<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1997
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. 6 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ ]
AMENDMENT NO. 7 [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
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
-------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on July 28, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of rule 485.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO SECTION (A)(1) OF RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE REGISTRANT 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
FORM N-1A
PART A
ITEM CAPTION PROSPECTUS
- ---- ------------------
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
PART B
ITEM STATEMENT OF ADDITIONAL INFORMATION
- ---- -----------------------------------
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; The Distributor; 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; The Distributor;
Purchase of Fund Shares; Statement of Assets
and Liabilities; Shareholder Services
20. .......... Dividends, Distributions and Taxes
21. .......... Not applicable
22. .......... Dividends, Distributions and Taxes
23. .......... Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS
JULY 28, 1997
-------------
Dean Witter 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.")
The Fund offers four classes of shares (each, a "Class"), each with a
different combination of sales charges, ongoing fees and other features. The
different distribution arrangements permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Shares of the Fund held prior to
July 28, 1997 have been designated Class B shares. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated July 28, 1997, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
TABLE OF CONTENTS
Prospectus Summary/ 2
Summary of Fund Expenses/ 4
Financial Highlights/ 6
The Fund and its Management/ 6
Investment Objective and Policies/ 7
Risk Considerations/ 12
Investment Restrictions/ 14
Purchase of Fund Shares/ 15
Shareholder Services/ 25
Redemptions and Repurchases/ 28
Dividends, Distributions and Taxes/ 29
Performance Information/ 30
Additional Information/ 31
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 DEAN WITTER DISTRIBUTORS INC.
Health Sciences Trust DISTRIBUTOR
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
PROSPECTUS SUMMARY
- -------------------------------------------------------------------------------
The The Fund is organized as a Massachusetts business trust, and
Fund is an open-end, non-diversified management investment
company which invests in securities of companies in the
health sciences industry throughout the world.
- -------------------------------------------------------------------------------
Shares Offered Shares of beneficial interest with $0.01 par value (see page
31). The Fund offers four Classes of shares, each with a
different combination of sales charges, ongoing fees and
other features (see pages 15-25).
- -------------------------------------------------------------------------------
Minimum The minimum initial investment for each Class is $1,000
Purchase ($100 if the account is opened through EasyInvest (Service
Mark) ). Class D shares are only available to persons
investing $5 million or more and to certain other limited
categories of investors. For the purpose of meeting the
minimum $5 million investment for Class D shares, and
subject to the $1,000 minimum initial investment for each
Class of the Fund, an investor's existing holdings of Class
A shares and shares of funds for which Dean Witter
InterCapital Inc. serves as investment manager ("Dean Witter
Funds") that are sold with a front-end sales charge, and
concurrent investments in Class D shares of the Fund and
other Dean Witter Funds that are multiple class funds, will
be aggregated. The minimum subsequent investment is $100
(see page 15).
- -------------------------------------------------------------------------------
Investment The investment objective of the Fund is capital appreciation.
Objective
- -------------------------------------------------------------------------------
Investment The Fund will seek to achieve its investment objective by
Policies investing at 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 7
through 11).
- -------------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc. ("InterCapital"), the
Manager Investment Manager of the Fund, and its wholly-owned
subsidiary, Dean Witter Services Company Inc., serve in
various investment management, advisory, management and
administrative capacities to 100 investment companies and
other portfolios with assets of approximately $96.6 billion
at June 30, 1997 (see page 6).
- -------------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee at the annual
Fee rate of 1.0% of daily net assets, scaled down to 0.95% on
assets over $500 million (see page 7).
- -------------------------------------------------------------------------------
Distributor and Dean Witter Distributors Inc. (the "Distributor"). The Fund
Distribution has adopted a distribution plan pursuant to Rule 12b-1 under
Fee the Investment Company Act (the "12b-1 Plan") with respect
to the distribution fees paid by the Class A, Class B and
Class C shares of the Fund to the Distributor. The entire
12b-1 fee payable by Class A and a portion of the 12b-1 fee
payable by each of Class B and Class C equal to 0.25% of the
average daily net assets of the Class are currently each
characterized as a service fee within the meaning of the
National Association of Securities Dealers, Inc. guidelines.
The remaining portion of the 12b-1 fee, if any, is
characterized as an asset-based sales charge (see pages 15
and 23).
- -------------------------------------------------------------------------------
Alternative Four classes of shares are offered:
Purchase
Arrangements o Class A shares are offered with a front-end sales charge,
starting at 5.25% and reduced for larger purchases.
