such delivery which are assessed in the issuing
country.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To reduce
this risk, the Fund will not purchase or write options on foreign currency
futures contracts unless and until, in the Investment Manager's opinion, the
market for such options has developed sufficiently that the risks in
connection with such options are not greater than the risks in connection
with transactions in the underlying foreign currency futures contracts.
Index Futures Contracts. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future
time. An index futures contract purchase would create an obligation by the
Fund, as purchaser, to take delivery of cash at a specified future time.
Futures contracts on indexes do not require the physical delivery of
securities, but provide for a final cash settlement on the expiration date
which reflects accumulated profits and losses credited or debited to each
party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently,
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the initial margin requirements range from 3% to 10% of the contract amount
for index futures. In addition, due to current industry practice, daily
variations in gains and losses on open contracts are required to be reflected
in cash in the form of variation margin payments. The Fund may be required to
make additional margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required
to be paid by or released to the Fund and the Fund realizes a loss or gain.
Options on Futures Contracts. The writer of an option on a futures
contract is required to deposit initial and variation margin pursuant to
requirements similar to those applicable to futures contracts. Premiums
received from the writing of an option on a futures contract are included in
initial margin deposits.
Risks of Transactions in Futures Contracts and Related Options. As stated
in the Prospectus, the Fund may sell a futures contract to protect against
the decline in the value of securities (or the currency in which they are
denominated) held by the Fund. However, it is possible that the futures
market may advance and the value of securities (or the currency in which they
are denominated) held in the portfolio of the Fund may decline. If this
occurred, the Fund would lose money on the futures contract and also
experience a decline in value of its portfolio securities. However, while
this could occur for a very brief period or to a very small degree, over time
the value of a diversified portfolio will tend to move in the same direction
as the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy (or the currency in which they are
denominated), and the value of such securities (currencies) decreases, then
the Fund may determine not to invest in the securities as planned and will
realize a loss on the futures contract that is not offset by a reduction in
the price of the securities.
In order to assure that the Fund is entering into transactions in futures
contracts for hedging purposes as such is defined by the Commodity Futures
Trading Commission either: 1) a substantial majority (i.e., approximately
75%) of all anticipatory hedge transactions (transactions in which the Fund
does not own at the time of the transaction, but expects to acquire, the
securities underlying the relevant futures contract) involving the purchase
of futures contracts will be completed by the purchase of securities which
are the subject of the hedge or 2) the underlying value of all long positions
in futures contracts will not exceed the total value of a) all short-term
debt obligations held by the Fund; b) cash held by the Fund; c) cash proceeds
due to the Fund on investments within thirty days; d) the margin deposited on
the contracts; and e) any unrealized appreciation in the value of the
contracts.
If the Fund has sold a call option in a futures contract, it will cover
this position by holding, in a segregated account maintained at its
Custodian, cash, U.S. Government securities or other liquid portfolio
securities equal in value (when added to any initial or variation margin on
deposit) to the market value of the securities (currencies) underlying the
futures contract or the exercise price of the option. Such a position may
also be covered by owning the securities (currencies) underlying the futures
contract, or by holding a call option permitting the Fund to purchase the
same contract at a price no higher than the price at which the short position
was established.
In addition, if the Fund holds a long position in a futures contract it
will hold cash, U.S. Government securities or other liquid portfolio
securities equal to the purchase price of the contract (less the amount of
initial or variation margin on deposit) in a segregated account maintained
for the Fund by its Custodian. Alternatively, the Fund could cover its long
position by purchasing a put option on the same futures contract with an
exercise price as high or higher than the price of the contract held by the
Fund.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily
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<PAGE>
variation margin requirements at a time when it may be disadvantageous to do
so. In addition, the Fund may be required to take or make delivery of the
instruments underlying interest rate futures contracts it holds at a time
when it is disadvantageous to do so. The inability to close out options and
futures positions could also have an adverse impact on the Fund's ability to
effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on
foreign commodities exchanges may have greater price volatility than their
U.S. counterparts. Furthermore, foreign commodities exchanges may be less
regulated and under less governmental scrutiny than U.S. exchanges. Brokerage
commissions, clearing costs and other transaction costs may be higher on
foreign exchanges. Greater margin requirements may limit the Fund's ability
to enter into certain commodity transactions on foreign exchanges. Moreover,
differences in clearance and delivery requirements on foreign exchanges may
occasion delays in the settlement of the Fund's transactions effected on
foreign exchanges.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or options thereon, the Fund could experience
delays and/or losses in liquidating open positions purchased or sold through
the broker and/or incur a loss of all or part of its margin deposits with the
broker. Similarly, in the event of the bankruptcy of the writer of an OTC
option purchased by the Fund, the Fund could experience a loss of all or part
of the value of the option. Transactions are entered into by the Fund only
with brokers or financial institutions deemed creditworthy by the Investment
Manager.
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such
instruments. One such risk which may arise in employing futures contracts to
protect against the price volatility of portfolio securities (and the
currencies in which they are denominated) is that the prices of securities
and indexes subject to futures contracts (and thereby the futures contract
prices) may correlate imperfectly with the behavior of the cash prices of the
Fund's portfolio securities (and the currencies in which they are
denominated). Another such risk is that prices of interest rate futures
contracts may not move in tandem with the changes in prevailing interest
rates against which the Fund seeks a hedge. A correlation may also be
distorted by the fact that the futures market is dominated by short-term
traders seeking to profit from the difference between a contract or security
price objective and their cost of borrowed funds. Such distortions are
generally minor and would diminish as the contract approached maturity.
As stated in the Prospectus, there may exist an imperfect correlation
between the price movements of futures contracts purchased by the Fund and
the movements in the prices of the securities (currencies) which are the
subject of the hedge. If participants in the futures market elect to close
out their contracts through offsetting transactions rather than meet margin
deposit requirements, distortions in the normal relationship between the debt
securities or currency markets and futures markets could result. Price
distortions could also result if investors in futures contracts opt to make
or take delivery of underlying securities rather than engage in closing
transactions due to the resultant reduction in the liquidity of the futures
market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions.
Due to the possibility of price distortions in the futures market and because
of the imperfect correlation between movements in the prices of securities
and movements in the prices of futures contracts, a correct forecast of
interest rate trends may still not result in a successful hedging
transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Fund
may invest. In the event a liquid market does not exist, it may not be
possible to close out a futures position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments
of variation margin. In addition, limitations imposed by an exchange or board
of trade on which futures contracts are traded may compel or prevent the Fund
from closing out a contract which may result in reduced gain or increased
loss to the Fund. The absence of a liquid market in futures contracts might
cause the Fund to make or take delivery of the underlying securities
(currencies) at a time when it may be disadvantageous to do so.
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<PAGE>
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss
to the Fund notwithstanding that the purchase or sale of a futures contract
would not result in a loss, as in the instance where there is no movement in
the prices of the futures contract or underlying securities (currencies).
OTHER INVESTMENT POLICIES
Repurchase Agreements. When cash may be available for only a few days, it
may be invested by the Fund in repurchase agreements until such time as it
may otherwise be invested or used for payments of obligations of the Fund. A
repurchase agreement may be viewed as a type of secured lending by the Fund
which typically involves the acquisition by the Fund of government securities
from a selling financial institution such as a bank, savings and loan
association or broker-dealer. The agreement provides that the Fund will sell
back to the institution, and that the institution will repurchase, the
underlying security ("collateral") at a specified price and at a fixed time
in the future, usually not more than seven days from the date of purchase.
The collateral will be maintained in a segregated account and will be
marked-to-market daily to determine that the full value of the collateral, as
specified in the agreement, is always at least equal to the purchase price
plus accrued interest. If required, additional collateral will be requested
and, when received, added to the account to maintain full collateralization.
In the event the original seller defaults on its obligations to repurchase,
as a result of its bankruptcy or otherwise, the Fund will seek to sell the
collateral, which action could involve costs or delays. In such case, the
Fund's ability to dispose of the collateral to recover its investment may be
restricted or delayed.
The Fund will accrue interest from the institution until the time when the
repurchase is to occur. Although such date is deemed by the Fund to be the
maturity date of a repurchase agreement, the maturities of securities subject
to repurchase agreements are not subject to any limits and may exceed one
year.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed
to minimize such risks. Repurchase agreements will be transacted only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continuously monitored by the management of the
Fund subject to procedures established by the Trustees. The procedures also
require that the collateral underlying the agreement be specified. The Fund
does not presently intend to enter into repurchase agreements so that more
than 5% of the Fund's net assets are subject to such agreements.
Reverse Repurchase Agreements. The Fund may also use reverse repurchase
agreements for purposes of meeting redemptions or as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of
portfolio assets concurrently with an agreement by the Fund to repurchase the
same assets at a later date at a fixed price. Generally, the effect of such a
transaction is that the Fund can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise. Opportunities to achieve this
advantage may not always be available, and the Fund intends to use the
reverse repurchase technique only when it will be to its advantage to do so.
The Fund will establish a segregated account with its custodian bank in which
it will maintain cash or cash equivalents or other liquid portfolio
securities (i.e., U.S. Government securities) equal in value to its
obligations in respect of reverse repurchase agreements. Reverse repurchase
agreements are considered borrowings by the Fund and, in accordance with
legal requirements, the Fund will maintain an asset coverage (including the
proceeds) of at least 300% with respect to all reverse repurchase agreements.
Reverse repurchase agreements may not exceed 10% of the Fund's total assets.
The Fund does not intend to enter into any reverse repurchase agreements
during the coming year.
When-Issued and Delayed Delivery Securities and Forward Commitments. As
discussed in the Prospectus, from time to time, in the ordinary course of
business, the Fund may purchase securities on
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<PAGE>
a when-issued or delayed delivery basis and may purchase or sell securities
on a forward commitment basis. When such transactions are negotiated, the
price is fixed at the time of the commitment, but delivery and payment can
take place a month or more after the date of the commitment. The securities
so purchased are subject to market fluctuation and no interest accrues to the
purchaser during this period. While the Fund will only purchase securities on
a when-issued, delayed delivery or forward commitment basis with the
intention of acquiring the securities, the Fund may sell the securities
before the settlement date, if it is deemed advisable. At the time the Fund
makes the commitment to purchase securities on a when-issued or delayed
delivery basis, the Fund will record the transaction and thereafter reflect
the value, each day, of such security in determining the net asset value of
the Fund. At the time of delivery of the securities, the value may be more or
less than the purchase price. The Fund will also establish a segregated
account with the Fund's custodian bank in which it will continuously maintain
cash or U.S. Government securities or other liquid portfolio securities equal
in value to commitments for such when-issued or delayed delivery securities.
Subject to this requirement, the Fund may purchase securities on such basis
without limit. An increase in the percentage of the Fund's assets committed
to the purchase of securities on a when-issued or delayed delivery basis may
increase the volatility of the Fund's net asset value. The Fund's Investment
Manager and the Trustees do not believe that the Fund's net asset value or
income will be adversely affected by its purchase of securities on such
basis.
When, As and If Issued Securities. As discussed in the Prospectus, the
Fund may purchase securities on a "when, as and if issued" basis under which
the issuance of the security depends upon the occurrence of a subsequent
event, such as approval of a merger, corporate reorganization, leveraged
buyout or debt restructuring. The commitment for the purchase of any such
security will not be recognized in the portfolio of the Fund until the
Investment Manager determines that issuance of the security is probable. At
such time, the Fund will record the transaction and, in determining its net
asset value, will reflect the value of the security daily. At such time, the
Fund will also establish a segregated account with its custodian bank in
which it will continuously maintain cash or U.S. Government securities or
other liquid portfolio securities equal in value to recognized commitments
for such securities. Settlement of the trade will occur within five business
days of the occurrence of the subsequent event. The value of the Fund's
commitments to purchase the securities of any one issuer, together with the
value of all securities of such issuer owned by the Fund, may not exceed 5%
of the value of the Fund's total assets at the time the initial commitment to
purchase such securities is made (see "Investment Restrictions"). Subject to
the foregoing restrictions, the Fund may purchase securities on such basis
without limit. An increase in the percentage of the Fund's assets committed
to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value. The Fund's Investment Manager
and the Trustees do not believe that the net asset value of the Fund will be
adversely affected by its purchase of securities on such basis. The Fund may
also sell securities on a "when, as and if issued" basis provided that the
issuance of the security will result automatically from the exchange or
conversion of a security owned by the Fund at the time of the sale.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at
any time by the Fund (subject to notice provisions described below), and are
at all times secured by cash or appropriate high-grade debt obligations,
which are maintained in a segregated account pursuant to applicable
regulations and that are at least equal to the market value, determined
daily, of the loaned securities. The advantage of such loans is that the Fund
continues to receive the income on the loaned securities while at the same
time earning interest on the cash amounts deposited as collateral, which will
be invested in short-term obligations. The Fund will not lend its portfolio
securities if such loans are not permitted by the laws or regulations of any
state in which its shares are qualified for sale and will not lend more than
25% of the value of its total assets. A loan may be terminated by the
borrower on one business days' notice, or by the Fund on two business days'
notice. If the borrower fails to deliver the loaned securities within two
days after receipt of notice, the Fund could use the collateral to replace
the securities while holding the borrower liable for any excess of
replacement cost over collateral. As with any extensions of credit, there are
risks of delay in recovery and in some cases even loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Fund's management to be creditworthy
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<PAGE>
and when the income which can be earned from such loans justifies the
attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price
during the loan period would inure to the Fund. The creditworthiness of firms
to which the Fund lends its portfolio securities will be monitored on an
ongoing basis by the Fund's management pursuant to procedures adopted and
reviewed, on an ongoing basis, by the Board of Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned
securities, to be delivered within one day after notice, to permit the
exercise of such rights if the matters involved would have a material effect
on the Fund's investment in such loaned securities. The Fund will pay
reasonable finder's, administrative and custodial fees in connection with a
loan of its securities. The Fund does not presently intend to lend any of its
portfolio securities.
Short Sales "against-the-box." A short sale is a transaction in which the
Fund sells a security it does not own in anticipation of a decline in market
price. The Fund will not sell short unless it is "against the box," which
means that at all times when the short position is open, the Fund owns an
equal amount of securities or securities convertible into, or exchangeable
without further consideration, for securities sold short. Short sales against
the box may be used to defer recognition of capital gains or losses for
certain federal income tax purposes. The Fund does not intend to enter into
short sales against the box during the coming year.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate for the fiscal year ended July 31, 1996
was 63.06%. A 100% turnover rate would occur, for example, if 100% of the
securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced
within one year.
INVESTMENT RESTRICTIONS
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In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at
a meeting of shareholders, if the holders of 50% of the outstanding shares of
the Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund.
The Fund may not:
1. Purchase or sell real estate or interests therein, although the Fund
may purchase securities of issuers which engage in real estate operations
and securities secured by real estate or interests therein.
2. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
3. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets or, in the case of a closed-end company, in accordance with the
provisions of Section 12(d) of the Act and any Rules promulgated
thereunder.
4. Borrow money (except insofar as to the Fund may be deemed to have
borrowed by entrance into a reverse repurchase agreement up to an amount
not exceeding 10% of the Fund's total assets), except that the Fund may
borrow from a bank for temporary or emergency purposes in amounts not
exceeding 5% (taken at the lower of cost or current value) of its total
assets (not including the amount borrowed).
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5. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase or reverse repurchase agreement; (b)
purchasing any securities on a when-issued or delayed delivery basis; (c)
purchasing or selling futures contracts, forward foreign exchange
contracts or options; (d) borrowing money in accordance with restrictions
described above; or (e) lending portfolio securities.
6. Make loans of money or securities, except; (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest
consistent with its investment objectives and policies; (b) by investment
in repurchase or reverse repurchase agreements; or (c) by lending its
portfolio securities.
7. Make short sales of securities or maintain a short position, unless
at all times when a short position is open it either owns an equal amount
of such securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for securities
of the same issue as, and equal in amount to, the securities sold short.
8. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
9. Invest for the purpose of exercising control or management of any
other issuer.
The Fund will not invest more than 5% of its net assets in warrants,
including not more than 2% of such net assets in warrants not listed on
either a recognized domestic or foreign exchange. However, the acquisition of
warrants attached to other securities is not subject to this restriction. In
addition, as a nonfundamental policy, the Fund may not invest in securities
of any issuer if, to the knowledge of the Fund, any officer or trustee of the
Fund or any officer or director of the Investment Manager owns more than 1/2
of 1% of the outstanding securities of such issuer, and such officers,
trustees and directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuers. The Fund has no
present intention to make any investments, during the coming year, in
securities issued by other investment companies.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered
a violation of any of the foregoing restrictions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- -----------------------------------------------------------------------------
Subject to the general supervision of the Fund's Trustees, the Investment
Manager is responsible for decisions to buy and sell securities of the Fund,
the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of
securities on a stock exchange are effected through brokers who charge a
commission for their services. In the over-the-counter market, securities are
generally traded on a "net" basis with non-affiliated dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. The Fund also
expects that securities will be purchased at times in underwritten offerings
where the price includes a fixed amount of compensation, generally referred
to as the underwriter's concession or discount. In the underwritten
offerings, securities are purchased at a fixed price which includes an amount
of compensation equal to the underwriter's concession. On occasion, certain
money market instruments may be purchased directly from an issuer, in which
case no commissions or discounts are paid. For the fiscal years ended July
31, 1994, 1995, and 1996, the Fund paid brokerage commissions of $649,320,
$801,163, and $270,559, respectively.
The Investment Manager currently serves as investment adviser to a number
of clients, including other investment companies, and may in the future act
as investment manager or adviser to others. It is the practice of the
Investment Manager to cause purchase and sale transactions to be allocated
among the Fund and others whose assets it manages in such manner as it deems
equitable. In making such allocations among the Fund and other client
accounts, various factors may be considered, including the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and
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<PAGE>
the opinions of the persons responsible for managing the portfolios of the
Fund and other client accounts. In the case of certain initial and secondary
public offerings, the Investment Manager may utilize a pro-rata allocation
process based on the size of the Dean Witter Funds involved and the number of
shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange,
the Fund's policy is to pay commissions which are considered fair and
reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a
requirement always to seek the lowest possible commission cost could impede
effective portfolio management and preclude the Fund and the Investment
Manager from obtaining a high quality of brokerage and research services. In
seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Investment Manager relies upon its experience and knowledge
regarding commissions generally charged by various brokers and on their
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily
subjective and imprecise, as in most cases an exact dollar value for those
services is not ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on securities exchanges. Fixed commissions on
such transactions are generally higher than negotiated commissions on
domestic transactions. There is also generally less government supervision
and regulation of foreign securities exchanges and brokers than in the United
States.
In seeking to implement the Fund's policies, the Investment Manager
effects transactions with those brokers and dealers who the Investment
Manager believes provide the most favorable prices and are capable of
providing efficient executions. If the Investment Manager believes such
prices and executions are obtainable from more than one broker or dealer, it
may give consideration to placing portfolio transactions with those brokers
and dealers who also furnish research and other services to the Fund or the
Investment Manager. Such services may include, but are not limited to, any
one or more of the following: information as to the availability of
securities for purchase or sale; statistical or factual information or
opinions pertaining to investment; wire services; and appraisals or
evaluations of portfolio securities. The Fund will not purchase at a higher
price or sell at a lower price in connection with transactions effected with
a dealer, acting as principal, who furnishes research services to the Fund
than would be the case if no weight were given by the Fund to the dealer's
furnishing of such services. The Fund paid $468,627, $655,964, and $217,125,
respectively, in commissions to brokers providing research services to effect
transactions totalling $175,549,085, $265,984,313, and $92,253,743,
respectively for the fiscal years ended July 31, 1994, 1995, and 1996.
The information and services received by the Investment Manager from
brokers and dealers may be of benefit to the Investment Manager in the
management of accounts of some of its other clients and may not in all cases
benefit the Fund directly. While the receipt of such information and services
is useful in varying degrees and would generally reduce the amount of
research or services otherwise performed by the Investment Manager and
thereby reduce its expenses, it is of indeterminable value and the fees paid
to the Investment Manager are not reduced by any amount that may be
attributable to the value of such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund
may effect principal transactions in certain money market instruments with
DWR. The Fund will limit its transactions with DWR to U.S. Government and
Government Agency Securities, Bank Money Instruments (i.e., Certificates of
Deposit and Bankers' Acceptances) and Commercial Paper. Such transactions
will be effected with DWR only when the price available from DWR is better
than that available from other dealers.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR. In order for DWR to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration
received by them must be reasonable and fair compared to the commissions,
fees or other remuneration paid to other brokers
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<PAGE>
in connection with comparable transactions involving similar securities being
purchased or sold on an exchange during a comparable period of time. This
standard would allow them to receive no more than the remuneration which
would be expected to be received by an unaffiliated broker in a commensurate
arm's-length transaction. Furthermore, the Trustees of the Fund, including a
majority of the Trustees who are not "interested" persons to the Fund, as
defined in the Act, have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to DWR is
consistent with the foregoing standard. The Fund paid DWR $74,905, $95,560,
and $9,000, respectively, (11.54%, 11.93%, and 3.33%, respectively of its
brokerage commissions) for the fiscal years ended July 31, 1994, 1995, and
1996, to effect transactions totalling $32,815,235, $43,615,162, and
$4,241,048 (13.12%, 13.07%, and 3.59% of all transactions on which brokerage
commissions were paid).
Section 11(a) of the Securities Exchange Act of 1934, which generally
prohibits members of the United States national securities exchanges from
executing exchange transactions for their affiliates and institutional
accounts which they manage, permits such exchange members to execute such
securities transactions on an exchange only if the affiliate or account
expressly consents. To the extent Section 11(a) would apply to acting as a
broker for the Fund in any of its portfolio transactions executed on any such
securities exchange of which it is a member, appropriate written consents
have been given.
PURCHASE OF FUND SHARES
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As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered
into a selected dealer agreement with DWR, which through its own sales
organization sells shares of the Fund and may enter into selected dealer
agreements with other selected dealers ("Selected Broker-Dealers"). The
Distributor, a Delaware corporation, is a wholly-owned subsidiary of DWDC.
The Trustees of the Fund, including a majority of the Trustees who are not,
and were not at the time they voted, interested persons of the Fund, as
defined in the Act (the "Independent Trustees"), approved, at their meeting
held on October 30, 1992, the current Distribution Agreement appointing the
Distributor the exclusive Distributor of the Fund's shares and providing for
the Distributor to bear distribution expenses not borne by the Fund. The
current Distribution Agreement is substantively identical to the Fund's
previous Distribution Agreement in all material respects, except for dates of
effectiveness. The Distribution Agreement took effect on June 30, 1993 upon
the spin-off by Sears, Roebuck and Co. of its remaining shares of DWDC. By
its terms, the Distribution Agreement had an initial term ending April 30,
1994, and provides that it will remain in effect from year to year thereafter
if approved by the Trustees. At their meeting held on April 17, 1996, the
Trustess, including all of the Independent Trustees, approved the
continuation of the Agreement until April 30, 1997.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to
account executives. The Distributor also pays certain expenses in connection
with the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears
the costs of initial typesetting, printing and distribution of prospectuses
and supplements thereto to shareholders. The Fund also bears the cost of
registering the Fund and its shares under federal and state securities laws.
The Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. Under the Distribution Agreement, the Distributor uses its best
efforts in rendering services to the Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations, the Distributor is not liable to the Fund or any of its
shareholders for any error of judgment or mistake of law or for any act or
omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
To compensate the Distributor for services provided and for the expenses
borne under the Distribution Agreement, the Fund has adopted a Plan of
Distribution pursuant to Rule 12b-1 under the Act (the "Plan") pursuant to
which the Fund pays the Distributor compensation accrued daily and
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<PAGE>
payable monthly at the annual rate of 1.0% of the lesser of: (a) the average
daily aggregate gross sales of the Fund's shares since the inception of the
Fund (not including reinvestment of dividends or distributions), less the
average daily aggregate net asset value of the Fund's shares redeemed since
the Fund's inception upon which a contingent deferred sales charge has been
imposed or waived, or (b) the Fund's average daily net assets. The
Distributor also receives the proceeds of contingent deferred sales charges
imposed on certain redemptions of shares, which are separate and apart from
payments made pursuant to the Plan. (See "Redemptions and
Repurchases--Contingent Deferred Sales Charges" in the Prospectus). The
Distributor has informed the Fund that it received approximately $877,000,
$952,718, and $610,425 in contingent deferred sales charges for the fiscal
years ended July 31, 1994, 1995, and 1996, respectively, none of which was
retained by the Distributor.
The Distributor has informed the Fund that a portion of the fees payable
by the Fund each year pursuant to the Plan equal to 0.25% of the Fund's
average daily net assets is characterized as a "service fee" under the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (of
which the Distributor is a member). Such portion of the fee is a payment made
for personal service and/or the maintenance of shareholder accounts. The
remaining portion of the Plan fees payable by the Fund is characterized as an
"asset-based sales charge" as such is defined by the aforementioned Rules of
Fair Practice.
Under its terms, the Plan had an initial term ending April 30, 1993, and
provides that it will remain in effect from year to year thereafter, provided
such continuance is approved annually by a vote of the Trustees, including a
majority of the Trustees who are not "interested persons" of the Fund (as
defined in the Act) and who have no direct or indirect financial interest in
the operation of the Plan (the "Independent 12b-1 Trustees"). In determining
to approve the Plan, the Trustees of the Fund, including each of the
Independent 12b-1 Trustees, concluded that the Plan would be in the best
interest of the Fund and would have a reasonable likelihood of benefiting the
Fund and its shareholders. In the Trustees' quarterly review of the Plan,
they will consider its continued appropriateness and the level of
compensation provided therein. Most recent continuation of the Plan for one
year, until April 30, 1997, was approved by the Trustees of the Fund,
including all the Independent 12b-1 Trustees, at a meeting held on April 17,
1996.
At their meeting held on October 30, 1992, the Trustees of the Fund,
including all of the independent 12b-1 Trustees, approved certain amendments
to the Plan which took effect in January, 1993 and were designed to reflect
the facts that upon the reorganization described above, the share
distribution activities theretofore performed for the Fund by DWR were
assumed by the Distributor and that DWR's sales activities are now being
performed pursuant to the terms of a selected dealer agreement between the
Distributor and DWR. The amendments provide that payments under the Plan will
be made to the Distributor rather than to DWR as they had been before the
amendment, and that the Distributor in turn is authorized to make payments to
DWR, its affiliates or other selected broker-dealers (or direct that the Fund
pay such entities directly). The Distributor is also authorized to retain
part of such fee as compensation for its own distribution-related expenses.
At their meeting held on April 28, 1993, the Trustees, including a majority
of the Independent 12b-1 Trustees, also approved certain technical amendments
to the Plan in connection with amendments adopted by the National Association
of Securities Dealers, Inc. to its Rules of Fair Practice. At their meeting
held on October 26, 1995, the Trustees of the Fund, including all of the
Independent 12b-1 Trustees, approved an amendment to the Plan to permit
payments to be made under the Plan with respect to certain distribution
expenses incurred in connection with the distribution of shares, including
personal services to shareholders with respect to holdings of such shares, of
an investment company whose assets are acquired by the Fund in a tax-free
reorganization.
Under the Plan and as required by Rule 12b-1, the Trustees will receive
and review promptly after the end of each fiscal quarter a written report
provided by the Distributor of the amounts expended by the Distributor under
the Plan and the purpose for which such expenditures were made. The Fund
accrued amounts payable to the Distributor under the Plan, during the fiscal
year ended July 31, 1996, of $3,864,860, which is equal to 1.0% of the Fund's
average daily net assets for the fiscal year and was calculated pursuant to
clause (b) of the compensation formula under the Plan. This amount is treated
by the Fund as an expense in the year it is accrued.
29
<PAGE>
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method, shares of the Fund
are sold without a sales load being deducted at the time of purchase, so that
the full amount of an investor's purchase payment will be invested in shares
without any deduction for sales charges. Shares of the Fund may be subject to
a contingent deferred sales charge, payable to the Distributor, if redeemed
during the six years after their purchase. The Distributor compensates
account executives of DWR and other Selected Dealers by paying them, from its
own funds, commissions for the sale of the Fund's shares, currently a gross
sales credit of up to 5% of the amount sold and an annual residual commission
of up to 0.25 of 1% of the current value (not including reinvested dividends
or distributions) of the amount sold. The gross sales credit is a charge
which reflects commissions paid by the Distributor to account executives of
DWR and other Selected Dealers and Fund associated distribution-related
expenses, including sales compensation, and overhead and other branch office
distribution-related expenses including: (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery
and supplies, (b) the costs of client sales seminars, (c) travel expenses of
mutual fund sales coordinators to promote the sale of Fund shares and (d)
other expenses relating to branch promotion of Fund sales. The distribution
fee that the Distributor receives from the Fund under the Plan, in effect,
offsets distribution expenses incurred on behalf of the Fund and opportunity
costs, such as the gross sales credit and an assumed interest charge thereon
("carrying charge"). In the Distributor's reporting of its distribution
expenses to the Fund, such assumed interest (computed at the "broker's call
rate") is calculated on the gross sales credit as it is reduced by amounts
received by the Distributor under the Plan and any contingent deferred sales
charge received by the Distributor upon redemption of shares of the Fund. No
other interest charge is included as a distribution expense in the
Distributor's calculation of its distribution costs for this purpose. The
broker's call rate is the interest rate charged to securities brokers on
loans secured by exchange-listed securities.
The Fund paid 100% of the $3,864,860 accrued under the Plan for the fiscal
year ended July 31, 1996 to the Distributor. The Distributor and DWR estimate
that they have spent, pursuant to the Plan, $29,461,981 on behalf of the Fund
since the inception of the Plan. It is estimated that this amount was spent
in approximately the following ways: (i) 10.64% ($3,134,013)--advertising and
promotional expenses; (ii) 0.50% ($147,891)--printing of prospectuses for
distribution to other than current shareholders; and (iii) 88.86%
($26,180,077)--other expenses, including the gross sales credit and the
carrying charge of which 6.32% ($1,653,629) represents carrying charges,
37.30% ($9,766,432) represents commission credits to DWR branch offices for
payments of commissions to account executives and 56.38% ($14,760,016)
represents overhead and other branch office distribution-related expenses.
At any given time, the Distributor may have incurred expenses in
distributing shares of the Fund which may be more or less than the total of
(i) the payments made by the Fund pursuant to the Plan and (ii) the proceeds
of contingent deferred sales charges paid by investors upon redemption of
shares. The Distributor has advised the Fund that such excess amount,
including the carrying charge designed to approximate the opportunity costs
incurred by DWR which arise from it having advanced monies without having
received the amount of any sales charges imposed at the time of sale of the
Fund's shares, totalled $16,178,097 as of July 31, 1996. Because there is no
requirement under the Plan that the Distributor be reimbursed for all its
expenses or any requirement that the Plan be continued from year to year,
this excess amount does not constitute a liability of the Fund. Although
there is no legal obligation for the Fund to pay expenses incurred by the
Distributor in excess of payments made to the Distributor under the Plan, and
the proceeds of contingent deferred sales charges paid by investors upon
redemption of shares, if for any reason the Plan is terminated, the Trustees
will consider at that time the manner in which to treat such expenses. Any
cumulative expenses incurred by the Distributor, but not yet recovered
through distribution fees or contingent deferred sales charges, may or may
not be recovered through future distribution fees or contingent deferred
sales charges.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or
indirect financial interest in the operation of the Plan except to the extent
that the Distributor or certain of its employees may be deemed to have such
an interest as a result of benefits derived from the successful operation of
the Plan or as a result of receiving a portion of the amounts expended
thereunder by the Fund.
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<PAGE>
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of
the Fund, and all material amendments to the Plan must also be approved by
the Trustees in the manner described above. The Plan may be terminated at any
time, without payment of any penalty, by vote of a majority of the
Independent 12b-1 Trustees or by a vote of a majority of the outstanding
voting securities of the Fund (as defined in the Act) on not more than thirty
days' written notice to any other party to the Plan. So long as the Plan is
in effect, the election and nomination of Independent 12b-1 Trustees shall be
committed to the discretion of the Independent 12b-1 Trustees.
DETERMINATION OF NET ASSET VALUE
As discussed in the Prospectus, the net asset value per share of the Fund
is determined at 4:00 p.m., New York time (or, on days when the New York
Stock Exchange closes prior to 4:00 p.m., at such earlier time), on each day
the New York Stock Exchange is open, by taking the value of all the assets of
the Fund, subtracting all liabilities, dividing by the number of shares
outstanding and adjusting the result to the nearest cent. The New York Stock
Exchange currently observes the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
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' fair value, in which case
these securities will be valued at their fair value as determined by the
Trustees. Other short-term debt securities will be valued on a mark to market
basis until such time as they reach a remaining maturity of 60 days,
whereupon they will be valued at amortized cost using their value on the 61st
day unless the Trustees determine such does not reflect the securities' fair
value, in which case these securities will be valued at their fair market
value as determined by the Trustees. Listed options on debt securities are
valued at the latest sale price on the exchange on which they are listed
unless no sales of such options have taken place that day, in which case,
they will be valued at the mean between their closing bid and asked prices.
Unlisted options on debt securities are valued at the mean between the latest
bid and asked price. Futures are valued at the latest sale price on the
commodities exchange on which they trade unless the Trustees determine that
such price does not reflect their market value, in which case they will be
valued at their fair value as determined by the Trustees. All other
securities and other assets, including illiquid securities, are valued at
their fair value as determined in good faith under procedures established by
and under the supervision of the Trustees.
Generally, trading in foreign securities, as well as corporate bonds,
United States government securities and money market instruments, is
substantially completed each day at various times prior to 4:00 p.m., New
York time. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of such times. Foreign currency
exchange rates are also generally determined prior to 4:00 p.m., New York
time. Occasionally, events which affect the values of such securities and
such exchange rates may occur between the times at which they are determined
and 4:00 p.m., New York time (or, on days when the New York Stock Exchange
closes prior to 4:00 p.m., at such earlier time), and will therefore not be
reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value as determined in
good faith under procedures established by and under the supervision of the
Trustees.
SHAREHOLDER SERVICES
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Shareholder Investment Account. Upon purchase of shares of the Fund, a
Shareholder Investment Account is opened for the investor on the books of the
Fund, maintained by the Fund's Transfer Agent, Dean Witter Trust Company (the
"Transfer Agent"). This is an open account in which shares owned by the
investor are credited by the Transfer Agent in lieu of issuance of a share
certificate. If a share certficate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares
and may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. Whenever a shareholder instituted
transaction takes place in the
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<PAGE>
Shareholder Investment Account, the shareholder will be mailed a confirmation
of the transaction from the Fund or from DWR or other Selected Broker-Dealer.
Investment of Distributions Received in Cash. As discussed in the
Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution at net
asset value, without the imposition of a contingent deferred sales charge
upon redemption, by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. If the shareholder returns the
proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset
value per share next determined after receipt of the check or the proceeds by
the Transfer Agent.
Targeted Dividends (Service Mark) . In states where it is legally
permissible, shareholders may also have all income dividends and capital
gains distributions automatically invested in shares of a Dean Witter Fund
other than Dean Witter Health Sciences Trust. Such investment will be made as
described above for automatic investment in shares of the Fund, at the net
asset value per share (without sales charge) of the selected Dean Witter Fund
as of the close of business on the payment date of the dividend or
distribution, and will begin to earn dividends, if any, in the selected Dean
Witter Fund the next business day. To participate in the Targeted Dividends
program, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent. Shareholders of the
Fund must be shareholders of the Dean Witter Fund targeted to receive
investments from dividends at the time they enter the Targeted Dividends
program. Investors should review the prospectus of the targeted Dean Witter
Fund before entering the program.
EasyInvest (Service Mark) . As discussed in the Prospectus, shareholders
may subscribe to EasyInvest, an automatic purchase plan which provides for
any amount from $100 to $5,000 to be transferred automatically from a
checking or savings account, on a semi-monthly, monthly or quarterly basis,
to the Transfer Agent for investment in shares of the Fund. Shares purchased
through EasyInvest will be added to the shareholder's existing account at the
net asset value calculated the same business day the transfer of funds is
effected. For further information or to subscribe to EasyInvest, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
Direct Investments through Transfer Agent. As discussed in the Prospectus,
a shareholder may make additional investments in Fund shares at any time by
sending a check in any amount, not less than $100, payable to Dean Witter
Health Sciences Trust, directly to the Transfer Agent. Such amounts will be
applied to the purchase of Fund shares at the net asset value per share next
determined after receipt of the check or purchase payment by the Transfer
Agent. The shares so purchased will be credited to the investor's account.
Tax-Sheltered Retirement Plans. As discussed in the Prospectus, retirement
plans are available for use by corporations, the self-employed, Individual
Retirement Accounts and Custodial Accounts under Section 403(b)(7) of the
Internal Revenue Code. Adoption of such plans should be on advice of legal
counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan ("Withdrawal Plan") is available for shareholders who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September, and December) checks in any dollar amount,
not less than $25, or in any whole percentage of the account balance, on an
annualized basis. Any applicable contingent deferred sales charge will be
imposed on shares redeemed under the Withdrawal Plan (see "Redemptions and
Repurchases--Contingent Deferred Sales Charge" in the Prospectus). 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 contingent deferred sales charge) to the shareholder will be the
designated monthly or quarterly amount.
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<PAGE>
Dividends and capital gains distributions on shares held under the
Systematic Withdrawal Plan will be invested in additional full and fractional
shares at net asset value (without a sales charge). Shares will be credited
to an open account for the investor by the Transfer Agent; no share
certificates will be issued. A shareholder is entitled to a share certificate
upon written request to the Transfer Agent, although in that event the
shareholder's Systematic Withdrawal Plan will be terminated.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment designated in the application. The
shares will be redeemed at their net asset value determined, at the
shareholder's option, on the tenth or twenty-fifth day (or next following
business day) of the relevant month or quarter and normally a check for the
proceeds will be mailed by the Transfer Agent within five business days after
the date of redemption. The Withdrawal Plan may be terminated at any time by
the Fund.