Investments of $1 million or more (and investments by
certain other limited categories of investors) are not
subject to any sales charge at the time of purchase but a
contingent deferred sales charge ("CDSC") of 1.0% may be
imposed on redemptions within one year of purchase. The Fund
is authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the
Fund's Class A shares and servicing shareholder accounts
pursuant to the Fund's 12b-1 Plan. Reimbursement may in no
event exceed an amount equal to payments at an annual rate
of 0.25% of average daily net assets of the Class (see pages
15, 18 and 23).
2
<PAGE>
- -------------------------------------------------------------------------------
o Class B shares are offered without a front-end sales
charge, but will in most cases be subject to a CDSC (scaled
down from 5.0% to 1.0%) if redeemed within six years after
purchase. The CDSC will be imposed on any redemption of
shares if after such redemption the aggregate current value
of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments made during the
six years preceding the redemption. A different CDSC
schedule applies to investments by certain qualified plans.
Class B shares are also subject to a 12b-1 fee assessed at
the annual rate of 1.0% of the lesser of: (a) the average
daily net sales of the Fund's Class B shares or (b) the
average daily net assets of Class B. All shares of the Fund
held prior to July 28, 1997 have been designated Class B
shares. Shares held before May 1, 1997 will convert to Class
A shares in May, 2007. In all other instances, Class B
shares convert to Class A shares approximately ten years
after the date of the original purchase (see pages 15, 20
and 23).
o Class C shares are offered without a front-end sales
charge, but will in most cases be subject to a CDSC of 1.0%
if redeemed within one year after purchase. The Fund is
authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the
Fund's Class C shares and servicing shareholder accounts
pursuant to the Fund's 12b-1 Plan. Reimbursement may in no
event exceed an amount equal to payments at an annual rate
of 1.0% of average daily net assets of the Class (see pages
15 and 23).
o Class D shares are offered only to investors meeting an
initial investment minimum of $5 million and to certain other
limited categories of investors. Class D shares are offered
without a front-end sales charge or CDSC and are not subject
to any 12b-1 fee (see pages 15 and 23).
- -------------------------------------------------------------------------------
Dividends and Dividends from net investment income are paid quarterly and
Capital Gains distributions from net capital gains, if any, are paid at
Distributions least annually. The Fund may, however, determine to retain
all or part of any net long-term capital gains in any year
for reinvestment. Dividends and capital gains distributions
paid on shares of a Class are automatically reinvested in
additional shares of the same Class at net asset value
unless the shareholder elects to receive cash. Shares
acquired by dividend and distribution reinvestment will not
be subject to any sales charge or CDSC (see pages 25 and
29).
- -------------------------------------------------------------------------------
Redemption Shares are redeemable by the shareholder at net asset value
less any applicable CDSC on Class A, Class B or Class C
shares. An account may be involuntarily redeemed if the
total value of the account is less than $100 or, if the
account was opened through EasyInvest(Service Mark), if
after twelve months the shareholder has invested less than
$1,000 in the account (see page 28).
- -------------------------------------------------------------------------------
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 12 through 14).
- -------------------------------------------------------------------------------
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
3
<PAGE>
SUMMARY OF FUND EXPENSES
- -------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are based
on the expenses and fees for the fiscal year ended July 31, 1996.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
- --------------------------------
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) ..................... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments .... None None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds)............................... None(2) 5.00%(3) 1.00%(4) None
Redemption Fees..................................... None None None None
Exchange Fee........................................ None None None None
Annual Fund Operating Expenses (as a percentage
of average net assets)
- -----------------------------------------------
Management Fees .................................... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees (5)(6)................................... 0.25% 1.00% 1.00% None
Other Expenses ..................................... 0.20% 0.20% 0.20% 0.20%
Total Fund Operating Expenses (7)................... 1.45% 2.20% 2.20% 1.20%
</TABLE>
- --------------
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on
redemptions made within one year after purchase, except for certain
specific circumstances (see "Purchase of Fund Shares--Initial Sales
Charge Alternative--Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares--Level Load Alternative--Class C Shares").
(5) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1
fee payable by Class A and a portion of the 12b-1 fee payable by each
of Class B and Class C equal to 0.25% of the average daily net assets
of the Class are currently each characterized as a service fee within
the meaning of National Association of Securities Dealers, Inc.
("NASD") guidelines and are payments made for personal service and/or
maintenance of shareholder accounts. The remainder of the 12b-1 fee, if
any, is an asset-based sales charge, and is a distribution fee paid to
the Distributor to compensate it for the services provided and the
expenses borne by the Distributor and others in the distribution of the
Fund's shares (see "Purchase of Fund Shares--Plan of Distribution").