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the
account must send complete written instructions to the Transfer Agent to
enroll in the Withdrawal Plan. The shareholder's signature on such
instructions must be guaranteed by an eligible guarantor acceptable to the
Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is an eligible
guarantor). A shareholder may, at any time, change the amount and interval of
withdrawal payments through his or her Account Executive or by written
notification to the Transfer Agent. In addition, the party and/or the address
to which checks are mailed may be changed by written notification to the
Transfer Agent, with signature guarantees required in the manner described
above. The shareholder may also terminate the Withdrawal Plan at any time by
written notice to the Transfer Agent. In the event of such termination, the
account will be continued as a regular shareholder investment account. The
shareholder may also redeem all or part of the shares held in the Withdrawal
Plan account (see "Redemptions and Repurchases" in the Prospectus) at any
time.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of the Fund may
exchange their shares for shares of other Dean Witter Funds sold with a
contingent deferred sales charge ("CDSC funds"), and for shares of Dean
Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund, Dean Witter Balanced Growth Fund,
Dean Witter Balanced Income Fund, Dean Witter Intermediate Term U.S. Treasury
Trust, and five Dean Witter Funds which are money market funds (the foregoing
eleven non-CDSC funds are hereinafter referred to for purposes of this
section as the "Exchange Funds"). Exchanges may be made after the shares of
the Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment. An exchange will be treated
for federal income tax purposes the same as a repurchase or redemption of
shares, on which the shareholder may realize a capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to
the contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit
should not be endorsed.)
As described below, and in the Prospectus under the captions "Exchange
Privilege" and "Contingent Deferred Sales Charge," a contingent deferred
sales charge ("CDSC") may be imposed upon a redemption, depending on a number
of factors, including the number of years from the time of purchase until the
time of redemption or exchange ("holding period"). When shares of the Fund or
any other CDSC fund are exchanged for shares of Exchange Funds, the exchange
is executed at no charge to the shareholder, without the imposition of the
CDSC at the time of the exchange. During the period of time
33
<PAGE>
the shareholder remains in Exchange Funds (calculated from the last day of
the month in which the Exchange Funds shares were acquired), the holding
period or "year since purchase payment made" is frozen. When shares are
redeemed out of Exchange Funds, they will be subject to a CDSC which would be
based upon the period of time the shareholder held shares in a CDSC fund.
However, in the case of shares exchanged into Exchange Funds 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 Funds 12b-1 distribution fees incurred on or
after that date which are attributable to those shares. Shareholders
acquiring shares of Exchange Funds pursuant to this exchange privilege may
exchange those shares back into a CDSC fund from Exchange Funds, with no CDSC
being imposed on such exchange. The holding period previously frozen when
shares were first exchanged for shares of Exchange Funds resumes on the last
day of the month in which shares of a CDSC fund are reacquired. A CDSC is
imposed only upon an ultimate redemption, based upon the time (calculated as
described above) the shareholder was invested in a CDSC fund.
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("FESC funds"), but
shares of the Fund, however acquired, may not be exchanged for shares of FESC
funds. Shares of a CDSC fund acquired in exchange for shares of an FESC fund
(or in exchange for shares of other Dean Witter Funds for which shares of an
FESC fund have been exchanged) are not subject to any CDSC upon their
redemption.
When shares initially purchased in a CDSC fund are exchanged for shares of
another CDSC fund or for shares of Exchange Funds, the date of purchase of
the shares of the fund exchanged into, for purposes of the CDSC upon
redemption, will be the last day of the month in which the shares being
exchanged were originally purchased. In allocating the purchase payments
between funds for purposes of the CDSC, the amount which represents the
current net asset value of shares at the time of the exchange which were (i)
purchased more than three or six years (depending on the CDSC schedule
applicable to the shares) prior to the exchange, (ii) originally acquired
through reinvestment of dividends or distributions and (iii) acquired in
exchange for shares of FESC funds, or for shares of other Dean Witter Funds
for which shares of FESC funds have been exchanged (all such shares called
"Free Shares"), will be exchanged first. Shares of Dean Witter American Value
Fund acquired prior to April 30, 1984, shares of Dean Witter Dividend Growth
Securities Inc. and Dean Witter Natural Resource Development Securities Inc.
acquired prior to July 2, 1984, and shares of Dean Witter Strategist Fund
acquired prior to November 8, 1989 are also considered Free Shares and will
be the first Free Shares to be exchanged. After an exchange, all dividends
earned on shares in Exchange Funds will be considered Free Shares. If the
exchanged amount exceeds the value of such Free Shares, an exchange is made,
on a block-by-block basis, of non-Free Shares held for the longest period of
time (except that if shares held for identical periods of time but subject to
different CDSC schedules are held in the same Exchange Privilege Account, the
shares of that block that are subject to a lower CDSC rate will be exchanged
prior to the shares of that block that are subject to a higher CDSC rate).
Shares equal to any appreciation in the value of non-Free Shares exchanged
will be treated as Free Shares, and the amount of the purchase payments for
the non-Free Shares of the fund exchanged into will be equal to the lesser of
(a) the purchase payments for, or (b) the current net asset value of, the
exchanged non-Free Shares. If an exchange between funds would result in
exchange of only part of a particular block of non-Free Shares, then shares
equal to any appreciation in the value of the block (up to the amount of the
exchange) will be treated as Free Shares and exchanged first, and the
purchase payment for that block will be allocated on a pro rata basis between
the non-Free Shares of that block to be retained and the non-Free Shares to
be exchanged. The pro-rated amount of such purchase payment attributable to
the retained non-Free Shares will remain as the purchase payment for such
shares, and the amount of purchase payment for the exchanged non-Free Shares
will be equal to the lesser of (a) the pro-rated amount of the purchase
payment for, or (b) the current net asset value of those exchanged non-Free
Shares. Based upon the procedures described in the CDSC fund Prospectus under
the caption "Contingent Deferred Sales Charge," any applicable CDSC will be
imposed upon the ultimate redemption of shares of any fund, regardless of the
number of exchanges since those shares were originally purchased.
34
<PAGE>
With respect to the repurchase of shares of the Fund, the application of
proceeds to the purchase of new shares in the Fund or any other of the funds
and the general administration of the Exchange Privilege, the Transfer Agent
acts as agent for DWR or other Selected Broker-Dealers in the performance of
such functions. The Transfer Agent shall be liable for its own negligence and
not for the default or negligence of its correspondents or for losses in
transit. The Fund shall not be liable for any default or negligence of the
Transfer Agent, DWR or any Selected Broker-Dealer.
DWR and any Selected Broker-Dealer have authorized and appointed the
Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of the shares of
any other fund and the general administration of the Exchange Privilege. No
commission or discounts will be paid to DWR or any Selected Broker-Dealer for
any transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $1,000
for the Fund, $5,000 for Dean Witter Liquid Asset Fund Inc., Dean Witter
Tax-Free Daily Income Trust, Dean Witter California Tax-Free Daily Income
Trust, and Dean Witter New York Municipal Money Market Trust, although those
funds may, at their discretion accept initial investments of as low as
$1,000. The minimum initial investment for Dean Witter Short-Term U.S.
Treasury Trust is $10,000 although that Fund, in its discretion, may accept
initial purchases of as low as $5,000. The minimum initial investment is
$5,000 for Dean Witter Special Value Fund. The minimum initial investment for
all other Dean Witter Funds for which the Exchange Privilege is available is
$1,000.) Upon exchange into Dean Witter Short-Term U.S. Treasury Trust or a
money market fund, the shares of that fund will be held in a special Exchange
Privilege Account separately from accounts of those shareholders who have
acquired their shares directly from that fund. As a result, certain services
normally available to shareholders of money market funds, including the check
writing feature, will not be available for funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by any of the Dean Witter Funds, upon such notice as may
be required by applicable regulatory agencies (presently sixty days' prior
written notice for termination or material revision), provided that six
months' prior written notice of termination will be given to the shareholders
who hold shares of the Dean Witter Short-Term U.S. Treasury Trust, Dean
Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean
Witter California Tax-Free Daily Income Trust, Dean Witter New York Municipal
Money Market Trust or Dean Witter U.S. Government Money Market Trust,
pursuant to this Exchange Privilege, and provided further that the Exchange
Privilege may be terminated or materially revised at times (a) when the New
York Stock Exchange is closed for other than customary weekends and holidays,
(b) when trading on that Exchange is restricted, (c) when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, (d) during any other period
when the Securities and Exchange Commission by order so permits (provided
that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist), or (e), if the Fund would be unable to invest amounts effectively in
accordance with its investment objective(s), policies and restrictions.
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. 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.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Dealer Account Executive or the
Transfer Agent.
35
<PAGE>
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of the Fund can be
redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds may be reduced by the amount of
any applicable contingent deferred sales charges (see below). If shares are
held in a shareholder's account without a share certificate,a written request
for redemption to the Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ
07303 is required. If certificates are held by the shareholder, the shares
may be redeemed by surrendering the certificates with a written request for
redemption. The share certificate, or an accompanying stock power, and the
request for redemption must be signed by the shareholder or shareholders
exactly as the shares are registered. Each request for redemption, whether or
not accompanied by a share certificate, must be sent to the Fund's Transfer
Agent, which will redeem the shares at their net asset value next computed
(see "Purchase of Fund Shares" in the Prospectus) after it receives the
request, and certificate, if any, in good order. Any redemption request
received after such computation will be redeemed at the next determined net
asset value. The term "good order" means that the share certificate, if any,
and request for redemption are properly signed, accompanied by any
documentation required by the Transfer Agent, and bear signature guarantees
when required by the Fund or the Transfer Agent. If redemption is requested
by a corporation, partnership, trust or fiduciary, the Transfer Agent may
require that written evidence of authority acceptable to the Transfer Agent
be submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other
than the record owner, or if the proceeds are to be paid to a corporation
(other than the Distributor or a selected broker-dealer for the account of
the shareholder), partnership, trust or fiduciary, or sent to the shareholder
at an address other than the registered address, signatures must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A stock
power may be obtained from any dealer or commercial bank. The Fund may change
the signature guarantee requirements from time to time upon notice to
shareholders, which may be by means of a new prospectus.
Contingent Deferred Sales Charge. As stated in the Prospectus, a
contingent deferred sales charge ("CDSC") will be imposed on any redemption
by an investor if after such redemption the current value of the investor's
shares of the Fund is less than the dollar amount of all payments by the
shareholder for the purchase of Fund shares during the preceding six years.
However, no CDSC will be imposed to the extent that the net asset value of
the shares redeemed does not exceed: (a) the current net asset value of
shares purchased more than six years prior to the redemption, plus (b) the
current net asset value of shares purchased through reinvestment of dividends
or distributions of the Fund or another Dean Witter Fund (see "Shareholder
Services--Targeted Dividends"), plus (c) the current net asset value of
shares acquired in exchange for (i) shares of Dean Witter front-end sales
charge funds, or (ii) shares of other Dean Witter Funds for which shares of
front-end sales charge funds have been exchanged (see "Shareholder
Services--Exchange Privilege"), plus (d) increases in the net asset value of
the investor's shares above the total amount of payments for the purchase of
Fund shares made during the preceding six years. The CDSC will be paid to the
Distributor. In addition, no CDSC will be imposed on redemptions of shares
which were purchased by certain Unit Investment Trusts (on which a sales
charge has been paid) or which are attributable to reinvestment of dividends
or distributions from, or the proceeds of, such Unit Investment Trusts.
In determining the applicability of the CDSC to each redemption, the
amount which represents an increase in the net asset value of the investor's
shares above the amount of the total payments for the purchase of shares
within the last six years will be redeemed first. In the event the redemption
amount exceeds such increase in value, the next portion of the amount
redeemed will be the amount which represents the net asset value of the
investor's shares purchased more than six years prior to the redemption
and/or shares purchased through reinvestment of dividends or distributions
and/or shares acquired in exchange for shares of Dean Witter front-end charge
funds, or for the shares of other Dean Witter funds for which shares of
front-end sales charge funds have been exchanged. A portion of the
36
<PAGE>
amount redeemed which exceeds an amount which represents both such increase
in value and the value of shares purchased more than six years prior to the
redemption and/or shares purchased through reinvestment of dividends or
distributions and/or shares acquired in the above-described exchanges will be
subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Fund shares until the time of
redemption of such shares. For purposes of determining the number of years
from the time of any payment for the purchase of shares, all payments made
during a month will be aggregated and deemed to have been made on the last
day of the month. The following table sets forth the rates of the CDSC:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE AS A
PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE 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 determining the rate of the CDSC it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year period. This will result in any such CDSC being
imposed at the lowest possible rate. Accordingly, shareholders may redeem,
without incurring any CDSC, amounts equal to any net increase in the value of
their shares above the amount of their purchase payments made within the past
six years and amounts equal to the current value of shares purchased more
than six years prior to the redemption and shares purchased through
reinvestment of dividends or distributions or acquired in exchange for shares
of Dean Witter front-end sales charge funds, or for shares of other Dean
Witter Funds for which shares of front-end sales charge funds have been
exchanged. The CDSC will be imposed, in accordance with the table shown
above, on any redemptions within six years of purchase which are in excess of
these amounts and which redemptions are not (a) requested within one year of
death or initial determination of disability of a shareholder, or (b) made
pursuant to certain taxable distributions from retirement plans or retirement
accounts, as described in the Prospectus.
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, 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. The term "good order" means
that the share certificate, if any, and request for redemption are properly
signed, accompanied by any documentation required by the Transfer Agent, and
bear signature guarantees when required by the Fund or the Transfer Agent.
Such payment may be postponed or the right of redemption suspended at times
(a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c)
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(d) during any other period when the Securities and Exchange Commission by
order so permits; provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist. If the shares to be redeemed have recently
been purchased by check (including a certified or bank cashier's check),
payment of 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).
Transfers of Shares. In the event a shareholder requests a transfer of
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the contingent deferred sales charge or free of such charge
(and with
37
<PAGE>
regard to the length of time shares subject to the change have been held),
any transfer involving less than all of the shares in an account will be made
on a pro-rata basis (that is, by transferring shares in the same proportion
that the transferred shares bear to the total shares in the account
immediately prior to the transfer). The transferred shares will continue to
be subject to any applicable contingent deferred sales charge as if they had
not been so transferred.
Reinstatement Privilege. As described in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 30 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 at net asset value
(without sales charge) next determined after a reinstatement request,
together with the proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and
reinstatement is made in shares of the Fund, some or all of the loss,
depending on the amount reinstated, will not be allowed as a deduction for
federal income tax purposes but will be applied to adjust the cost basis of
the shares acquired upon reinstatement.
DIVIDENDS, DISTRIBUTION AND TAXES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to
distribute or to retain all or part of any net long-term capital gains in any
year for reinvestment. If any such gains are retained, the Fund will pay
federal income tax thereon, and, if the Fund makes an election, the
shareholders would include such undistributed gains in their income and
shareholders will be able to claim their share of the tax paid by the Fund as
a credit against their individual federal income tax.
Gains or losses on sales of securities by the Fund will generally be
long-term capital gains or losses if the securities have been held by the
Fund for more than twelve months. Gains or losses on the sale of securities
held for twelve months or less will generally be short-term gains or losses.
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code (the "Code"). If so qualified, the
Fund will not be subject to federal income tax on its net investment income
and capital gains, if any, realized during any fiscal year in which it
distributes such income and capital gains to its shareholders. In addition,
the Fund intends to distribute to its shareholders each calendar year a
sufficient amount of ordinary income and capital gains to avoid the
imposition of a 4% excise tax.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value
of the shareholder's stock in that company by the exact amount of the
dividend or capital gains distribution. Furthermore, capital gains
distributions and dividends are subject to federal income taxes. If the net
asset value of the shares should be reduced below a shareholder's cost as a
result of the payment of dividends or the distribution of realized net
long-term capital gains, such payment or distribution would be in part a
return of the shareholder's investment to the extent of such reduction below
the shareholder's cost, but nonetheless would be fully taxable. Therefore, an
investor should consider the tax implications of purchasing Fund shares
immediately prior to a distribution record date.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital
loss to the extent of any distributions of net long-term capital gains during
the six-month period.
Dividends, interest and capital gains received by the Fund may give rise
to withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim United States foreign tax credits
or deductions with respect to such taxes, subject to certain provisions and
limitations contained in the Code. If more than 50% of the Fund's total
assets at the close of its fiscal year consist of securities of foreign
corporations, the Fund would be eligible and would determine whether or not
to file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include
38
<PAGE>
their respective pro rata portions of such withholding taxes in their United
States income tax returns as gross income, treat such respective pro rata
portions as taxes paid by them, and deduct such respective pro rata portions
in computing their taxable income or, alternatively, use them as foreign tax
credits against their United States income taxes. If the Fund makes such
election, it will report annually to its shareholders the amount per share of
such withholding.
Special Rules for Certain Foreign Currency Transactions. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in
stock, securities or foreign currencies are currently considered to be
qualifying income for purposes of determining whether the Fund qualifies as a
regulated investment company. It is currently unclear, however, who will be
treated as the issuer of certain foreign currency instruments or how foreign
currency options, futures, or forward foreign currency contracts will be
valued for purposes of the regulated investment company diversification
requirements applicable to the Fund. The Fund may request a private letter
ruling from the Internal Revenue Service on some or all of these issues.
Under Code Section 988, special rules are provided for certain
transactions in a foreign currency other than the taxpayer's functional
currency (i.e., unless certain special rules apply, currencies other than the
U.S. dollar). In general, foreign currency gains or losses from forward
contracts, from futures contracts that are not "regulated futures contracts",
and from unlisted options will be treated as ordinary income or loss under
Code Section 988. Also, certain foreign exchange gains or losses derived with
respect to foreign fixed-income securities are also subject to Section 988
treatment. In general, therefore, Code Section 988 gains or losses will
increase or decrease the amount of the Fund's investment company taxable
income available to be distributed to shareholders as ordinary income, rather
than increasing or decreasing the amount of the Fund's net capital gain.
Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, the Fund would not be able to make any
ordinary dividend distributions.
If the Fund invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for U.S. tax purposes, the application of
certain tax provisions applicable to such companies could result in the
imposition of federal income tax with respect to such investments at the Fund
level which could not be eliminated by distributions to shareholders.
Legislation is currently being considered with respect to this issue and, in
any event, it is not anticipated that any taxes on the Fund with respect to
investments in PFIC's would be significant.
Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. The Fund's "average
annual total return" represents an annualization of the Fund's total return
over a particular period and is computed by finding the annual percentage
rate which will result in the ending redeemable value of a hypothetical
$1,000 investment made at the beginning of a one, five or ten year period, or
for the period from the date of commencement of the Fund's operations, if
shorter than any of the foregoing. The ending redeemable value is reduced by
any contingent deferred sales charge at the end of the one, five or ten year
or other period. For the purpose of this calculation, it is assumed that all
dividends and distributions are reinvested. The formula for computing the
average annual total return involves a percentage obtained by dividing the
ending redeemable value by the amount of the initial investment, taking a
root of the quotient (where the root is equivalent to the number of years in
the period) and subtracting 1 from the result. The average annual total
return of the Fund for the fiscal year ended July 31, 1996 and for the period
October 30, 1992 (commencement of operations) through July 31, 1996 was
19.84% and 13.12%, respectively.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or
other types of total return figures. Such calculations may or may not reflect
the deduction of the contingent deferred sales charge which, if reflected,
would reduce the performance quoted. For example, the average annual total
return of the Fund may be calculated in
39
<PAGE>
the manner described above, but without deduction for any applicable
contingent deferred sales charge. Based on this calculation, the Fund's
average annual total return for the fiscal year ended July 31, 1996 and for
the period October 30, 1992 (commencement of operations) through July 31,
1996 was 24.84% and 13.50%.
In addition, the Fund may compute its aggregate total return for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value (without
the reduction for any contingent deferred sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on this calculation, the
Fund's total return for the fiscal year ended July 31, 1996 and for the
period October 30, 1992 (commencement of operations) through July 31, 1996
was 24.84% and 60.79%.
The Fund may also advertise the growth of a hypothetical investment of
$10,000, $50,000 and $100,000 in shares of the Fund by adding 1 to the Fund's
aggregate total return (expressed as a decimal and without reflecting the
deduction of the contingent deferred sales charge) and multiplying by
$10,000, $50,000 or $100,000, as the case may be. Based on this calculation,
investments of $10,000, $50,000 and $100,000 in the Fund at inception would
have grown to $16,079, $80,395, and $160,790, respectively, at July 31, 1996.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indices compiled by independent
organizations.
DESCRIPTION OF SHARES OF THE FUND
- -----------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share held. All of the Trustees except for Messrs. Bozic, Purcell and
Schroeder have been elected by DWR as sole shareholder of the Fund and will
be elected by the shareholders at the first meeting of shareholders of the
Fund. Messrs. Bozic, Purcell and Schroeder were elected by the other Trustees
of the Fund on April 8, 1994. The Trustees themselves have the power to alter
the number and the terms of office of the Trustees, and they may at any time
lengthen their own terms or make their terms of unlimited duration and
appoint their own successors, provided that always at least a majority of the
Trustees has been elected by the shareholders of the Fund. Under certain
circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right under certain circumstances to remove the
Trustees in accordance with the provisions of Section 16(c) of the Investment
Company Act of 1940. The voting rights of shareholders are not cumulative, so
that holders of more than 50 percent of the shares voting can, if they
choose, elect all Trustees being selected, while the holders of the remaining
shares would be unable to elect any Trustees.
The 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.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future
regulations or other unforeseen circumstances). However, the Trustees have
not authorized any such additional series or classes of shares.
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor
is any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise
from his or its own bad faith, willful misfeasance, gross negligence, or
reckless disregard of his duties. It also provides that all third persons
shall look solely to the Fund's property for satisfaction of claims arising
in connection with the affairs of the Fund. With the exceptions stated, the
Declaration of Trust provides that a Trustee, officer, employee or agent is
entitled to be indemnified against all liability in connection with the
affairs of the Fund.
40
<PAGE>
Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for
obligations of the Fund. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Fund, requires that Fund obligations include such disclaimer, and provides
for indemnification and reimbursement of expenses out of the Fund's property
for any shareholder held personally liable for the obligations of the Fund.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself
would be unable to meet its obligations. Given the above limitations on
shareholder personal liability, and the nature of the Fund's assets and
operations, in the opinion of Massachusetts counsel to the Fund, the risk to
shareholders of personal liability is remote.
The Fund shall be of unlimited duration subject to the provisions in the
Declaration of Trust concerning termination by action of the shareholders.
CUSTODIAN AND TRANSFER AGENT
- -----------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is
the Custodian of the Fund's assets. Any Fund cash balances with the Custodian
in excess of $100,000 are unprotected by Federal deposit insurance. Such
amounts may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and
Dividend Disbursing Agent for payment of dividends and distributions on Fund
shares and Agent for shareholders under various investment plans described
herein. Dean Witter Trust Company is an affiliate of Dean Witter Distributors
Inc., the Fund's Distributor and Dean Witter InterCapital Inc. the Investment
Manager. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts,
including providing subaccounting and recordkeeping services for certain
retirement accounts; disbursing cash dividends and reinvesting dividends;
processing account registration changes; handling purchase and redemption
transactions; mailing prospectuses and reports; mailing and tabulating
proxies; processing share certificate transactions; and maintaining
shareholder records and lists. For these services Dean Witter Trust Company
receives a per shareholder account fee from the Fund.
INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund.
The independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- -----------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports
showing the Fund's portfolio and other information. An annual report,
containing financial statements audited by independent accountants, will be
sent to shareholders each year.
The Fund's fiscal year ends on July 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- -----------------------------------------------------------------------------
Sheldon Curtis, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- -----------------------------------------------------------------------------
The Annual Financial Statements of the Fund for the year ended July 31,
1996, included in this Statement of Additional Information and incorporated
by reference in the Prospectus, have been so included and incorporated in
reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
41
<PAGE>
REGISTRATION STATEMENT
- -----------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the Information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
42
DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1996
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
COMMON STOCKS (96.5%)
AEROSPACE & DEFENSE (0.0%)
10,000 BE Aerospace, Inc.*.................... $ 152,500
---------------
BIOTECHNOLOGY (11.8%)
40,000 Advanced Tissue Sciences, Inc.*........ 520,000
40,000 Affymetrix, Inc.*...................... 475,000
150,000 Agouron Pharmaceutical, Inc.*.......... 4,593,750
30,000 Aksys Ltd.*............................ 270,000
70,000 Alexion Pharmaceuticals, Inc.*......... 420,000
200,000 Alkermes, Inc.*........................ 2,450,000
30,000 Allelix Biopharmaceuticals, Inc.*
(Canada)............................... 414,817
7,000 Arthrocare Corp.*...................... 112,000
70,000 Avigen, Inc.*.......................... 350,000
140,000 Biochem Pharma, Inc.*.................. 4,147,500
50,000 Biofield Corp.*........................ 468,750
30,000 Biogen, Inc.*.......................... 1,822,500
140,000 Biomira, Inc.* (Canada)................ 760,295
2,100 Cardiac Pathways Corp.*................ 26,250
8,600 Cardiogenesis Corp.*................... 92,450
38,571 CardioTech International, Inc.*........ 65,089
40,000 Cardiovascular Dynamics, Inc.*......... 495,000
120,000 Cell Genesys, Inc.*.................... 780,000
60,000 Centocor, Inc.*........................ 1,500,000
120,000 Cephalon Inc.*......................... 1,875,000
90,000 Cytotherapeutics, Inc.*................ 720,000
40,100 Cytyc Corp.*........................... 551,375
160,000 Genzyme Corp.
General Division*...................... 3,960,000
70,000 Genzyme Corp.
Tissue Repair Division*................ 560,000
185,000 Gilead Sciences, Inc.*................. 3,422,500
120,000 Gliatech, Inc.*........................ 930,000
85,000 ID Biomedical Corp.*................... 499,375
212,000 IDEC Pharmaceuticals Corp.*............ 3,233,000
60,000 Integra Lifesciences Corp.*............ 277,500
125,000 La Jolla Pharmaceutical Co.*........... 554,687
130,000 Lifecore Biomedical, Inc.*............. 2,096,250
100,000 Ligand Pharmaceuticals, Inc. (Class
B)*.................................... 1,175,000
30,000 Liposome Co., Inc.*.................... 360,000
130,000 Matritech, Inc.*....................... 1,413,750
200,000 Medarex, Inc.*......................... 1,200,000
60,000 Medimmune, Inc.*....................... 825,000
78,000 Neurogen Corp.*........................ 1,345,500
105,000 Norland Medical Systems, Inc.*......... 1,417,500
25,000 Oravax, Inc.*.......................... 162,500
80,000 Pharmacopeia, Inc.*.................... 990,000
200,000 Scios, Inc.*........................... 1,087,500
120,000 Vertex Pharmaceuticals, Inc.*.......... 2,880,000
73,000 Virus Research Institute, Inc.*........ 474,500
60,000 Visible Genetics Inc.* (Canada)........ 585,000
---------------
52,359,338
---------------
COMMERCIAL SERVICES (5.0%)
157,500 ABR Information Services, Inc.*........ 7,835,625
71,000 Equity Corporation International*...... 2,014,625
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
30,000 Interim Services, Inc.*................ $ 1,110,000
90,000 Mecon, Inc.*........................... 1,350,000
71,000 Medquist, Inc.*........................ 1,011,750
5,400 Pharmaceutical Product Development,
Inc.*.................................. 143,100
145,000 RTW, Inc.*............................. 4,186,875
80,000 STAT Healthcare, Inc.*................. 510,000
126,250 Stewart Enterprises, Inc. (Class A).... 3,282,500
4,100 The Registry, Inc.*.................... 109,675
30,000 Urocor, Inc.*.......................... 348,750
20,000 Walsh International Inc.*.............. 147,500
---------------
22,050,400
---------------
COMPUTER SOFTWARE (4.0%)
24,000 Apache Medical Systems, Inc.*.......... 264,000
180,000 Base Ten Systems Inc. (Class A)*....... 1,912,500
85,000 HCIA, Inc.*............................ 4,845,000
120,000 MDL Information Systems, Inc.*......... 3,510,000
180,000 Medic Computer Systems, Inc.*.......... 7,200,000
---------------
17,731,500
---------------
COMPUTER SOFTWARE & SERVICES (1.2%)
60,000 Dendrite International, Inc.*.......... 1,665,000
30,000 Health Systems Design Corp.*........... 315,000
30,000 ImageMatrix Corp. (Units)++*........... 127,500
9,500 Imnet Systems, Inc.*................... 244,625
40,000 Lanvision Systems, Inc.*............... 370,000
60,000 Lumisys, Inc.*......................... 607,500
60,000 Summit Medical Systems, Inc.*.......... 975,000
30,000 Sunquest Information Systems, Inc.*.... 356,250
25,000 Transition Systems, Inc.*.............. 475,000
---------------
5,135,875
---------------
COSMETICS (0.0%)
25,000 Electronic Hair Styling, Inc.*......... 100,000
---------------
DRUGS (4.1%)
100,000 Alza Corp.*............................ 2,475,000
30,000 Astra AB (ADR) (Sweden)................ 1,267,500
330,000 Dura-Pharmaceuticals, Inc.*............ 7,507,500
50,000 Elan Corp. PLC (ADR)* (Ireland)........ 2,937,500
16,400 Fusion Medical Technologies, Inc.*..... 118,900
120,000 Nexstar Pharmaceuticals, Inc.*......... 2,040,000
60,000 Teva Pharmaceutical Industries Ltd.
(ADR) (Israel)......................... 1,935,000
---------------
18,281,400
---------------
ELECTRONICS (0.2%)
41,200 Del Global Technologies Corp.*......... 329,600
30,000 Thermospectra Corp.*................... 435,000
---------------
764,600
---------------
HEALTH EQUIPMENT & SERVICES (5.4%)
110,000 ADAC Laboratories...................... 2,131,250
80,000 Compdent Corp.*........................ 2,960,000
30,000 Matria Healthcare, Inc.*............... 243,750
SEE NOTES TO FINANCIAL STATEMENTS
43
DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1996, CONTINUED
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
197,400 Renal Treatment Centers, Inc.*......... $ 5,527,200
270,000 RoTech Medical Corp.*.................. 4,657,500
70,000 Shared Medical Systems Corp............ 3,832,500
30,000 Sybron International Corp.*............ 750,000
50,000 Ventritex, Inc.*....................... 625,000
112,700 Vivra, Inc.*........................... 3,282,387
---------------
24,009,587
---------------
HEALTHCARE - DIVERSIFIED (4.1%)
155,500 Access Health, Inc.*................... 6,569,875
40,000 Allergan, Inc.......................... 1,630,000
30,000 Envoy Corp.*........................... 705,000
80,000 Healthsouth Corp.*..................... 2,430,000
160,000 Mentor Corp............................ 4,440,000
100,000 Universal Health Services, Inc. (Class
B)*.................................... 2,562,500
---------------
18,337,375
---------------
HOSPITAL MANAGEMENT & HEALTH MAINTENANCE ORGANIZATIONS
(0.6%)
41,000 Collaborative Clinical Research,
Inc.*.................................. 430,500
35,500 NCS Healthcare, Inc. (Class A)*........ 949,625
110,000 Raytel Medical Corp.*.................. 1,155,000
---------------
2,535,125
---------------
HOSPITAL MANAGEMENT (7.8%)
180,750 American HomePatient, Inc.*............ 4,338,000
40,000 Caremark International, Inc............ 915,000
100,000 Emeritus Corp.*........................ 1,587,500
100,000 Enterprise Systems, Inc.*.............. 1,950,000
150,000 FPA Medical Management, Inc.*.......... 2,850,000
50,000 Genesis Health Ventures, Inc.*......... 1,256,250
50,000 Harborside Healthcare Corp.*........... 487,500
40,000 Impath, Inc.*.......................... 550,000
75,000 Mariner Health Group, Inc.*............ 1,340,625
140,000 Occusystems, Inc.*..................... 3,920,000
100,000 Pediatric Services of America, Inc.*... 1,987,500
195,000 PhyCor, Inc.*.......................... 5,898,750
100,000 Physician Reliance Network, Inc.*...... 1,325,000
80,000 Pro-Dex, Inc.*......................... 340,000
40,000 Renal Care Group, Inc.*................ 1,250,000
30,000 Retirement Care Associates, Inc.*...... 270,000
60,000 Sterling House Corp.*.................. 960,000
110,000 Theratx, Inc.*......................... 1,870,000
38,600 Total Renal Care Holdings, Inc.*....... 1,379,950
---------------
34,476,075
---------------
MANUFACTURING (0.7%)
67,500 Memtec Ltd. (ADR) (Australia).......... 1,999,687
45,000 Waters Corp.*.......................... 1,260,000
---------------
3,259,687
---------------
MEDICAL EQUIPMENT (2.9%)
40,000 Advanced Magnetics, Inc.*.............. 710,000
60,000 Endovascular Technologies, Inc.*....... 757,500
14,000 Innovasive Devices, Inc.*.............. 140,000
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
30,000 Interpore International*............... $ 168,750
300,000 Orthologic Corp.*...................... 2,550,000
100,000 Sofamor Danek Group, Inc.*............. 2,637,500
100,000 Steris Corp.*.......................... 2,900,000
90,000 Thermo Cardiosystems, Inc.*............ 2,880,000
---------------
12,743,750
---------------
MEDICAL PRODUCTS & SUPPLIES (24.5%)
20,000 Advanced Technology Laboratories,
Inc.*.................................. 645,000
80,000 Aequitron Medical, Inc.*............... 560,000
255,000 Angeion Corp.*......................... 1,561,875
25,000 Aradigm Corp.*......................... 209,375
150,000 ATS Medical, Inc.*..................... 1,256,250
75,000 Autonomous Technologies Corp.*......... 300,000
55,000 Biosource International, Inc.*......... 340,313
50,000 Calypte Biomedical Corp.*.............. 312,500
160,000 Capstone Pharmacy Services, Inc.*...... 1,680,000
110,000 ClinTrials Research Inc.*.............. 4,015,000
100,000 Coherent, Inc.*........................ 3,875,000
50,000 Cohr, Inc.*............................ 1,087,500
12,000 Conceptus Inc.*........................ 102,000
82,500 Conmed Corp.*.......................... 1,402,500
200,000 Cryolife, Inc.*........................ 2,500,000
7,500 De Rigo SpA (ADR)* (Italy)............. 136,875
20,000 Electroscope, Inc.*.................... 160,000
100,000 EP MedSystems, Inc.*................... 550,000
25,000 General Surgical Innovations, Inc.*.... 303,125
120,000 Guidant Corp........................... 6,090,000
25,000 Gynecare, Inc.*........................ 115,625
80,000 Hanger Orthopedic Group, Inc.*......... 470,000
5,500 Heartport, Inc.*....................... 127,875
50,000 Hologic, Inc.*......................... 1,887,500
150,000 ICU Medical, Inc.*..................... 1,256,250
140,000 IDEXX Laboratories, Inc.*.............. 5,355,000
40,000 Imagyn Medical, Inc.*.................. 280,000
120,000 Immunomedics, Inc.*.................... 855,000
140,000 Innerdyne, Inc.*....................... 455,000
75,000 Intelligent Medical Imaging, Inc.*..... 1,275,000
50,000 Invacare Corp.......................... 1,450,000
90,000 IRIDEX Corp.*.......................... 675,000
140,000 Kensey Nash Corp.*..................... 1,645,000
120,000 Kinetic Concepts, Inc.................. 1,665,000
40,000 Laser Industries, Ltd.* (Israel)....... 500,000
111,000 Life Medical Sciences, Inc.*........... 721,500
100,000 Lincare Holdings, Inc.*................ 3,875,000
185,000 Lunar Corp.*........................... 6,428,750
170,000 Med-Design Corp.*...................... 2,167,500
100,000 Millipore Corp......................... 3,412,500
110,000 Minimed Inc.*.......................... 2,392,500
60,000 Minntech Corp.......................... 615,000
80,000 Neurobiological Technologies, Inc.*.... 350,000
120,000 Neuromedical Systems, Inc.*............ 1,710,000
40,000 Novoste Corp.*......................... 320,000
SEE NOTES TO FINANCIAL STATEMENTS
44
DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1996, CONTINUED
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
220,000 Omnicare, Inc.......................... $ 5,142,500
100,000 Oncogene Science, Inc.*................ 737,500
10,000 Perclose, Inc.*........................ 190,000
170,000 Physician Sales & Service, Inc.*....... 2,911,250
25,000 Physiometrix, Inc.*.................... 137,500
150,000 PLC Systems, Inc.* (Canada)............ 2,437,500
80,000 Polymedica Industries, Inc.*........... 400,000
100,000 Possis Medical, Inc.*.................. 1,487,500
130,000 Protocol Systems, Inc.*................ 2,258,750
80,000 Quidel Corp.*.......................... 300,000
150,000 Sano Corp.*............................ 1,912,500
85,000 Serologicals Corp.*.................... 2,125,000
40,000 Sight Resource Corp. (Units)++*........ 312,500
70,400 Spine-Tech Inc.*....................... 1,777,600
160,000 Staar Surgical Co.*.................... 2,000,000
90,000 Target Therapeutics, Inc.*............. 2,835,000
170,000 Thermolase Corp.*...................... 3,782,500
30,000 Thoratec Laboratories Corp.*........... 315,000
40,000 Ultrafem, Inc.*........................ 620,000
60,000 United States Surgical Corp............ 2,055,000
36,000 Urologix, Inc.*........................ 513,000
140,000 Uromed Corp.*.......................... 1,785,000
40,000 Ventana Medical Systems, Inc.*......... 395,000
2,000 VISX, Inc.*............................ 36,500
130,000 Vivus, Inc.*........................... 4,680,000
---------------
108,239,413
---------------
MEDICAL SERVICES (4.6%)
135,000 Health Management Systems, Inc.*....... 4,083,750
40,000 Housecall Medical Resources, Inc.*..... 620,000
130,000 Medaphis Corp.*........................ 4,793,750
30,000 Medical Resources, Inc.*............... 213,750
90,000 NABI, Inc.*............................ 787,500
20,000 Phoenix International Life Sciences,
Inc.* (Canada)......................... 203,768
115,000 Prime Medical Services, Inc.*.......... 1,566,875
100,000 Quintiles Transnational Corp.*......... 6,950,000
80,000 Zoll Medical Corp.*.................... 1,180,000
---------------
20,399,393
---------------
MULTI-LINE INSURANCE (0.2%)
20,000 United Dental Care, Inc.*.............. 680,000
---------------
PERSONAL PRODUCTS (0.7%)
50,000 National Dentex Corp.*................. 1,087,500
100,000 Nature's Sunshine Products, Inc........ 2,200,000
---------------
3,287,500
---------------
PHARMACEUTICALS (17.1%)
160,000 Alliance Pharmaceutical Corp.*......... 2,280,000
80,000 Amrion, Inc.*.......................... 1,290,000
60,000 Andrx Corp.*........................... 795,000
60,000 Aronex Pharmaceuticals, Inc.*.......... 442,500
40,000 Arris Pharmaceutical Corp.*............ 445,000
50,000 Biotransplant, Inc.*................... 318,750
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
248,968 Biovail Corporation International*..... $ 6,597,652
167,500 Bone Care International, Inc.*......... 1,130,625
25,000 Cima Labs, Inc.*....................... 162,500
60,000 Collagenex Pharmaceuticals, Inc.*...... 517,500
160,000 Curative Health Services, Inc.*........ 2,800,000
100,000 Cygnus, Inc.*.......................... 1,400,000
150,000 Cypros Pharmaceutical Corp.*........... 637,500
80,000 Cytel Corp.*........................... 290,000
100,000 Depotech Corp.*........................ 1,800,000
110,000 Ergo Science Corp.*.................... 1,540,000
20,000 Flamel Technologies (ADR)* (France).... 145,000
100,000 Fuisz Technologies Ltd.*............... 1,775,000
25,000 Geltex Pharmaceuticals, Inc.*.......... 293,750
56,000 Genset (ADR)* (France)................. 1,029,000
265,000 Guilford Pharmaceuticals, Inc.*........ 5,565,000
50,000 Houghten Pharmaceuticals, Inc.*........ 250,000
50,000 Hyal Pharmaceutical Corp.* (Canada).... 385,707
120,000 ICOS Corp.*............................ 795,000
130,000 Imclone Systems, Inc.*................. 845,000
100,000 Incyte Pharmaceuticals, Inc.*.......... 3,762,500
50,000 Inhale Therapeutic Systems*............ 768,750
40,000 Intercardia, Inc.*..................... 800,000
125,000 Interferon Sciences, Inc.*............. 171,875
165,100 Interneuron Pharmaceuticals, Inc.*..... 4,457,700
97,500 Jones Medical Industries, Inc.......... 3,339,375
100,000 Labopharm Inc.* (Canada)............... 473,037
80,000 Martek Biosciences Corp.*.............. 2,000,000
50,000 Matrix Pharmaceutical, Inc.*........... 537,500
150,000 Medicis Pharmaceutical Corp. (Class
A)*.................................... 6,975,000
50,000 Microcide Pharmaceuticals, Inc.*....... 500,000
20,000 Millennium Pharmaceuticals, Inc.*...... 300,000
50,000 Neose Technologies, Inc.*.............. 687,500
35,300 Neurocrine Bioscience, Inc.*........... 282,400
210,000 North American Vaccine, Inc.*.......... 3,333,750
75,000 NPS Pharmaceuticals, Inc.*............. 750,000
40,000 Onyx Pharmaceuticals, Inc.*............ 305,000
100,000 Orphan Medical, Inc.*.................. 712,500
70,000 Parexel International Corp.*........... 2,800,000
67,000 Pathogenesis Corp.*.................... 804,000
20,000 PDT, Inc.*............................. 665,000
25,000 Pharmacyclics, Inc.*................... 318,750
70,000 Regeneron Pharmaceuticals, Inc.*....... 1,085,000
75,000 Ribozyme Pharmaceuticals, Inc.*........ 881,250
100,000 Sangstat Medical Corp.*................ 1,537,500
50,000 Sciclone Pharmaceuticals, Inc.*........ 606,250
100,000 Sequus Pharmaceuticals, Inc.*.......... 1,450,000
5,000 SIBIA Neurosciences, Inc.*............. 36,250
90,000 SuperGen, Inc.*........................ 1,035,000
120,000 Zila, Inc.*............................ 900,000
---------------
75,806,371
---------------
SEE NOTES TO FINANCIAL STATEMENTS
45
DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1996, CONTINUED
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
RETAIL - SPECIALTY (1.6%)
110,000 Cole National Corp. (Class A)*......... $ 1,842,500
180,000 Rexall Sundown, Inc.*.................. 5,175,000
---------------
7,017,500
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $339,052,652)......... 427,367,389
---------------
NUMBER OF
WARRANTS VALUE
- ---------------------------------------------------------------------
WARRANTS (0.0%)
MEDICAL PRODUCTS & SUPPLIES (0.0%)
70,000 ATS Medical, Inc.