(6) Upon conversion of Class B shares to Class A shares, such shares will
be subject to the lower 12b-1 fee applicable to Class A shares. No
sales charge is imposed at the time of conversion of Class B shares to
Class A shares. Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing 1.00% distribution fee (see
"Purchase of Fund Shares--Alternative Purchase Arrangements").
(7) There were no outstanding shares of Class A, Class C or Class D prior
to the date of this Prospectus. Accordingly, "Total Fund Operating
Expenses," as shown above with respect to those Classes, are based upon
the sum of 12b-1 Fees, Management Fees and estimated "Other Expenses."
4
<PAGE>
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLES 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) a 5% annual return and (2) redemption at the end
of each time period:
Class A ...................................................... $66 $96 $128 $217
Class B ...................................................... $72 $99 $138 $253
Class C....................................................... $32 $69 $118 $253
Class D ...................................................... $12 $38 $ 66 $145
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A ...................................................... $66 $96 $128 $217
Class B ...................................................... $22 $69 $118 $253
Class C ...................................................... $22 $69 $118 $253
Class D ...................................................... $12 $38 $ 66 $145
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER
OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares--Plan of
Distribution" and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales
charges, including distribution fees, than the economic equivalent of the
maximum front-end sales charges permitted by the NASD.
5
<PAGE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each of the periods through July 31, 1996 have been
audited by Price Waterhouse LLP, independent accountants. The information for
the six-month period ended January 31, 1997 is unaudited. The financial
highlights should be read in conjunction with the financial statements, notes
thereto and the unqualified report of independent accountants, which are
contained in the Statement of Additional Information. Further information
about the performance of the Fund is contained in the Fund's Annual Report to
Shareholders, which may be obtained without charge upon request to the Fund.
All shares of the Fund held prior to July 28, 1997 have been designated Class
B shares.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED JULY 31 OCTOBER 30, 1992*
MONTHS ENDED ----------------------------------------- THROUGH
JANUARY 31, 1997 1996 1995 1994 JULY 31, 1993
- -------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $ 14.97 $12.88 $ 9.32 $ 9.22 $10.00
----------- ------ ------ ------ ------
Net investment loss .................... (0.16) (0.26) (0.24) (0.22) (0.08)
Net realized and unrealized gain
(loss)................................. 1.85 3.44 3.80 0.32 (0.70)
----------- ------ ------ ------ ------
Total from investment operations ...... 1.69 3.18 3.56 0.10 (0.78)
----------- ------ ------ ------ ------
Less distributions from net realized
gain................................... (0.95) (1.09) -- -- --
----------- ------ ------ ------ ------
Net asset value, end of period ......... $ 15.71 $14.97 $12.88 $ 9.32 $ 9.22
=========== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+ ............... 11.90%(1) 24.84% 38.20% 1.08% (7.80)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 2.22%(2) 2.20% 2.30% 2.30% 2.38%(2)
Net investment loss..................... (2.09)%(2) (2.03)% (2.05)% (2.06)% (1.38)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $492,370 $442,876 $273,735 $228,573 $231,646
Portfolio turnover rate ................ 33%(1) 63% 145% 106% 55%(1)
Average commission rate paid............ $0.0547 $0.0562 -- -- --
</TABLE>
- --------------
* 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
6
<PAGE>
World Trade Center, New York, New York 10048, is the Fund's Investment
Manager. The Investment Manager, which was incorporated in July, 1992, is a
wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co., a
preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses--securities, asset
management and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 100 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined assets of approximately
$93.1 billion at June 30, 1997. The Investment Manager also manages
portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.5 billion at such date.
The Fund has retained the Investment Manager, 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,
rehabilita-
7
<PAGE>
tion 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 securities 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.
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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 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
9
<PAGE>
the Fund has purchased for its portfolio) denominated in such foreign
currency. Under identical circumstances, the Fund may enter into a forward
contract to sell, for a fixed amount of U.S. dollars or other currency, an
amount of foreign currency other than the currency in which the securities to
be hedged are denominated approximating the value of some or all of the
portfolio securities to be hedged. This method of hedging, called
"cross-hedging," will be selected when it is determined that the foreign
currency in which the portfolio securities are denominated has insufficient
liquidity or is trading at a discount as compared with some other foreign
currency with which it tends to move in tandem.