(due 03/02/97)*........................ 39,375
---------------
PHARMACEUTICALS (0.0%)
30,000 SuperGen, Inc.
(due 03/12/01)*........................ 159,375
---------------
TOTAL WARRANTS
(IDENTIFIED COST $43,448).............. 198,750
---------------
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ---------------------------------------------------------------------
SHORT-TERM INVESTMENTS (4.1%)
COMMERCIAL PAPER (a) (4.0%)
AUTOMOTIVE - FINANCE
$ 17,500 Ford Motor Credit Co.
5.63% due 08/01/96..................... 17,500,000
---------------
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ---------------------------------------------------------------------
REPURCHASE AGREEMENT (0.1%)
$ 292 The Bank of New York 5.75% due 08/01/96
(dated 07/31/96; proceeds $291,826;
collateralized by $347,946 Federal Home
Loan Mortgage Corp. 6.50% due 12/15/23
valued at $297,615) (Identified Cost
$291,779).............................. $ 291,779
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $17,791,779).......... 17,791,779
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST $356,887,879)
(B)............................ 100.6% 445,357,918
LIABILITIES IN EXCESS OF OTHER
ASSETS......................... (0.6) (2,482,340)
----- ------------
NET ASSETS..................... 100.0% $442,875,578
----- ------------
----- ------------
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
++ Consists of more than one class of securities traded together as a unit;
generally stocks with attached warrants.
(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 is 357,356,015; the
aggregate gross unrealized appreciation is $117,721,053 and the aggregate
gross unrealized depreciation is $29,719,150, resulting in net unrealized
appreciation of $88,001,903.
SEE NOTES TO FINANCIAL STATEMENTS
46
DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1996
ASSETS:
Investments in securities, at value
(identified cost $356,887,879)............................ $445,357,918
Receivable for:
Investments sold........................................ 3,503,629
Shares of beneficial interest sold...................... 1,820,941
Deferred organizational expenses............................ 40,256
Prepaid expenses and other assets........................... 116,116
------------
TOTAL ASSETS........................................... 450,838,860
------------
LIABILITIES:
Payable for:
Investments purchased................................... 6,708,939
Plan of distribution fee................................ 422,109
Investment management fee............................... 422,013
Shares of beneficial interest repurchased............... 215,916
Accrued expenses............................................ 194,305
------------
TOTAL LIABILITIES...................................... 7,963,282
------------
NET ASSETS:
Paid-in-capital............................................. 337,418,795
Net unrealized appreciation................................. 88,470,039
Accumulated net investment loss............................. (28,348)
Accumulated undistributed net realized gain................. 17,015,092
------------
NET ASSETS............................................. $442,875,578
------------
------------
NET ASSET VALUE PER SHARE,
29,593,202 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................ $14.97
------------
------------
SEE NOTES TO FINANCIAL STATEMENTS
47
DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
NET INVESTMENT INCOME:
INCOME
Interest.................................................... $ 392,106
Dividends (net of $8,781 foreign withholding tax)........... 288,598
-----------
TOTAL INCOME........................................... 680,704
-----------
EXPENSES
Plan of distribution fee.................................... 3,864,860
Investment management fee................................... 3,862,384
Transfer agent fees and expenses............................ 500,280
Registration fees........................................... 69,849
Custodian fees.............................................. 62,139
Shareholder reports and notices............................. 54,864
Professional fees........................................... 37,201
Organizational expenses..................................... 32,310
Trustees' fees and expenses................................. 27,958
Other....................................................... 5,651
-----------
TOTAL EXPENSES......................................... 8,517,496
-----------
NET INVESTMENT LOSS.................................... (7,836,792)
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 38,104,756
Net change in unrealized appreciation....................... 16,813,336
-----------
NET GAIN............................................... 54,918,092
-----------
NET INCREASE................................................ $47,081,300
-----------
-----------
SEE NOTES TO FINANCIAL STATEMENTS
48
DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
JULY 31, FOR THE YEAR ENDED
1996 JULY 31, 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss......................................... $ (7,836,792) $ (5,067,553)
Net realized gain........................................... 38,104,756 28,063,934
Net change in unrealized appreciation....................... 16,813,336 57,548,396
------------ ------------
NET INCREASE........................................... 47,081,300 80,544,777
Distributions from net realized gain........................ (22,643,391) --
Net increase (decrease) from transactions in shares of
beneficial interest....................................... 144,702,568 (35,383,030)
------------ -------------
TOTAL INCREASE......................................... 169,140,477 45,161,747
NET ASSETS:
Beginning of period......................................... 273,735,101 228,573,354
------------ -------------
END OF PERIOD
(INCLUDING ACCUMULATED NET INVESTMENT LOSS OF $28,348
AND $18,664, RESPECTIVELY).............................. $442,875,578 $ 273,735,101
------------ -------------
------------ -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS JULY 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Health Sciences Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a non-diversified,
open-end management investment company. The Fund's investment objective is
capital appreciation. The Fund seeks to achieve its objective by investing in
securities of companies in the health sciences industry throughout the world.
The Fund was organized as a Massachusetts business trust on May 26, 1992 and
commenced operations on October 30, 1992.
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 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 when
assets are valued; if there were no sales that day, the security is valued at
the latest bid price; (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) 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; and (5) the market value of foreign denominated portfolio
securities is translated at the exchange rate prevailing at the end of the
period.
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.
50
DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS JULY 31, 1996, CONTINUED
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses of the Fund in the amount of
approximately $162,000 and was 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. Prior to April 30,
1996, the Fund paid an annual rate of 1.0% of daily net assets determined at the
close of each business day. Effective May 1, 1996, the fee changed to the
following annual rates which are also applied to the net assets of the Fund
determined at the close of each business day: 1.0% to the portion of daily net
assets not exceeding $500 million and 0.95% to the portion of daily net assets
exceeding $500 million.
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.
51
DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS JULY 31, 1996, CONTINUED
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 lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Fund's shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or upon which such charge has been waived; or (b) the 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 other employees or selected
broker-dealers 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 be compensated under the Plan for
its opportunity costs in advancing such amounts, which compensation would be in
the form of a carrying charge on any unreimbursed expenses incurred by the
Distributor.
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 $16,178,097
at July 31, 1996.
The Distributor has informed the Fund that for the year ended July 31, 1996, it
received approximately $610,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares.
52
DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS JULY 31, 1996, CONTINUED
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended July 31, 1996 aggregated $344,533,358
and $240,556,519, respectively.
For the year ended July 31, 1996, the Fund incurred brokerage commissions of
$9,000 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 July 31, 1996, the Fund had
transfer agent fees and expenses payable of approximately $52,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended July 31, 1996 included in
Trustees' fees and expenses in the Statement of Operations amounted to $10,608.
At July 31, 1996, the Fund had an accrued pension liability of $28,348 which is
included in accrued expenses in the Statement of Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 1996 JULY 31, 1995
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 26,005,478 $ 429,545,190 12,330,853 $136,338,116
Reinvestment of distributions.................................... 1,434,910 21,121,878 -- --
----------- -------------- ----------- ------------
27,440,388 450,667,068 12,330,853 136,338,116
Repurchased...................................................... (19,102,244) (305,964,500) (15,613,260) (171,721,146)
----------- -------------- ----------- ------------
Net increase (decrease).......................................... 8,338,144 $ 144,702,568 (3,282,407) $(35,383,030)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
As of July 31, 1996, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences attributable to a net operating loss. To reflect reclassifications
arising from permanent book/tax differences for the year ended July 31, 1996,
accumulated undistributed net realized gain was charged and accumulated net
investment loss was credited $7,827,108.
53
DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
FOR THE
PERIOD
OCTOBER
30, 1992*
FOR THE YEAR ENDED JULY 31 THROUGH
------------------------------- JULY 31,
1996 1995 1994 1993
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of period........................ $ 12.88 $ 9.32 $ 9.22 $ 10.00
--------- --------- --------- ----------
Net investment loss............... (0.26) (0.24) (0.22) (0.08)
Net realized and unrealized
gain (loss)...................... 3.44 3.80 0.32 (0.70)
--------- --------- --------- ----------
Total from investment operations.. 3.18 3.56 0.10 (0.78)
--------- --------- --------- ----------
Less distributions from net
realized gain.................... (1.09) -- -- --
--------- --------- --------- ----------
Net asset value, end of period.... $ 14.97 $ 12.88 $ 9.32 $ 9.22
--------- --------- --------- ----------
--------- --------- --------- ----------
TOTAL INVESTMENT RETURN+.......... 24.84% 38.20% 1.08% (7.80)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................... 2.20% 2.30% 2.30% 2.38%(2)
Net investment loss............... (2.03)% (2.05)% (2.06)% (1.38)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands..................... $442,876 $273,735 $228,573 $231,646
Portfolio turnover rate........... 63% 145% 106% 55%(1)
Average commission rate paid...... $0.0562 -- -- --
- ---------------------
* 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
54
DEAN WITTER HEALTH SCIENCES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER HEALTH SCIENCES 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 present fairly, in all
material respects, the financial position of Dean Witter Health Sciences Trust
(the "Fund") at July 31, 1996, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the three years in the
period then ended and for the period October 30, 1992 (commencement of
operations) through July 31, 1993, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at July 31, 1996 by correspondence with the custodian
and brokers and the application of alternative auditing procedures where
confirmations from brokers were not received, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
SEPTEMBER 13, 1996
- --------------------------------------------------------------------------------
1996 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended July 31, 1996, the Fund paid to its
shareholders $1.01 per share from long-term capital gains. For
such period, 15.8% of the income paid qualified for the dividends
received deduction available to corporations.
- -------------------------------------------------------------------------------
55
DEAN WITTER HEALTH SCIENCES TRUST
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial statements and schedules, included
in Prospectus (Part A): Page in
Prospectus
----------
Financial highlights for the period October 30,
1992 through July 31, 1993 and for the fiscal
years ended July 31, 1994, 1995 and 1996........... 4
(2) Financial statements included in the Statement of
Additional Information (Part B): Page in
SAI
-------
Portfolio of Investments at July 31, 1996.......... 43
Statement of assets and liabilities at
July 31, 1996 ..................................... 47
Statement of operations for the year ended July
31, 1996 ......................................... 48
Statement of changes in net assets for the
fiscal years ended July 31, 1995 and 1996.......... 49
Notes to Financial Statements ..................... 50
Financial highlights for the period October 30,
1992 through July 31, 1993 and for the fiscal
years ended July 31, 1994, 1995 and 1996 .......... 54
(3) Financial statements included in Part C:
None
(b) Exhibits:
5. - Form of Investment Management Agreement
between the Registrant and Dean Witter
InterCapital Inc.
8. - Form of Amendment to the Custody Agreement
between the Registrant and The Bank of
New York.
1
<PAGE>
9. - Schedules A and B of the Services Agreement
between Dean Witter InterCapital Inc. and
Dean Witter Services Company Inc. as amended
July 1, 1996.
11. - Consent of Independent Accountants
15. - Form of Amended and Restated Plan of Distribution
pursuant to Rule 12b-1.
16. - Schedules for Computation of Performance
Quotations
27. - Financial Data Schedule
----------
All other exhibits previously filed and incorporated by reference.
Item 25. Persons Controlled by or Under Common Control With
Registrant.
None
Item 26. Number of Holders of Securities.
(1) (2)
Number of Record Holders
Title of Class at August 31, 1996
-------------- ---------------------
Shares of Beneficial Interest 57,642
Item 27. Indemnification
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and
under Section 4.8 of the Registrant's By-Laws, the indemnification of the
Registrant's trustees, officers, employees and agents is permitted if it is
determined that they acted under the belief that their actions were in or not
opposed to the best interest of the Registrant, and, with respect to any
criminal proceeding, they had reasonable cause to believe their conduct was
not unlawful. In addition, indemnification is permitted only if it is
determined that the actions in question did not render them liable by reason
of willful misfeasance, bad faith or gross negligence in the performance of
their duties or by reason of reckless disregard of their obligations and
duties to the Registrant. Trustees, officers, employees and agents will be
indemnified for the expense of litigation if it is determined that they are
entitled to indemnification against any liability established in such
litigation. The Registrant may also advance
2
<PAGE>
money for these expenses provided that they give their undertakings to repay
the Registrant unless their conduct is later determined to permit
indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the
Registrant shall be liable for any action or failure to act, except in the
case of bad faith, willful misfeasance, gross negligence or reckless disregard
of duties to the Registrant.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such
trustee, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act, and will be governed by the
final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940,
so long as the interpretation of Sections 17(h) and 17(i) of such Act remains
in effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was
a Trustee, officer, employee, or agent of Registrant, or who is or was serving
at the request of Registrant as a trustee, director, officer, employee or
agent of another trust or corporation, against any liability asserted against
him and incurred by him or arising out of his position. However, in no event
will Registrant maintain insurance to indemnify any such person for any act
for which Registrant itself is not permitted to indemnify him.
3
<PAGE>
Item 28. Business and Other Connections of Investment Adviser.
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment adviser. The following information is given
regarding officers of Dean Witter InterCapital Inc. InterCapital is a
wholly-owned subsidiary of Dean Witter, Discover & Co. The principal address
of the Dean Witter Funds is Two World Trade Center, New York, New York 10048.
The term "Dean Witter Funds" used below refers to the following
registered investment companies:
Closed-End Investment Companies
(1) InterCapital Income Securities Inc.
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) Municipal Income Trust
(6) Municipal Income Trust II
(7) Municipal Income Trust III
(8) Dean Witter Government Income Trust
(9) Municipal Premium Income Trust
(10) Municipal Income Opportunities Trust
(11) Municipal Income Opportunities Trust II
(12) Municipal Income Opportunities Trust III
(13) Prime Income Trust
(14) InterCapital Insured Municipal Bond Trust
(15) InterCapital Quality Municipal Income Trust
(16) InterCapital Quality Municipal Investment Trust
(17) InterCapital Insured Municipal Income Trust
(18) InterCapital California Insured Municipal Income Trust
(19) InterCapital Insured Municipal Trust
(20) InterCapital Quality Municipal Securities
(21) InterCapital New York Quality Municipal Securities
(22) InterCapital California Quality Municipal Securities
(23) InterCapital Insured California Municipal Securities
(24) InterCapital Insured Municipal Securities
Open-end Investment Companies:
(1) Dean Witter Short-Term Bond Fund
(2) Dean Witter Tax-Exempt Securities Trust
(3) Dean Witter Tax-Free Daily Income Trust
(4) Dean Witter Dividend Growth Securities Inc.
(5) Dean Witter Convertible Securities Trust
(6) Dean Witter Liquid Asset Fund Inc.
(7) Dean Witter Developing Growth Securities Trust
(8) Dean Witter Retirement Series
(9) Dean Witter Federal Securities Trust
(10) Dean Witter World Wide Investment Trust
(11) Dean Witter U.S. Government Securities Trust
(12) Dean Witter Select Municipal Reinvestment Fund
(13) Dean Witter High Yield Securities Inc.
4
<PAGE>
(14) Dean Witter Intermediate Income Securities
(15) Dean Witter New York Tax-Free Income Fund
(16) Dean Witter California Tax-Free Income Fund
(17) Dean Witter Health Sciences Trust
(18) Dean Witter California Tax-Free Daily Income Trust
(19) Dean Witter Global Asset Allocation Fund
(20) Dean Witter American Value Fund
(21) Dean Witter Strategist Fund
(22) Dean Witter Utilities Fund
(23) Dean Witter World Wide Income Trust
(24) Dean Witter New York Municipal Money Market Trust
(25) Dean Witter Capital Growth Securities
(26) Dean Witter Precious Metals and Minerals Trust
(27) Dean Witter European Growth Fund Inc.
(28) Dean Witter Global Short-Term Income Fund Inc.