In addition, when the Fund anticipates purchasing securities at some time
in the future, and wishes to lock in the current exchange rate of the
currency in which those securities are denominated against the U.S. dollar or
some other foreign currency, 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
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<PAGE>
securities, from a selling financial institution such as a bank, savings and
loan association or broker-dealer. The agreement provides that the Fund will
sell back to the institution, and that the institution will repurchase, the
underlying security at a specified price and at a fixed time in the future,
usually not more than seven days from the date of purchase. While repurchase
agreements involve certain risks not associated with direct investments in
debt securities, including the risks of default or bankruptcy of the selling
financial institution, the Fund follows procedures 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, including Dean
Witter Reynolds Inc. ("DWR") and other broker-dealer affiliates of
InterCapital 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 31 funds and fund portfolios, with approximately $13.5 billion
in assets as of June 30, 1997. 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 for over five years.
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<PAGE>
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.
Orders for transactions in portfolio securities and commodities may be
placed for the Fund with a number of brokers and dealers, including DWR and
other brokers and dealers that are affiliates of the Investment Manager. The
Fund may incur brokerage commissions on transactions conducted through such
affiliates. Pursuant to an order of the Securities and Exchange Commission,
the Fund may effect principal transactions in certain money market
instruments with 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.
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<PAGE>
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected
by the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of
the exchanges on which the currencies trade. The foreign currency
transactions of the Fund will be conducted on a spot basis or through forward
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
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<PAGE>
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
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
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<PAGE>
borrowings. (For the purpose of this restriction, collateral arrangements
with respect to the writing of options and collateral arrangements with
respect to initial or variation margin for futures are not deemed to be
pledges of assets.)
5. Purchase securities on margin (but the Fund may obtain short-term
loans as are necessary for the clearance of transactions). The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the
purchase of a security on margin.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially
all of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
GENERAL
The Fund offers each Class of its 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 Fund offers four classes of shares (each, a "Class"). Class A shares
are sold to investors with an initial sales charge that declines to zero for
larger purchases; however, Class A shares sold without an initial sales
charge are subject to a contingent deferred sales charge ("CDSC") of 1.0% if
redeemed within one year of purchase, except for certain specific
circumstances. Class B shares are sold without an initial sales charge but
are subject to a CDSC (scaled down from 5.0% to 1.0%) payable upon most
redemptions within six years after purchase. (Class B shares purchased by
certain qualified employer-sponsored benefit plans are subject to a CDSC
scaled down from 2.0% to 1.0% if redeemed within three years after purchase.)
Class C shares are sold without an initial sales charge but are subject to a
CDSC of 1.0% on most redemptions made within one year after purchase. Class D
shares are sold without an initial sales charge or CDSC and are available
only to investors meeting an initial investment minimum of $5 million, and to
certain other limited categories of investors. At the discretion of the Board
of Trustees of the Fund, Class A shares may be sold to categories of
investors in addition to those set forth in this prospectus at net asset
value without a front-end sales charge, and Class D shares may be sold to
certain other categories of investors, in each case as may be described in
the then current prospectus of the Fund. See "Alternative Purchase
Arrangements--Selecting a Particular Class" for a discussion of factors to
consider in selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million or more and
to certain other limited categories of investors. For the purpose of meeting
the minimum $5 million initial investment for Class D shares, and subject to
the $1,000 minimum initial investment for each Class of the Fund, an
investor's existing holdings of Class A shares of the Fund and other Dean
Witter Funds that are multiple class funds ("Dean Witter Multi-Class Funds")
and shares of Dean Witter Funds sold with a front-end sales charge ("FSC
Funds") and concurrent investments in Class D shares of the Fund and other
Dean Witter Multi-Class Funds will be aggregated. Subsequent purchases of
$100 or more may be made by sending a check, payable to Dean Witter Health
Sciences Trust, directly to Dean Witter Trust Company (the "Transfer Agent")
at P.O. Box 1040, Jersey City, NJ 07303 or by contacting an account executive
of DWR or other Selected Broker-Dealer. When purchas-
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<PAGE>
ing shares of the Fund, investors must specify whether the purchase is for
Class A, Class B, Class C or Class D shares. If no Class is specified, the
Transfer Agent will not process the transaction until the proper Class is
identified. The minimum initial purchase in the case of investments through
EasyInvest(Service Mark), an automatic purchase plan (see "Shareholder
Services"), is $100, provided that the schedule of automatic investments will
result in investments totalling 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 purchases without regard to any minimum amounts which
would otherwise be required if the Fund has reason to believe that additional
purchases will increase the purchase of shares in all accounts under such
Plans to at least $1,000. Certificates for shares purchased will not be
issued unless a request is made by the shareholder in writing to the Transfer
Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since
DWR and other Selected Broker-Dealers forward investors' funds on settlement
date, they will benefit from the temporary use of the funds if payment is
made prior thereto. As noted above, orders placed directly with the Transfer
Agent must be accompanied by payment. Investors will be entitled to receive
income dividends and capital gains distributions if their order is received
by the close of business on the day prior to the record date for such
dividends and distributions. Sales personnel of a Selected Broker-Dealer are
compensated for selling shares of the Fund by the Distributor and/or the
Selected Broker-Dealer or any of its affiliates. 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.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their
needs. The general public is offered three Classes of shares: Class A shares,
Class B shares and Class C shares, which differ principally in terms of sales
charges and rate of expenses to which they are subject. A fourth Class of
shares, Class D shares, is offered only to limited categories of investors
(see "No Load Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class
A, Class B and Class C shares bear the expenses of the ongoing shareholder
service fees, Class B and Class C shares bear the expenses of the ongoing
distribution fees and Class A, Class B and Class C shares which are redeemed
subject to a CDSC bear the expense of the additional incremental distribution
costs resulting from the CDSC applicable to shares of those Classes. The
ongoing distribution fees that are imposed on Class A, Class B and Class C
shares will be imposed directly against those Classes and not against all
assets of the Fund and, accordingly, such charges against one Class will not
affect the net asset value of any other Class or have any impact on investors
choosing another sales charge option. See "Plan of Distribution" and
"Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and
the factors an investor should consider when selecting a particular Class.
This summary is qualified in its entirety by detailed discussion of each
Class that follows this summary.
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain
other limited categories of investors) are not subject to any sales charges
at the time of purchase but are subject to a CDSC of 1.0% on redemptions made
within one year after purchase, except for certain specific circumstances.
Class A shares are also subject to a 12b-1 fee of up to 0.25% of the average
daily net assets of the Class. See "Initial Sales Charge Alternative--Class A
Shares."
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<PAGE>
Class B Shares. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to
1.0%) if redeemed within six years of purchase. (Class B shares purchased by
certain qualified employer-sponsored benefit plans are subject to a CDSC
scaled down from 2.0% to 1.0% if redeemed within three years after purchase.)
This CDSC may be waived for certain redemptions. Class B shares are also
subject to an annual 12b-1 fee of 1.0% of the lesser of: (a) the average
daily aggregate gross sales of the Fund's Class B shares since the inception
of the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the
Fund's Class B shares redeemed since the Fund's inception upon which a CDSC
has been imposed or waived, or (b) the average daily net assets of Class B.
The Class B shares' distribution fee will cause that Class to have higher
expenses and pay lower dividends than Class A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition,
a certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time.
See "Contingent Deferred Sales Charge Alternative--Class B Shares."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They
are subject to an annual 12b-1 fee of up to 1.0% of the average daily net
assets of the Class C shares. The Class C shares' distribution fee may cause
that Class to have higher expenses and pay lower dividends than Class A or
Class D shares. See "Level Load Alternative--Class C Shares."
Class D Shares. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares
are sold at net asset value with no initial sales charge or CDSC. They are
not subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
Selecting a Particular Class. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any
other relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are
not available with respect to Class B or Class C shares. Moreover, Class A
shares are subject to lower ongoing expenses than are Class B or Class C
shares over the term of the investment. As an alternative, Class B and Class
C shares are sold without any initial sales charge so the entire purchase
price is immediately invested in the Fund. Any investment return on these
additional investment amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Fund's future return cannot be
predicted, however, there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly
lower CDSC upon redemptions, they do not, unlike Class B shares, convert into
Class A shares after approximately ten years, and, therefore, are subject to
an ongoing 12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A
shares) for an indefinite period of time. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks. Other investors, however, may elect to purchase Class C shares if,
for example, they
17
<PAGE>
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.
For the purpose of meeting the $5 million minimum investment amount for
Class D shares, holdings of Class A shares in all Dean Witter Multi-Class
Funds, shares of FSC Funds and shares of Dean Witter Funds for which such
shares have been exchanged will be included together with the current
investment amount.
Sales personnel may receive different compensation for selling each Class
of shares. Investors should understand that the purpose of a CDSC is the same
as that of the initial sales charge in that the sales charges applicable to
each Class provide for the financing of the distribution of shares of that
Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
A Maximum 5.25% 0.25% No
initial sales charge
reduced for purchases
of $25,000 and over;
shares sold without
an initial sales charge
generally subject to
a 1.0% CDSC during
first year.