(29) Dean Witter Pacific Growth Fund Inc.
(30) Dean Witter Multi-State Municipal Series Trust
(31) Dean Witter Premier Income Trust
(32) Dean Witter Short-Term U.S. Treasury Trust
(33) Dean Witter Diversified Income Trust
(34) Dean Witter U.S. Government Money Market Trust
(35) Dean Witter Global Dividend Growth Securities
(36) Active Assets California Tax-Free Trust
(37) Dean Witter Natural Resource Development Securities Inc.
(38) Active Assets Government Securities Trust
(39) Active Assets Money Trust
(40) Active Assets Tax-Free Trust
(41) Dean Witter Limited Term Municipal Trust
(42) Dean Witter Variable Investment Series
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Mid-Cap Growth Fund
(49) Dean Witter Select Dimensions Investment Series
(50) Dean Witter Balanced Growth Fund
(51) Dean Witter Balanced Income Fund
(52) Dean Witter Hawaii Municipal Trust
(53) Dean Witter Capital Appreciation Fund
(54) Dean Witter Intermediate Term U.S. Treasury Trust
(55) Dean Witter Information Fund
(56) Dean Witter Japan Fund
(57) Dean Witter Income Builder Fund
(58) Dean Witter Special Value Fund
The term "TCW/DW Funds" refers to the following registered
investment companies:
Open-End Investment Companies
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
5
<PAGE>
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
Closed-End Investment Companies
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ------------------------ ----------------------------------------------------
Charles A. Fiumefreddo Executive Vice President and Director of Dean
Chairman, Chief Witter Reynolds Inc. ("DWR"); Chairman, Chief
Executive Officer and Executive Officer and Director of Dean Witter
Director Distributors Inc. ("Distributors") and Dean
Witter Services Company Inc. ("DWSC"); Chairman and
Director of Dean Witter Trust Company ("DWTC");
Chairman, Director or Trustee, President and Chief
Executive Officer of the Dean Witter Funds and
Chairman, Chief Executive Officer and Trustee of the
TCW/DW Funds; Formerly Executive Vice President and
Director of Dean Witter, Discover & Co. ("DWDC");
Director and/or officer of various DWDC
subsidiaries.
Philip J. Purcell Chairman, Chief Executive Officer and Director of
Director of DWDC and DWR; Director of DWSC and
Distributors; Director or Trustee of the Dean Witter
Funds; Director and/or officer of various DWDC
subsidiaries.
Richard M. DeMartini Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Capital;
Director of DWR, DWSC, Distributors and DWTC;
Trustee of the TCW/DW Funds; Member (since January,
1993) and Chairman (since January,
1995) of the Board of Directors of NASDAQ.
James F. Higgins Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Financial;
Director of DWR, DWSC, Distributors and DWTC.
Thomas C. Schneider Executive Vice President and Chief Financial
Executive Vice Officer of DWDC, DWR, DWSC and Distributors;
President, Chief Director of DWR, DWSC and Distributors.
Financial Officer and
Director
Christine A. Edwards Executive Vice President, Secretary and General
Director Counsel of DWDC and DWR; Executive Vice President,
Secretary and Chief Legal Officer of Distributors;
Director of DWR, DWSC and Distributors.
6
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ------------------------ ----------------------------------------------------
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of DWTC;
Vice President of the Dean Witter Funds and the
TCW/DW Funds.
John Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Joseph J. McAlinden Vice President of the Dean Witter Funds and
Executive Vice President Director of DWTC.
and Chief Investment
Officer
Sheldon Curtis Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
General Counsel and President, Assistant General Counsel and Assistant
Secretary Secretary of Distributors; Senior Vice President
and Secretary of DWTC; Vice President, Secretary
and General Counsel of the Dean Witter Funds and
the TCW/DW Funds.
Peter M. Avelar
Senior Vice President Vice President of various Dean Witter Funds.
Mark Bavoso
Senior Vice President Vice President of various Dean Witter Funds.
Richard Felegy
Senior Vice President
Edward Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone
Senior Vice President Senior Vice President of DWSC,
Distributors and DWTC and Director of DWTC; Vice
President of the Dean Witter Funds and the TCW/DW
Funds.
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
Kenton J. Hinchcliffe
Senior Vice President Vice President of various Dean Witter Funds.
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
Jenny B. Jones
Senior Vice President Vice President of Dean Witter Special Value Fund.
7
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ------------------------ ----------------------------------------------------
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
Anita Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira N. Ross
Senior Vice President Vice President of various Dean Witter Funds.
Rochelle G. Siegel
Senior Vice President Vice President of various Dean Witter Funds.
Paul D. Vance
Senior Vice President Vice President of various Dean Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
Ronald J. Worobel
Senior Vice President Vice President of various Dean Witter Funds.
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC, Assistant Treasurer of Distributors;
and Assistant Treasurer and Chief Financial Officer of the
Treasurer Dean Witter Funds and the TCW/DW Funds.
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of DWSC; Assistant
and Assistant Secretary Secretary of the Dean Witter Funds and the TCW/DW
Funds.
Barry Fink First Vice President and Assistant Secretary of
First Vice President DWSC; Assistant Secretary of the Dean Witter
and Assistant Secretary Funds and the TCW/DW Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors; First Vice
and Controller President and Treasurer of DWTC.
Robert Zimmerman
First Vice President
8
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ------------------------ ----------------------------------------------------
Joan Allman
Vice President
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds.
Kirk Balzer
Vice President Vice President of Dean Witter Mid-Cap Growth Fund
Douglas Brown
Vice President
Philip Casparius
Vice President
Thomas Chronert
Vice President
Rosalie Clough
Vice President
Patricia A. Cuddy
Vice President Vice President of various Dean Witter Funds.
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
Frank J. DeVito
Vice President Vice President of DWSC.
Dwight Doolan
Vice President
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
Peter W. Gurman
Vice President
9
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ------------------------ ----------------------------------------------------
John Hechtlinger
Vice President
Peter Hermann
Vice President Vice President of various Dean Witter Funds
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
David Johnson
Vice President
Christopher Jones
Vice President
James Kastberg
Vice President
Stanley Kapica
Vice President
Michael Knox
Vice President Vice President of various Dean Witter Funds
Konrad J. Krill
Vice President Vice President of various Dean Witter Funds.
Paula LaCosta
Vice President Vice President of various Dean Witter Funds.
Thomas Lawlor
Vice President
Gerard Lian
Vice President Vice President of various Dean Witter Funds.
LouAnne D. McInnis Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
10
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ------------------------ ----------------------------------------------------
David Myers
Vice President
James Nash
Vice President
Richard Norris
Vice President
Anne Pickrell
Vice President Vice President of Dean Witter Global Short-
Term Income Fund Inc.
Hugh Rose
Vice President
Robert Rossetti
Vice President
Ruth Rossi Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Carl F. Sadler
Vice President
Rafael Scolari
Vice President Vice President of Prime Income Trust
Peter Seeley Vice President of Dean Witter World
Vice President Wide Income Trust
Jayne M. Stevlingson
Vice President Vice President of various Dean Witter Funds.
Kathleen Stromberg
Vice President Vice President of various Dean Witter Funds.
Vinh Q. Tran
Vice President Vice President of various Dean Witter Funds.
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
11
<PAGE>
Item 29. Principal Underwriters
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant.
Distributors is also the principal underwriter of the following
investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Global Asset Allocation
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Short-Term Bond Fund
(15) Dean Witter Mid-Cap Growth Fund
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Limited Term Municipal Trust
(22) Dean Witter Natural Resource Development Securities Inc.
(23) Dean Witter World Wide Income Trust
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Federal Securities Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Premier Income Trust
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Balanced Growth Fund
(49) Dean Witter Balanced Income Fund
12
<PAGE>
(50) Dean Witter Hawaii Municipal Trust
(51) Dean Witter Variable Investment Series
(52) Dean Witter Capital Appreciation Fund
(53) Dean Witter Intermediate Term U.S. Treasury Trust
(54) Dean Witter Information Fund
(55) Dean Witter Japan Fund
(56) Dean Witter Income Builder Fund
(57) Dean Witter Special Value Fund
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(b) The following information is given regarding directors and officers of
Distributors not listed in Item 28 above. The principal address of
Distributors is Two World Trade Center, New York, New York 10048. None of the
following persons has any position or office with the Registrant.
Positions and
Office with
Name Distributors
- ------------------ ------------------------------------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
are maintained by the Investment Manager at its offices, except records
relating to holders of shares issued by the Registrant, which are maintained
by the Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. Management Services
Registrant is not a party to any such management-related service
contract.
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report
to shareholders, upon request and without charge.
13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 25th day of September, 1996.
DEAN WITTER HEALTH SCIENCES TRUST
By /s/ Sheldon Curtis
------------------------------
Sheldon Curtis
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 5 has been signed below by the following persons
in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 09/25/96
---------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 09/25/96
---------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Sheldon Curtis 09/25/96
---------------------------
Sheldon Curtis
Attorney-in-Fact
Manuel H. Johnson John R. Haire
Michael Bozic Michael E. Nugent
Edwin J. Garn John L. Schroeder
By /s/ David M. Butowsky 09/25/96
---------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
5. - Form of Amended Investment Management Agreement
between Registrant and Dean Witter InterCapital
Inc.
8. - Form of Amendment to the Custody Agreement
between Registrant and The Bank of New York.
9. - Schedules A and B of the Services Agreement
between Dean Witter InterCapital Inc. and
Dean Witter Services Company Inc. as amended
July 1, 1996.
11. - Consent of Independent Accountants
15. - Form of Amended and Restated Plan of Distribution
pursuant to Rule 12b-1.
16. - Schedule for Computation of Performance
Quotations
27. - Financial Data Schedule
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 30th day of June, 1993, and amended as of May
1, 1996, by and between Dean Witter Health Sciences Trust, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter called the "Fund"), and Dean Witter InterCapital Inc., a Delaware
corporation (hereinafter called the "Investment Manager"):
WHEREAS, The Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (the "Act"); and
WHEREAS, The Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, and engages in the business of
acting as investment adviser; and
WHEREAS, The Fund desires to retain the Investment Manager to render
management and investment advisory services in the manner and on the terms and
conditions hereinafter set forth; and
WHEREAS, The Investment Manager desires to be retained to perform
services on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
1. The Fund hereby retains the Investment Manager to act as investment
manager of the Fund and, subject to the supervision of the Trustees, to
supervise the investment activities of the Fund as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager shall
obtain and evaluate such information and advice relating to the economy,
securities and commodities markets and securities and commodities as it deems
necessary or useful to discharge its duties hereunder; shall continuously
manage the assets of the Fund in a manner consistent with the investment
objectives and policies of the Fund; shall determine the securities and
commodities to be purchased, sold or otherwise disposed of by the Fund and the
timing of such purchases, sales and dispositions; and shall take such further
action, including the placing of purchase and sale orders on behalf of the
Fund, as the Investment Manager shall deem necessary or appropriate. The
Investment Manager shall also furnish to or place at the disposal of the Fund
such of the information, evaluations, analyses and opinions formulated or
obtained by the Investment Manager in the discharge of its duties as the Fund
may, from time to time, reasonably request.
2. The Investment Manager shall, at its own expense, maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary or useful to the performance
of its obligations under this Agreement. Without limiting the generality of
the foregoing, the staff and personnel of the Investment Manager shall be
deemed to include persons employed or otherwise retained by the Investment
Manager to furnish statistical and other factual data, advice regarding
economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Investment Manager may desire. The Investment Manager shall, as agent for
the Fund, maintain the Fund's records and books of account (other than those
maintained by the Fund's transfer agent, registrar, custodian and other
agencies). All such books and records so maintained shall be the property of
the Fund and, upon request therefor, the Investment Manager shall surrender to
the Fund such of the books and records so requested.
3. The Fund will, from time to time, furnish or otherwise make available
to the Investment Manager such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as the Investment
Manager may reasonably require in order to discharge its duties and
obligations hereunder.
4. The Investment Manager shall bear the cost of rendering the
investment management and supervisory services to be performed by it under
this Agreement, and shall, at its own expense, pay the compensation of the
officers and employees, if any, of the Fund, and provide such office space,
facilities and equipment
<PAGE>
and such clerical help and bookkeeping services as the Fund shall reasonably
require in the conduct of its business. The Investment Manager shall also bear
the cost of telephone service, heat, light, power and other utilities provided
to the Fund.
5. The Fund assumes and shall pay or cause to be paid all other expenses
of the Fund, including without limitation: fees pursuant to any plan of
distribution that the Fund may adopt; the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the
safekeeping of its cash, portfolio securities or commodities and other
property, and any stock transfer or dividend agent or agents appointed by the
Fund; brokers' commissions chargeable to the Fund in connection with portfolio
transactions to which the Fund is a party; all taxes, including securities or
commodities issuance and transfer taxes, and fees payable by the Fund to
federal, state or other governmental agencies; the cost and expense of
engraving or printing certificates representing shares of the Fund; all costs
and expenses in connection with the registration and maintenance of
registration of the Fund and its shares with the Securities and Exchange
Commission and various states and other jurisdictions (including filing fees
and legal fees and disbursements of counsel); the cost and expense of
printing, including typesetting, and distributing prospectuses and statements
of additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing proxy statements and reports to shareholders;
fees and travel expenses of Trustees or members of any advisory board or
committee who are not employees of the Investment Manager or any corporate
affiliate of the Investment Manager; all expenses incident to the payment of
any dividend, distribution, withdrawal or redemption, whether in shares or in
cash; charges and expenses of any outside service used for pricing of the
Fund's shares; charges and expenses of legal counsel, including counsel to the
Trustees of the Fund who are not interested persons (as defined in the Act) of
the Fund or the Investment Manager, and of independent accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Trustees) of the Fund which
inure to its benefit; extraordinary expenses (including but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation
unless otherwise explicitly provided herein.
6. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Manager, the Fund shall pay to the
Investment Manager monthly compensation determined by applying the following
annual rates to the Fund's daily net assets: 1.0% of daily net assets up to
$500 million; and 0.95% of daily net assets over $500 million. Except as
hereinafter set forth, compensation under this Agreement shall be calculated
and accrued daily and the amounts of the daily accruals shall be paid monthly.
Such calculations shall be made by applying 1/365ths of the annual rates to
the Fund's net assets each day determined as of the close of business on that
day or the last previous business day. If this Agreement becomes effective
subsequent to the first day of a month or shall terminate before the last day
of a month, compensation for that part of the month this Agreement is in
effect shall be prorated in a manner consistent with the calculation of the
fees as set forth above.
Subject to the provisions of paragraph 7 hereof, payment of the
Investment Manager's compensation for the preceding month shall be made as
promptly as possible after completion of the computations contemplated by
paragraph 7 hereof.
7. In the event the operating expenses of the Fund, including amounts
payable to the Investment Manager pursuant to paragraph 6 hereof, for any
fiscal year ending on a date on which this Agreement is in effect, exceed the
expense limitations applicable to the Fund imposed by state securities laws or
regulations thereunder, as such limitations may be raised or lowered from time
to time, the Investment Manager shall reduce its management fee to the extent
of such excess and, if required, pursuant to any such laws or regulations,
will reimburse the Fund for annual operating expenses in excess of any expense
limitation that may be applicable; provided, however, there shall be excluded
from such expenses the amount of any interest, taxes, brokerage commissions,
distribution fees and extraordinary expenses (including but not limited to
legal claims and liabilities and litigation costs and any indemnification
related thereto) paid or payable by the Fund. Such reduction, if any, shall be
computed and accrued daily, shall be settled on a monthly basis, and shall be
based upon the expense limitation applicable to the Fund as at the end of the
2
<PAGE>
last business day of the month. Should two or more such expense limitations be
applicable as at the end of the last business day of the month, that expense
limitation which results in the largest reduction in the Investment Manager's
fee shall be applicable.
For purposes of this provision, should any applicable expense limitation
be based upon the gross income of the Fund, such gross income shall include,
but not be limited to, interest on debt securities in the Fund's portfolio
accrued to and including the last day of the Fund's fiscal year, and dividends
declared on equity securities in the Fund's portfolio, the record dates for
which fall on or prior to the last day of such fiscal year, but shall not
include gains from the sale of securities.
8. The Investment Manager will use its best efforts in the supervision
and management of the investment activities of the Fund, but in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, the Investment Manager shall not be liable to the Fund
or any of its investors for any error of judgment or mistake of law or for any
act or omission by the Investment Manager or for any losses sustained by the
Fund or its investors.
9. Nothing contained in this Agreement shall prevent the Investment
Manager or any affiliated person of the Investment Manager from acting as
investment adviser or manager for any other person, firm or corporation and
shall not in any way bind or restrict the Investment Manager or any such
affiliated person from buying, selling or trading any securities or
commodities for their own accounts or for the account of others for whom they
may be acting. Nothing in this Agreement shall limit or restrict the right of
any Trustee, officer or employee of the Investment Manager to engage in any
other business or to devote his or her time and attention in part to the
management or other aspects of any other business whether of a similar or
dissimilar nature.
10. This Agreement shall remain in effect until April 30, 1997 and from
year to year thereafter provided such continuance is approved at least
annually by the vote of holders of a majority, as defined in the Investment
Company Act of 1940, as amended (the "Act"), of the outstanding voting
securities of the Fund or by the Trustees of the Fund; provided that in either
event such continuance is also approved annually by the vote of a majority of
the Trustees of the Fund who are not parties to this Agreement or "interested
persons" (as defined in the Act) of any such party, which vote must be cast in
person at a meeting called for the purpose of voting on such approval;
provided, however, that (a) the Fund may, at any time and without the payment
of any penalty, terminate this Agreement upon thirty days' written notice to
the Investment Manager, either by majority vote of the Trustees of the Fund or
by the vote of a majority of the outstanding voting securities of the Fund;
(b) this Agreement shall immediately terminate in the event of its assignment
(to the extent required by the Act and the rules thereunder) unless such
automatic terminations shall be prevented by an exemptive order of the
Securities and Exchange Commission; and (c) the Investment Manager may
terminate this Agreement without payment of penalty on thirty days' written
notice to the Fund. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed post-paid, to the other party at the
principal office of such party.
11. This Agreement may be amended by the parties without the vote or
consent of the shareholders of the Fund to supply any omission, to cure,
correct or supplement any ambiguous, defective or inconsistent provision
hereof, or if they deem it necessary to conform this Agreement to the
requirements of applicable federal laws or regulations, but neither the Fund
nor the Investment Manager shall be liable for failing to do so.
12. This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the latter shall control.
13. The Investment Manager and the Fund each agree that the name "Dean
Witter", which comprises a component of the Fund's name, is a property right
of Dean Witter Reynolds Inc. The Fund agrees and consents that (i) it will
only use the name "Dean Witter" as a component of its name and for no other
purpose, (ii) it will not purport to grant to any third party the right to use
the name "Dean Witter" for any purpose, (iii) the Investment Manager or its
parent, Dean Witter Reynolds Inc., or any corporate affiliate of the
Investment Manager's parent, may use or grant to others the right to use the
name "Dean Witter", or any combination or abbreviation thereof, as all or a
portion of a corporate or business name or for any
3
<PAGE>
commercial purpose, including a grant of such right to any other investment
company, (iv) at the request of the Investment Manager or its parent, the Fund
will take such action as may be required to provide its consent to the use of
the name "Dean Witter", or any combination or abbreviation thereof, by the
Investment Manager or its parent or any corporate affiliate of the Investment
Manager's parent, or by any person to whom the Investment Manager or its
parent or any corporate affiliate of the Investment Manager's parent shall
have granted the right to such use, and (v) upon the termination of any
investment advisory agreement into which the Investment Manager and the Fund
may enter, or upon termination of affiliation of the Investment Manager with
its parent, the Fund shall, upon request by the Investment Manager or its
parent, cease to use the name "Dean Witter" as a component of its name, and
shall not use the name, or any combination or abbreviation thereof, as a part
of its name or for any other commercial purpose, and shall cause its officers,
Trustees and shareholders to take any and all actions which the Investment
Manager or its parent may request to effect the foregoing and to reconvey to
the Investment Manager or its parent any and all rights to such name.