- -------------------------------------------------------------------------------
B Maximum 5.0% 1.0% B shares convert
CDSC during the first to A shares
year decreasing automatically
to 0 after six years after approximately
ten years
- -------------------------------------------------------------------------------
C 1.0% CDSC during 1.0% No
first year
- -------------------------------------------------------------------------------
D None None No
- -------------------------------------------------------------------------------
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees
for each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge.
In some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase (calculated from the last day of the month in which the
shares were purchased), except for certain specific circumstances. The CDSC
will be assessed on an amount equal to the lesser of the current market value
or the cost of the shares being redeemed. The CDSC will not be imposed (i) in
the circumstances set forth below in the section "Contingent Deferred Sales
Charge Alternative--Class B Shares--CDSC Waivers," except that the references
to six years in the first paragraph of that section shall mean one year in
the case of Class A shares, and (ii) in the circumstances identified in the
section "Additional Net Asset Value Purchase Options" below. Class A shares
are also subject to an annual 12b-1 fee of up to 0.25% of the average daily
net assets of the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE
-------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
----------- ----- ---------------
<S> <C> <C>
Less than $25,000 .. 5.25% 5.54%
$25,000 but less
than $50,000 ...... 4.75% 4.99%
$50,000 but less
than $100,000 ..... 4.00% 4.17%
$100,000 but less
than $250,000 ..... 3.00% 3.09%
$250,000 but less
than $1 million .. 2.00% 2.04%
$1 million and over 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable
18
<PAGE>
sales charge as shown in the above schedule during periods specified in such
notice. During periods when 90% or more of the sales charge is reallowed,
such Selected Broker-Dealers may be deemed to be underwriters as that term is
defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or
her spouse and their children under the age of 21 purchasing shares for his,
her or their own accounts; (c) a trustee or other fiduciary purchasing shares
for a single trust estate or a single fiduciary account; (d) a pension,
profit-sharing or other employee benefit plan qualified or non-qualified
under Section 401 of the Internal Revenue Code; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Internal Revenue Code; (f)
employee benefit plans qualified under Section 401 of the Internal Revenue
Code of a single employer or of employers who are "affiliated persons" of
each other within the meaning of Section 2(a)(3)(c) of the Act; and for
investments in Individual Retirement Accounts of employees of a single
employer through Systematic Payroll Deduction plans; or (g) any other
organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
Combined Purchase Privilege. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class
A shares of other Dean Witter Multi-Class Funds and shares of FSC Funds. The
sales charge payable on the purchase of the Class A shares of the Fund, the
Class A shares of the other Dean Witter Multi-Class Funds and the shares of
the FSC Funds will be at their respective rates applicable to the total
amount of the combined concurrent purchases of such shares.
Right of Accumulation. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single
transaction, together with shares of the Fund and other Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Dean Witter Funds acquired in exchange for those
shares, and including in each case shares acquired through reinvestment of
dividends and distributions), which are held at the time of such transaction,
amounts to $25,000 or more. If such investor has a cumulative net asset value
of shares of FSC Funds and Class A and Class D shares equal to at least $5
million, such investor is eligible to purchase Class D shares subject to the
$1,000 minimum initial investment requirement of that Class of the Fund. See
"No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Selected Broker-Dealer or the Transfer Agent
fails to confirm the investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will
also be available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from DWR or other Selected Broker-Dealers. The cost of Class A
shares of the Fund or shares of other Dean Witter Funds which were previously
purchased at a price including a front-end sales charge during the 90-day
period prior to the date of receipt by the Distributor of the Letter of
Intent, or of Class A shares of the Fund or shares of other Dean Witter Funds
acquired in exchange for shares of such funds purchased during such period at
a price including a front-end sales charge, which are still owned by the
shareholder, may also be included in determining the applicable reduction.