14. The Declaration of Trust establishing Dean Witter Health Sciences
Trust, dated May 26, 1992, a copy of which, together with all amendments
thereto (the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Dean Witter Health
Sciences Trust refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of Dean Witter Health Sciences Trust shall be held
to any personal liability, nor shall resort be had to their private property
for the satisfaction of any obligation or claim or otherwise, in connection
with the affairs of said Dean Witter Health Sciences Trust, but the Trust
Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on May 1, 1996, in New York, New York.
DEAN WITTER HEALTH SCIENCES TRUST
By
...................................
Attest:
.....................................
DEAN WITTER INTERCAPITAL INC.
By
...................................
Attest:
.....................................
4
<PAGE>
AMENDMENT TO CUSTODY AGREEMENT
Amendment made as of this 17th day of April, 1996 by and between Dean
Witter Health Sciences Trust (the "Fund") and The Bank of New York (the
"Custodian") to the Custody Agreement between the Fund and the Custodian dated
October 30, 1992 (the "Custody Agreement"). The Custody Agreement is hereby
amended as follows:
Article XV Section 8 of the Custody Agreement shall be deleted and be
replaced by Sections 8.(a), 8.(b) and 8.(c) as set forth below:
"8. (a) The Custodian will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of Securities and moneys
owned by the Fund. The Custodian shall indemnify the Fund against and save the
Fund harmless from all liability, claims, losses and demands whatsoever,
including attorneys' fees, howsoever arising or incurred as the result of the
failure of a subcustodian which is a banking institution located in a foreign
country and identified on Schedule A attached hereto and as amended from time
to time upon mutual agreement of the parties (each, a "Subcustodian") to
exercise reasonable care with respect to the safekeeping of such Securities
and moneys to the same extent that the Custodian would be liable to the Fund
if the Custodian were holding such securities and moneys in New York. In the
event of any loss to the Fund by reason of the failure of the Custodian or a
Subcustodian to utilize reasonable care, the Custodian shall be liable to the
Fund only to the extent of the Fund's direct damages, to be determined based
on the market value of the Securities and moneys which are the subject of the
loss at the date of discovery of such loss and without reference to any
special conditions or circumstances.
8. (b) The Custodian shall not be liable for any loss which results
from (i) the general risk of investing, or (ii) investing or holding
Securities and moneys in a particular country including, but not limited to,
losses resulting from nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; or market conditions which prevent
the orderly execution of securities transactions or affect the value of
Securities or moneys.
8. (c) Neither party shall be liable to the other for any loss due
to forces beyond its control including, but not limited to, strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion,
fission or radiation, or acts of God."
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DEAN WITTER HEALTH SCIENCES
TRUST
[SEAL] By:
------------------------
Attest:
- ------------------
THE BANK OF NEW YORK
[SEAL] By:
-------------------------
Attest:
- -------------------
SCHEDULE A
COUNTRY/MARKET SUBCUSTODIAN
- -------------- ------------
Argentina The Bank of Boston
Australia ANZ Banking Group Limited
Austria Girocredit Bank AG
Bangladesh* Standard Charted Bank
Belgium Banque Bruxelles Lambert
Botswana* Stanbic Bank Botswana Ltd.
Brazil The Bank of Boston
Canada Royal Trust/Royal Bank of Canada
Chile The Bank of Boston/Banco de Chile
China Standard Charted Bank
Columbia Citibank, N.A.
Denmark Den Danske Bank
Euromarket CEDEL
Euroclear
First Chicago Clearing Centre
Finland Union Bank of Finland
France Banque Paribas/Credit Commercial de France
Germany Dresdner Bank A.G.
Ghana* Merchant Bank Ghana Ltd.
Greece Alpha Credit Bank
Hong Kong Hong Kong and Shanghai Banking Corp.
Indonesia Hong Kong and Shanghai Banking Corp.
Ireland Allied Irish Bank
Israel Israel Discount Bank
Italy Banca Commerciale Italiana
Japan Yasuda Trust & Banking Co., Lt.
Korea Bank of Seoul
Luxembourg Kredietbank S.A.
Malaysia Hong Kong Bank Malaysia Berhad
Mexico Banco Nacional de Mexico (Banamex)
Netherlands Mees Pierson
New Zealand ANZ Banking Group Limited
Norway Den Norske Bank
Pakistan Standard Chartered Bank
Peru Citibank N.A.
Philippines Hong Kong and Shanghai Banking Corp.
Poland Bank Handlowy w Warsawie
Portugal Banco Comercial Portugues
Singapore United Overseas Bank
South Africa Standard Bank of South Africa Limited
Spain Banco Bilbao Vizcaya
Sri Lanka Standard Chartered Bank
SCHEDULE A
COUNTRY/MARKET SUBCUSTODIAN
- -------------- ------------
Sweden Skandinaviska Enskilda Banken
Switzerland Union Bank of Switzerland
Taiwan Hong Kong and Shanghai Banking Corp.
Thailand Siam Commercial Bank
Turkey Citibank N.A.
United Kingdom The Bank of New York
United States The Bank of New York
Uruguay The Bank of Boston
Venezuela Citibank N.A.
Zimbabwe* Stanbic Bank Zimbabwe Ltd.
* Not yet 17(f) 5 compliant
<PAGE>
SCHEDULE A
DEAN WITTER FUNDS
AT APRIL 17, 1995
AS AMENDED AS OF JULY 1, 1996
<TABLE>
<CAPTION>
<S> <C>
OPEN-END FUNDS
1. Active Assets California Tax-Free Trust
2. Active Assets Government Securities Trust
3. Active Assets Money Trust
4. Active Assets Tax-Free Trust
5. Dean Witter American Value Fund
6. Dean Witter Balanced Growth Fund
7. Dean Witter Balanced Income Fund
8. Dean Witter California Tax-Free Daily Income Trust
9. Dean Witter California Tax-Free Income Fund
10. Dean Witter Capital Appreciation Fund
11. Dean Witter Capital Growth Securities
12. Dean Witter Convertible Securities Trust
13. Dean Witter Developing Growth Securities Trust
14. Dean Witter Diversified Income Trust
15. Dean Witter Dividend Growth Securities Inc.
16. Dean Witter European Growth Fund Inc.
17. Dean Witter Federal Securities Trust
18. Dean Witter Global Asset Allocation Fund
19. Dean Witter Global Dividend Growth Securities
20. Dean Witter Global Short-Term Income Fund Inc.
21. Dean Witter Global Utilities Fund
22. Dean Witter Hawaii Municipal Trust
23. Dean Witter Health Sciences Trust
24. Dean Witter High Income Securities
25. Dean Witter High Yield Securities Inc.
26. Dean Witter Income Builder Fund
27. Dean Witter Information Fund
28. Dean Witter Intermediate Income Securities
29. Dean Witter Intermediate Term U.S. Treasury Trust
30. Dean Witter International Small Cap Fund
31. Dean Witter Japan Fund
32. Dean Witter Limited Term Municipal Trust
33. Dean Witter Liquid Asset Fund Inc.
34. Dean Witter Managed Assets Trust
35. Dean Witter Mid-Cap Growth Fund
36. Dean Witter Multi-State Municipal Series Trust
37. Dean Witter National Municipal Trust
38. Dean Witter Natural Resource Development Securities Inc.
39. Dean Witter New York Municipal Money Market Trust
40. Dean Witter New York Tax-Free Income Fund
41. Dean Witter Pacific Growth Fund Inc.
42. Dean Witter Precious Metals and Minerals Trust
43. Dean Witter Premier Income Trust
44. Dean Witter Retirement Series
45. Dean Witter Select Dimensions Series
46. Dean Witter Select Municipal Reinvestment Fund
47. Dean Witter Short-Term Bond Fund
48. Dean Witter Short-Term U.S. Treasury Trust
49. Dean Witter Strategist Fund
50. Dean Witter Tax-Exempt Securities Trust
51. Dean Witter Tax-Free Daily Income Trust
52. Dean Witter U.S. Government Money Market Trust
53. Dean Witter U.S. Government Securities Trust
54. Dean Witter Utilities Fund
55. Dean Witter Value-Added Market Series
56. Dean Witter Variable Investment Series
57. Dean Witter World Wide Income Trust
58. Dean Witter World Wide Investment Trust
CLOSED-END FUNDS
59. High Income Advantage Trust
60. High Income Advantage Trust II
61. High Income Advantage Trust III
62. InterCapital Income Securities Inc.
63. Dean Witter Government Income Trust
64. InterCapital Insured Municipal Bond Trust
A-1
<PAGE>
65. InterCapital Insured Municipal Trust
66. InterCapital Insured Municipal Income Trust
67. InterCapital California Insured Municipal Income Trust
68. InterCapital Insured Municipal Securities
69. InterCapital Insured California Municipal Securities
70. InterCapital Quality Municipal Investment Trust
71. InterCapital Quality Municipal Income Trust
72. InterCapital Quality Municipal Securities
73. InterCapital California Quality Municipal Securities
74. InterCapital New York Quality Municipal Securities
</TABLE>
A-2
<PAGE>
SCHEDULE B
DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES--APRIL 17, 1995
AS AMENDED AS OF JULY 1, 1996
Monthly compensation calculated daily by applying the following annual
rates to a fund's net assets:
<TABLE>
<CAPTION>
FIXED INCOME FUNDS
<S> <C>
Dean Witter Balanced Income 0.060% to the net assets.
Fund
Dean Witter California Tax-Free 0.055% of the portion of daily net assets not
Income Fund exceeding $500 million; 0.0525% of the portion
exceeding $500 million but not exceeding $750
million; 0.050% of the portion exceeding $750
million but not exceeding $1 billion; 0.0475% of
the portion of the daily net assets exceeding $1
billion but not exceeding $1.25 billion; and 0.045%
of the portion of daily net assets exceeding $1.25
billion.
Dean Witter Convertible 0.060% of the portion of the daily net assets not
Securities exceeding $750 million; .055% of the portion of the
Securities Trust daily net assets exceeding $750 million but not
exceeding $1 billion; 0.050% of the portion of the
daily net assets of the exceeding $1 billion but
not exceeding $1.5 billion; 0.0475% of the portion
of the daily net assets exceeding $1.5 billion but
not exceeding $2 billion; 0.045% of the portion of
the daily net assets exceeding $2 billion but not
exceeding $3 billion; and 0.0425% of the portion of
the daily net assets exceeding $3 billion.
Dean Witter Diversified 0.040% of the net assets.
Income Trust
Dean Witter Federal Securities 0.055% of the portion of the daily net assets not
Trust exceeding $1 billion; 0.0525% of the portion of the
daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.050% of the portion of
the daily net assets exceeding $1.5 billion but not
exceeding $2 billion; 0.0475% of the portion of the
daily net assets exceeding $2 billion but not
exceeding $2.5 billion; 0.045% of the portion of
daily net assets exceeding $2.5 billion but not
exceeding $5 billion; 0.0425% of the portion of the
daily net assets exceeding $5 billion but not
exceeding $7.5 billion; 0.040% of the portion of
the daily net assets exceeding $7.5 billion but not
exceeding $10 billion; 0.0375% of the portion of
the daily net assets exceeding $10 billion but not
exceeding $12.5 billion; and 0.035% of the portion
of the daily net assets exceeding $12.5 billion.
Dean Witter Global Short-Term 0.055% of the portion of the daily net assets not
Income Fund exceeding $500 million; and 0.050% of the portion
of the daily net assets exceeding $500 million.
Dean Witter Hawaii Municipal 0.035% to the net assets.
Trust
Dean Witter High Income 0.050% of the portion of daily net assets not
Securities exceeding $500 million; and 0.0425% of the portion
of daily net assets exceeding $500 million.
B-1
<PAGE>
Dean Witter High Yield 0.050% of the portion of the daily net assets not
Securities Inc. exceeding $500 million; 0.0425% of the portion of
the daily net assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the portion of
the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion but not
exceeding $2 billion; 0.0325% of the portion of the
daily net assets exceeding $2 billion but not
exceeding $3 billion; and 0.030% of the portion of
daily net assets exceeding $3 billion.
Dean Witter Intermediate 0.060% of the portion of the daily net assets not
Income Securities exceeding $500 million; 0.050% of the portion of
the daily net assets exceeding $500 million but not
exceeding $750 million; 0.040% of the portion of
the daily net assets exceeding $750 million but not
exceeding $1 billion; and 0.030% of the portion of
the daily net assets exceeding $1 billion.
Dean Witter Intermediate Term 0.035% to the net assets.
U.S. Treasury Trust
Dean Witter Limited Term 0.050% to the net assets.
Municipal Trust
Dean Witter Multi-State 0.035% to the net assets.
Municipal Series Trust (10)
Dean Witter National 0.035% to the net assets.
Municipal Trust
Dean Witter New York Tax-Free 0.055% to the net assets not exceeding $500 million
Income Fund and 0.0525% of the net assets exceeding $500
million.
Dean Witter Premier 0.050% to the net assets.
Income Trust
Dean Witter Retirement Series 0.065% to the net assets.
Intermediate Income
Dean Witter Retirement Series 0.065% to the net assets.
U.S. Government Securities
Trust
Dean Witter Select Dimensions 0.65% to the net assets.
Series-North American
Government Securities
Portfolio
Dean Witter Short-Term 0.070% to the net assets.
Bond Fund
Dean Witter Short-Term U.S. 0.035% to the net assets.
Treasury Trust
Dean Witter Tax-Exempt 0.050% of the portion of the daily net assets not
Securities Trust exceeding $500 million; 0.0425% of the portion of
the daily net assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the portion of
the daily net assets exceeding $750 million but not
exceeding $1 billion; and 0.035% of the portion of
the daily net assets exceeding $1 billion but not
exceeding $1.25 billion; .0325% of the portion of
the daily net assets exceeding $1.25 billion.
B-2
<PAGE>
Dean Witter U.S. Government 0.050% of the portion of such daily net assets not
Securities Trust exceeding $1 billion; 0.0475% of the portion of
such daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.045% of the portion of
such daily net assets exceeding $1.5 billion but
not exceeding $2 billion; 0.0425% of the portion of
such daily net assets exceeding $2 billion but not
exceeding $2.5 billion; 0.040% of that portion of
such daily net assets exceeding $2.5 billion but
not exceeding $5 billion; 0.0375% of that portion
of such daily net assets exceeding $5 billion but
not exceeding $7.5 billion; 0.035% of that portion
of such daily net assets exceeding $7.5 billion but
not exceeding $10 billion; 0.0325% of that portion
of such daily net assets exceeding $10 billion but
not exceeding $12.5 billion; and 0.030% of that
portion of such daily net assets exceeding $12.5
billion.
Dean Witter Variable Investment 0.050% to the net assets.
Series-High Yield
Dean Witter Variable Investment 0.050% to the net assets.
Series-Quality Income
Dean Witter World Wide Income 0.075% of the daily net assets up to $250 million;
Trust 0.060% of the portion of the daily net assets
exceeding $250 million but not exceeding $500
million; 0.050% of the portion of the daily net
assets of the exceeding $500 million but not
exceeding $750 milliion; 0.040% of the portion of
the daily net assets exceeding $750 million but not
exceeding $1 billion; and 0.030% of the daily net
assets exceeding $1 billion.
Dean Witter Select Municipal 0.050% to the net assets.
Reinvestment Fund
EQUITY FUNDS
Dean Witter American Value 0.0625% of the portion of the daily net assets not
Fund exceeding $250 million; 0.050% of the portion of
the daily net assets exceeding $250 million but not
exceeding $2.5 billion; and 0.0475% of the portion
of daily net assets exceeding $2.5 billion.
Dean Witter Balanced Growth 0.60% to the net assets.
Fund
Dean Witter Capital 0.075% to the net assets.
Appreciation Fund
Dean Witter Capital Growth 0.065% to the portion of daily net assets not
Securities exceeding $500 million; 0.055% of the portion
exceeding $500 million but not exceeding $1
billion; 0.050% of the portion exceeding $1 billion
but not exceeding $1.5 billion; and 0.0475% of the
net assets exceeding $1.5 billion.
Dean Witter Developing Growth 0.050 of the portion of daily net assets not
Securities Trust exceeding $500 million; and 0.0475% of the portion
of daily net assets exceeding $500 million.
Dean Witter Dividend Growth 0.0625% of the portion of the daily net assets not
Securities Inc. exceeding $250 million; 0.050% of the portion of
daily net assets exceeding $250 million but not
exceeding $1 billion; 0.0475% of the
B-3
<PAGE>
portion of daily net assets exceeding $1 billion
but not exceeding $2 billion; 0.045% of the portion
of daily net assets exceeding $2 billion but not
exceeding $3 billion; 0.0425% of the portion of
daily net assets exceeding $3 billion but not
exceeding $4 billion; 0.040% of the portion of
daily net assets exceeding $4 billion but not
exceeding $5 billion; 0.0375% of the portion of the
daily net assets exceeding $5 billion but not
exceeding $6 billion; 0.035% of the portion of the
daily net assets exceeding $6 billion but not
exceeding $8 billion; 0.0325% of the portion of the
daily net assets exceeding $8 billion but not
exceeding $10 billion; and 0.030% of the
portion of daily net assets exceeding $10 billion.
Dean Witter European Growth 0.060% of the portion of daily net assets not
Fund Inc. exceeding $500 million; and 0.057% of the portion
of daily net assets exceeding $500 million.
Dean Witter Global Asset 1.0% to the net assets.
Allocation Fund
Dean Witter Global Dividend 0.075% of the portion of daily net assets not
Growth Securities exceeding $1 billion; 0.0725% of the portion of
daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.070% of daily net assets
exceeding $1.5 billion but not exceeding $2.5 billion;
and 0.0675% of the portion of daily net assets exceeding
$2.5 billion.
Dean Witter Global Utilities 0.065% to the net assets.
Fund
Dean Witter Health Sciences 0.10% of the portion of daily net assets not
Trust exceeding $500 million; and 0.095% of the portion
of daily net assets exceeding $500 million.
Dean Witter Income 0.075% to the net assets.
Builder Fund
Dean Witter Information Fund 0.075% to the net assets.
Dean Witter International 0.075% to the net assets.
Small Cap Fund
Dean Witter Japan Fund 0.010% to the net assets.
Dean Witter Managed Assets 0.060% to the daily net assets not exceeding $500
Trust million and 0.055% to the daily net assets
exceeding $500 million.
Dean Witter Mid-Cap Growth 0.75% to the net assets.
Fund
Dean Witter Natural Resource 0.0625% of the portion of the daily net assets not
Development Securities Inc. exceeding $250 million and 0.050% of the portion of
the daily net assets exceeding $250 million.
Dean Witter Pacific Growth 0.060% of the portion of daily net assets not
Fund Inc. exceeding $1 billion; and 0.057% of the portion of
daily net assets exceeding $1 billion.