19
<PAGE>
Additional Net Asset Value Purchase Options. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value
by the following:
(1) trusts for which Dean Witter Trust Company ("DWTC") or Dean Witter
Trust FSB ("DWTFSB") (each of which is an affiliate of the Investment
Manager) provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for
services in the nature of investment advisory or administrative services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees and restrictions on
transferability of Fund shares);
(3) retirement plans qualified under Section 401(k) of the Internal
Revenue Code ("401(k) plans") and other employer-sponsored plans qualified
under Section 401(a) of the Internal Revenue Code with at least 200 eligible
employees and for which DWTC or DWTFSB serves as Trustee or the 401(k)
Support Services Group of DWR serves as recordkeeper;
(4) 401(k) plans and other employer-sponsored plans qualified under
Section 401(a) of the Internal Revenue Code for which DWTC or DWTFSB serves
as Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper
whose Class B shares have converted to Class A shares, regardless of the
plan's asset size or number of eligible employees;
(5) investors who are clients of a Dean Witter account executive who
joined Dean Witter from another investment firm within six months prior to
the date of purchase of Fund shares by such investors, if the shares are
being purchased with the proceeds from a redemption of shares of an open-end
proprietary mutual fund of the account executive's previous firm which
imposed either a front-end or deferred sales charge, provided such purchase
was made within sixty days after the redemption and the proceeds of the
redemption had been maintained in the interim in cash or a money market fund;
and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Se-lected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase
payment may be immediately invested in the Fund. A CDSC, however, will be
imposed on most Class B shares redeemed within six years after purchase. The
CDSC will be imposed on any redemption of shares if after such redemption the
aggregate current value of a Class B account with the Fund falls below the
aggregate amount of the investor's purchase payments for Class B shares made
during the six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) preceding the redemption. In
addition, Class B shares are subject to an annual 12b-1 fee of 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Fund's Class B
shares since the inception of the Fund (not including reinvestments of
dividends or capital gains distributions), less the average daily aggregate
net asset value of the Fund's Class B shares redeemed since the Fund's
inception upon which a CDSC has been imposed or waived, or (b) the average
daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may,
however, be subject to a CDSC which will be a percentage of the dollar amount
of shares re-
20
<PAGE>
deemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, as set forth
in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
<S> <C>
First...................... 5.0%
Second..................... 4.0%
Third...................... 3.0%
Fourth..................... 2.0%
Fifth...................... 2.0%
Sixth...................... 1.0%
Seventh and thereafter .... None
</TABLE>
In the case of Class B shares of the Fund held by 401 (k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal
Revenue Code for which DWTC or DWTFSB serves as Trustee or the 401(k) Support
Services Group of DWR serves as recordkeeper and whose accounts are opened on
or after July 28, 1997, shares held for three years or more after purchase
(calculated as described in the paragraph above) will not be subject to any
CDSC upon redemption. However, shares redeemed earlier than three years after
purchase may be subject to a CDSC (calculated as described in the paragraph
above), the percentage of which will depend on how long the shares have been
held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
<S> <C>
First ..................... 2.0%
Second .................... 2.0%
Third ..................... 1.0%
Fourth and thereafter .... None
</TABLE>
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or,
in the case of shares held by certain employer-sponsored benefit plans, three
years) preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption; and
(iii) the current net asset value of shares purchased through reinvestment of
dividends or distributions and/or shares acquired in exchange for shares of
FSC Funds or of other Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held
in a qualified corporate or self-employed retirement plan, Individual
Retirement Account ("IRA") or Custodial Account under Section 403(b)(7) of
the Internal Revenue Code ("403(b) Custodial Account"), provided in either
case that the redemption is requested within one year of the death or initial
determination of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a
"key employee" of a "top heavy" plan, following attainment of age 59 1/2); (B)
distributions from an IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (C) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
401(k) plan or other employer-sponsored plan qualified under Section 401(a)
of the Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which DWTC or DWTFSB serves as
Trustee or the 401(k)
21
<PAGE>
Support Services Group of DWR serves as recordkeeper ("Eligible Plan"),
provided that either: (A) the plan continues to be an Eligible Plan after the
redemption; or (B) the redemption is in connection with the complete
termination of the plan involving the distribution of all plan assets to
participants.
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to
engage in gainful employment. With reference to (2) above, the term
"distribution" does not encompass a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or trustee. All
waivers will be granted only following receipt by the Distributor of
confirmation of the shareholder's entitlement.
Conversion to Class A Shares. All shares of the Fund held prior to July
28, 1997 have been designated Class B shares. Shares held before May 1, 1997
will convert to Class A shares in May, 2007. In all other instances Class B
shares will convert automatically to Class A shares, based on the relative
net asset values of the shares of the two Classes on the conversion date,
which will be approximately ten (10) years after the date of the original
purchase. The ten year period is calculated from the last day of the month in
which the shares were purchased or, in the case of Class B shares acquired
through an exchange or a series of exchanges, from the last day of the month
in which the original Class B shares were purchased, provided that shares
originally purchased before May 1, 1997 will convert to Class A shares in
May, 2007. The conversion of shares purchased on or after May 1, 1997 will
take place in the month following the tenth anniversary of the purchase.