Dean Witter Precious Metals 0.080% to the net assets.
and Minerals Trust
B-4
<PAGE>
Dean Witter Retirement Series 0.085% to the net assets.
American Value
Dean Witter Retirement Series 0.085% to the net assets.
Capital Growth
Dean Witter Retirement Series 0.075% to the net assets.
Dividend Growth
Dean Witter Retirement Series 0.10% to the net assets.
Global Equity
Dean Witter Retirement Series 0.065% to the net assets.
Intermediate Income Securities
Dean Witter Retirement Series 0.050% to the net assets.
Liquid Asset
Dean Witter Retirement Series 0.085% to the net assets.
Strategist
Dean Witter Retirement Series 0.050% to the net assets.
U.S. Government Money Market
Dean Witter Retirement Series 0.065% to the net assets.
U.S. Government Securities
Dean Witter Retirement Series 0.075% to the net assets.
Utilities
Dean Witter Retirement Series 0.050% to the net assets.
Value Added
Dean Witter Select Dimensions
Series-
American Value Portfolio 0.625% to the net assets.
Balanced Portfolio 0.75% to the net assets.
Core Equity Portfolio 0.85% to the net assets.
Developing Growth Portfolio 0.50% to the net assets.
Diversified Income Portfolio 0.40% to the net assets.
Dividend Growth Portfolio 0.625% to the net assets.
Emerging Markets Portfolio 1.25% to the net assets.
Global Equity Portfolio 1.0% to the net assets.
Utilities Portfolio 0.65% to the net assets.
Value-Added Market Portfolio 0.50% to the net assets.
Dean Witter Strategist Fund 0.060% of the portion of daily net assets not
exceeding $500 million; 0.055% of the portion of
the daily net assets exceeding $500 million but not
exceeding $1 billion; 0.050% of the portion of the
daily net assets exceeding $1 billion but not
exceeding $1.5 billion; and 0.0475% of the portion
of the daily net assets exceeding $1.5 billion.
Dean Witter Utilities Fund 0.065% of the portion of daily net assets not
exceeding $500 million; 0.055% of the portion
exceeding $500 million but not exceeding $1
billion; 0.0525% of the portion exceeding $1
billion but not exceeding $1.5 billion; 0.050% of
the portion exceeding $1.5 billion but not
exceeding $2.5 billion; 0.0475% of the portion
exceeding $2.5 billion but not exceeding $3.5
billion; 0.045% of the portion of the daily net
assets exceeding $3.5 but not exceeding $5 billion;
and 0.0425% of the portion of daily net assets
exceeding $5 billion.
B-5
<PAGE>
Dean Witter Value-Added Market 0.050% of the portion of daily net assets not
Series exceeding $500 million; 0.45% of the portion of
daily net assets exceeding $500 million but not
exceeding $1 billion; and 0.0425% of the portion of
daily net assets exceeding
$1 billion.
Dean Witter Variable Investment 0.065% to the net assets.
Series-Capital Growth
Dean Witter Variable Investment 0.0625% of the portion of daily net assets not
Series-Dividend Growth exceeding $500 million; and 0.050% of the portion
of daily net assets exceeding $500 million but not
exceeding $1 billion; and 0.0475% of the portion of
daily net assets exceeding
$1 billion.
Dean Witter Variable Investment 0.050% to the net assets of the portion of daily
Series-Equity net assets not exceeding $1 billion; and 0.0475% of
the portion of daily net assets exceeding $1
billion.
Dean Witter Variable Investment 0.060% to the net assets.
Series-European Growth
Dean Witter Variable Investment 0.050% to the net assets.
Series-Managed
Dean Witter Variable Investment 0.065% of the portion of daily net assets exceeding
Series-Utilities $500 million and 0.055% of the portion of daily net
assets exceeding $500 million.
Dean Witter World Wide 0.055% of the portion of daily net assets not
Investment Trust exceeding $500 million; and 0.05225% of the portion
of daily net assets exceeding $500 million.
MONEY MARKET FUNDS
Active Assets Account (4) 0.050% of the portion of the daily net assets not
exceeding $500 million; 0.0425% of the portion of
the daily net assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the portion of
the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.0325% of the portion of
the daily net assets exceeding $1.5 billion but not
exceeding $2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion but not
exceeding $2.5 billion; 0.0275% of the portion of
the daily net assets exceeding $2.5 billion but not
exceeding $3 billion; and 0.025% of the portion of
the daily net assets exceeding $3 billion.
Dean Witter California Tax-Free 0.050% of the portion of the daily net assets not
Daily Income Trust exceeding $500 million; 0.0425% of the portion of
the daily net assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the portion of
the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.0325% of the portion of
the daily net assets exceeding $1.5 billion but not
exceeding $2 billion;
B-6
<PAGE>
0.030% of the portion of the daily net assets
exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net
assets exceeding $2.5 billion but not exceeding $3
billion; and 0.025% of the portion of the daily net
assets exceeding $3 billion.
Dean Witter Liquid Asset 0.050% of the portion of the daily net assets not
Fund Inc. exceeding $500 million; 0.0425% of the portion of
the daily net assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the portion of
the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion but not
exceeding $1.35 billion; 0.0325% of the portion of
the daily net assets exceeding $1.35 billion but
not exceeding $1.75 billion; 0.030% of the portion
of the daily net assets exceeding $1.75 billion but
not exceeding $2.15 billion; 0.0275% of the portion
of the daily net assets exceeding $2.15 billion but
not exceeding $2.5 billion; 0.025% of the portion
of the daily net assets exceeding $2.5 billion but
not exceeding $15 billion; 0.0249% of the portion
of the daily net assets exceeding $15 billion but
not exceeding $17.5 billion; and 0.0248% of the
portion of the daily net assets exceeding $17.5
billion.
Dean Witter New York Municipal 0.050% of the portion of the daily net assets not
Money Market Trust exceeding $500 million; 0.0425% of the portion of
the daily net assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the portion of
the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.0325% of the portion of
the daily net assets exceeding $1.5 billion but not
exceeding $2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion but not
exceeding $2.5 billion; 0.0275% of the portion of
the daily net assets exceeding $2.5 billion but not
exceeding $3 billion; and 0.025% of the portion of
the daily net assets exceeding $3 billion.
Dean Witter Retirement Series 0.050% of the net assets.
Liquid Assets
Dean Witter Retirement Series 0.050% of the net assets.
U.S. Government Money Market
Dean Witter Select Dimensions 0.50% to the net assets.
Series-Money Market Portfolio
Dean Witter Tax-Free Daily 0.050% of the portion of the daily net assets not
Income Trust exceeding $500 million; 0.0425% of the portion of
the daily net assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the portion of
the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.0325% of the portion of
the daily net assets exceeding $1.5 billion but not
exceeding $2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion but not
exceeding $2.5 billion; 0.0275% of the portion of
the daily net assets exceeding $2.5 billion but not
exceeding
B-7
<PAGE>
$3 billion; and 0.025% of the portion of the daily
net assets exceeding $3 billion.
Dean Witter U.S. Government 0.050% of the portion of the daily net assets not
Money Market Trust exceeding $500 million; 0.0425% of the portion of
the daily net assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the portion of
the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.0325% of the portion of
the daily net assets exceeding $1.5 billion but not
exceeding $2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion but not
exceeding $2.5 billion; 0.0275% of the portion of
the daily net assets exceeding $2.5 billion but not
exceeding $3 billion; and 0.025% of the portion of
the daily net assets exceeding $3 billion.
Dean Witter Variable Investment 0.050% to the net assets.
Series-Money Market
</TABLE>
Monthly compensation calculated weekly by applying the following annual
rates to the weekly net assets.
<TABLE>
<CAPTION>
CLOSED-END FUNDS
<S> <C>
Dean Witter Government Income 0.060% to the average weekly net assets.
Trust
High Income Advantage Trust 0.075% of the portion of the average weekly net
assets not exceeding $250 million; 0.060% of the
portion of average weekly net assets exceeding $250
million and not exceeding $500 million; 0.050% of
the portion of average weekly net assets exceeding
$500 million and not exceeding $750 million; 0.040%
of the portion of average weekly net assets
exceeding $750 million and not exceeding $1
billion; and 0.030% of the portion of average
weekly net assets exceeding $1 billion.
High Income Advantage Trust II 0.075% of the portion of the average weekly net
assets not exceeding $250 million; 0.060% of the
portion of average weekly net assets exceeding $250
million and not exceeding $500 million; 0.050% of
the portion of average weekly net assets exceeding
$500 million and not exceeding $750 million; 0.040%
of the portion of average weekly net assets
exceeding $750 million and not exceeding $1
billion; and 0.030% of the portion of average
weekly net assets exceeding $1 billion.
High Income Advantage Trust III 0.075% of the portion of the average weekly net
assets not exceeding $250 million; 0.060% of the
portion of average weekly net assets exceeding $250
million and not exceeding $500 million; 0.050% of
the portion of average weekly net assets exceeding
$500 million and not exceeding $750 million; 0.040%
of the portion of the average weekly net assets
exceeding $750 million and not exceeding $1
billion; and 0.030% of the portion of average
weekly net assets exceeding $1 billion.
InterCapital Income Securities 0.050% to the average weekly net assets.
Inc.
B-8
<PAGE>
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Bond Trust
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Trust
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Income Trust
InterCapital California Insured 0.035% to the average weekly net assets.
Municipal Income Trust
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Investment Trust
InterCapital New York Quality 0.035% to the average weekly net assets.
Municipal Securities
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Income Trust
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Securities
InterCapital California Quality 0.035% to the average weekly net assets.
Municipal Securities
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Securities
InterCapital Insured California 0.035% to the average weekly net assets.
Municipal Securities
</TABLE>
B-9
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 5 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
September 13, 1996, relating to the financial statements and financial
highlights of Dean Witter Health Sciences Trust, which appears in such Statement
of Additional Information, and to the incorporation by reference of our report
into the Prospectus which constitutes part of this Registration Statement. We
also consent to the references to us under the headings "Independent
Accountants" and "Experts" in such Statement of Additional Information and to
the reference to us under the heading "Financial Highlights" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
September 13, 1996
AMENDED AND RESTATED PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
OF
DEAN WITTER HEALTH SCIENCES TRUST
WHEREAS, Dean Witter Health Sciences Trust (the "Fund") is engaged in
business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, on April 28, 1993, the Fund most recently amended and restated
a Plan of Distribution pursuant to Rule 12b-1 under the Act which had
initially been adopted on September 2, 1992, and the Trustees then determined
that there was a reasonable likelihood that adoption of the Plan of
Distribution, as then amended and restated, would benefit the Fund and its
shareholders; and
WHEREAS, the Trustees believe that continuation of said Plan of
Distribution, as amended and restated herein, is reasonably likely to continue
to benefit the Fund and its shareholders; and
WHEREAS, on September 2, 1992, the Fund and Dean Witter Reynolds Inc.
("DWR") entered into a Distribution Agreement pursuant to which the Fund
employed DWR as distributor of the Fund's shares; and
WHEREAS, on January 4, 1993, the Fund and DWR substituted Dean Witter
Distributors Inc. (the "Distributor") in the place of DWR as distributor of
the Fund's shares; and
WHEREAS, the Fund, DWR and the Distributor intend that DWR will continue
to promote the sale of Fund shares and provide personal services to Fund
shareholders with respect to their holdings of Fund shares; and
WHEREAS, the Fund and the Distributor entered into a separate
Distribution Agreement dated as of June 30, 1993, pursuant to which the Fund
has employed the Distributor in such capacity during the continuous offering
of shares of the Fund.
NOW, THEREFORE, the Fund hereby amends the Plan of Distribution
previously adopted and amended and restated, and the Distributor hereby agrees
to the terms of said Plan of Distribution (the "Plan"), as amended herein, in
accordance with Rule 12b-1 under the Act on the following terms and
conditions:
1. The Fund shall pay to the Distributor, as the distributor of
securities of which the Fund is the issuer, compensation for distribution of
its shares at the rate of the lesser of (i) 1.0% per annum of the average
daily aggregate sales of the shares of the Fund since its inception (not
including reinvestment of dividends and capital gains distributions from the
Fund) less the average daily aggregate net asset value of the shares of the
Fund redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived, or
(ii) 1.0% per annum of the Fund's average daily net assets. Such compensation
shall be calculated and accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. The Distributor may direct that all
or any part of the amounts receivable by it under this Plan be paid directly
to DWR, its affiliates or other broker-dealers who provide distribution and
shareholder services. All payments made hereunder pursuant to the Plan shall
be in accordance with the terms and limitations of the Rules of Fair Practice
of the National Association of Securities Dealers, Inc.
2. The amount set forth in paragraph 1 of this Plan shall be paid for
services of the Distributor, DWR, its affiliates and other broker-dealers it
may select, in connection with the distribution of the Fund's shares,
including personal services to shareholders with respect to their holdings of
Fund shares, and may be spent by the Distributor, DWR, its affiliates and such
broker-dealers on any activities or expenses related to the distribution of
the Fund's shares or services to shareholders, including, but not limited to:
compensation to, and expenses of, account executives or other employees of the
Distributor, DWR, its affiliates or other broker-dealers; overhead and other
branch office distribution-related expenses and telephone expenses of persons
who engage in or support distribution of shares or who provide personal
services to shareholders; printing of prospectuses and reports for other than
existing shareholders; preparation, printing and distribution of sales
literature and advertising materials and opportunity costs in incurring the
foregoing expenses (which may be calculated as a carrying charge on the excess
of the distribution expenses incurred by the Distributor, DWR, its affiliates
or other broker-dealers over distribution revenues received by them, such
excess being hereinafter referred to as "carryover expenses"). The overhead
and other branch office distribution-related expenses referred to in this
paragraph 2 may include: (a) the expenses of operating the branch offices of
the Distributor or other broker-dealers, including DWR, in connection
1
<PAGE>
with the sale of Fund shares, including lease costs, the salaries and employee
benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies; (b) the costs
of client sales seminars; (c) travel expenses of mutual fund sales
coordinators to promote the sale of Fund shares; and (d) other expenses
relating to branch promotion of Fund sales. Payments may also be made with
respect to distribution expenses incurred in connection with the distribution
of shares, including personal services to shareholders with respect to
holdings of such shares, of an investment company whose assets are acquired by
the Fund in a tax-free reorganization, provided that carryover expenses as a
percentage of Fund assets will not be materially increased thereby.
3. This Plan, as amended and restated, shall not take effect until it
has been approved, together with any related agreements, by votes of a
majority of the Board of Trustees of the Fund and of the Trustees who are not
"interested persons" of the Fund (as defined in the Act) and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Trustees"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
4. This Plan shall continue in effect until April 30, 1996, and from
year to year thereafter, provided such continuance is specifically approved
at least annually in the manner provided for approval of this Plan in
paragraph 3 hereof.
5. The Distributor shall provide to the Trustees of the Fund and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made. In this
regard, the Trustees shall request the Distributor to specify such items of
expenses as the Trustees deem appropriate. The Trustees shall consider such
items as they deem relevant in making the determinations required by paragraph
4 hereof.
6. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees, or by vote of a majority of the outstanding voting
securities of the Fund. In the event of any such termination or in the event
of nonrenewal, the Fund shall have no obligation to pay expenses which have
been incurred by the Distributor, DWR, its affiliates or other broker-dealers
in excess of payments made by the Fund pursuant to this Plan. However, this
shall not preclude consideration by the Trustees of the manner in which such
excess expenses shall be treated.
7. This Plan may not be amended to increase materially the amount the
Fund may spend for distribution provided in paragraph 1 hereof unless such
amendment is approved by a vote of at least a majority (as defined in the Act)
of the outstanding voting securities of the Fund, and no material amendment to
the Plan shall be made unless approved in the manner provided for approval in
paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of
Trustees who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the Trustees who are not interested
persons.
9. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 5 hereof, for a period
of not less than six years from the date of this Plan, any such agreement or
any such report, as the case may be, the first two years in an easily
accessible place.
10. The Declaration of Trust establishing Dean Witter Health Sciences
Trust, dated May 26, 1992, a copy of which, together with all amendments
thereto (the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Dean Witter Health
Sciences Trust refers to the Trustees under the Declaration collectively as
Trustees but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of Dean Witter Health Sciences Trust shall be held
to any personal liability, nor shall resort be had to their private property
for the satisfaction of any obligation or claim or otherwise, in connection
with the affairs of said Dean Witter Health Sciences Trust, but the Trust
Estate only shall be liable.
2
<PAGE>
IN WITNESS WHEREOF, the Fund, the Distributor and DWR have executed this
amended and restated Plan of Distribution as of the day and year set forth
below in New York, New York.
Date: September 2, 1992 DEAN WITTER HEALTH SCIENCES TRUST
As amended on January 4, 1993,
April 28, 1993 and October 26, 1995
By
................................
Attest:
...............................
DEAN WITTER DISTRIBUTORS INC.
By
................................
Attest:
...............................
DEAN WITTER REYNOLDS INC.
By
................................
Attest:
...............................
3
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
HEALTH SCIENCES TRUST
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
(A)
$1,000 ERV AS OF AGGREGATE NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Jul-96 TOTAL RETURN YEARS - n TOTAL RETURN - T
- ------------ --------- ------------ --------- ----------------
31-Jul-95 $1,198.40 19.84% 1.00 19.84%
30-Oct-92 $1,587.90 58.79% 3.75 13.12%
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Jul-96 RETURN - TR YEARS - n TOTAL RETURN - t
- ------------ --------- ----------- --------- ----------------
31-Jul-95 $1,248.40 24.84% 1.00 24.84%
30-Oct-92 $1,607.90 60.79% 3.75 13.50%
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (D) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT-G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- -------------------- ---------------------- -----------------------
<C> <C> <C> <C> <C> <C>
30-Oct-92 60.79 $16,079 $80,395 $160,790
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 356,887,879
<INVESTMENTS-AT-VALUE> 445,357,918
<RECEIVABLES> 5,324,570
<ASSETS-OTHER> 156,372
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 450,838,860
<PAYABLE-FOR-SECURITIES> 6,708,939
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,254,343
<TOTAL-LIABILITIES> 7,963,282
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 337,418,795
<SHARES-COMMON-STOCK> 29,593,202
<SHARES-COMMON-PRIOR> 21,255,058
<ACCUMULATED-NII-CURRENT> (28,348)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 17,015,092
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 88,470,039
<NET-ASSETS> 442,875,578
<DIVIDEND-INCOME> 288,598
<INTEREST-INCOME> 392,106
<OTHER-INCOME> 0
<EXPENSES-NET> 8,517,496
<NET-INVESTMENT-INCOME> (7,836,792)
<REALIZED-GAINS-CURRENT> 38,104,756
<APPREC-INCREASE-CURRENT> 16,813,336
<NET-CHANGE-FROM-OPS> 47,081,300
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 22,643,391
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26,005,478
<NUMBER-OF-SHARES-REDEEMED> 19,102,244
<SHARES-REINVESTED> 1,434,910
<NET-CHANGE-IN-ASSETS> 169,140,477
<ACCUMULATED-NII-PRIOR> (18,664)
<ACCUMULATED-GAINS-PRIOR> 9,380,835
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,862,384
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,517,496
<AVERAGE-NET-ASSETS> 386,486,020
<PER-SHARE-NAV-BEGIN> 12.88
<PER-SHARE-NII> (.026)
<PER-SHARE-GAIN-APPREC> 3.44
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.09)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.97
<EXPENSE-RATIO> 2.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