There will also be converted at that time such proportion of Class B shares
acquired through automatic reinvestment of dividends and distributions owned
by the shareholder as the total number of his or her Class B shares
converting at the time bears to the total number of outstanding Class B
shares purchased and owned by the shareholder. In the case of Class B shares
held by a 401(k) plan or other employer-sponsored plan qualified under
Section 401(a) of the Internal Revenue Code and for which DWTC or DWTFSB
serves as Trustee or the 401(k) Support Services Group of DWR serves as
recordkeeper, the plan is treated as a single investor and all Class B shares
will convert to Class A shares on the conversion date of the first shares of
a Dean Witter Multi-Class Fund purchased by that plan. In the case of Class B
shares previously exchanged for shares of an "Exchange Fund" (see
"Shareholder Services--Exchange Privilege"), the period of time the shares
were held in the Exchange Fund (calculated from the last day of the month in
which the Exchange Fund shares were acquired) is excluded from the holding
period for conversion. If those shares are subsequently re-exchanged for
Class B shares of a Dean Witter Multi-Class Fund, the holding period resumes
on the last day of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior
to the date for conversion. Class B shares evidenced by share certificates
that are not received by the Transfer Agent at least one week prior to any
conversion date will be converted into Class A shares on the next scheduled
conversion date after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion
will have a basis equal to the shareholder's basis in the converted Class B
shares immediately prior to the conversion, and (iii) Class A shares received
on conversion will have a holding period that includes the holding period of
the converted Class B shares. The conversion feature may be suspended if the
ruling or opinion is no longer available. In such event, Class B shares would
continue to be subject to Class B 12b-1 fees.
Class B shares purchased before July 28, 1997 by trusts for which DWTC or
DWTFSB provides
22
<PAGE>
discretionary trustee services will convert to Class A shares on or about
August 29, 1997. The CDSC will not be applicable to such shares.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions
made within one year after purchase (calculated from the last day of the
month in which the shares were purchased). The CDSC will be assessed on an
amount equal to the lesser of the current market value or the cost of the
shares being redeemed. The CDSC will not be imposed in the circumstances set
forth above in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case
of Class C shares. Class C shares are subject to an annual 12b-1 fee of up to
1.0% of the average daily net assets of the Class. Unlike Class B shares,
Class C shares have no conversion feature and, accordingly, an investor that
purchases Class C shares will be subject to 12b-1 fees applicable to Class C
shares for an indefinite period subject to annual approval by the Fund's
Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million and the
following categories of investors: (i) investors participating in the
InterCapital mutual fund asset allocation program pursuant to which such
persons pay an asset based fee; (ii) persons participating in a fee-based
program approved by the Distributor, pursuant to which such persons pay an
asset based fee for services in the nature of investment advisory or
administrative services (subject to all of the terms and conditions of such
programs, which may include termination fees and restrictions on
transferability of Fund shares); (iii) 401(k) plans established by DWR and
SPS Transaction Services, Inc. (an affiliate of DWR) for their employees;
(iv) certain Unit Investment Trusts sponsored by DWR; (v) certain other
open-end investment companies whose shares are distributed by the
Distributor; and (vi) other categories of investors, at the discretion of the
Board, as disclosed in the then current prospectus of the Fund. Investors who
require a $5 million minimum initial investment to qualify to purchase Class
D shares may satisfy that requirement by investing that amount in a single
transaction in Class D shares of the Fund and other Dean Witter Multi-Class
Funds, subject to the $1,000 minimum initial investment required for that
Class of the Fund. In addition, for the purpose of meeting the $5 million
minimum investment amount, holdings of Class A shares in all Dean Witter
Multi-Class Funds, shares of FSC Funds and shares of Dean Witter Funds for
which such shares have been exchanged will be included together with the
current investment amount. If a shareholder redeems Class A shares and
purchases Class D shares, such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act with respect to the distribution of Class A, Class B and Class C
shares of the Fund. In the case of Class A and Class C shares, the Plan
provides that the Fund will reimburse the Distributor and others for the
expenses of certain activities and services incurred by them specifically on
behalf of those shares. Reimbursements for these expenses will be made in
monthly payments by the Fund to the Distributor, which will in no event
exceed amounts equal to payments at the annual rates of 0.25% and 1.0% of the
average daily net assets of Class A and Class C, respectively. In the case of
Class B shares, the Plan provides that the Fund will pay the Distributor a
fee, which is accrued daily and paid monthly, at the annual rate of 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's
Class B shares since the inception of the Fund (not including reinvestments
of dividends or capital gains distributions), less the average daily
aggregate net asset value of the Fund's Class B shares redeemed since
23
<PAGE>
the Fund's inception upon which a CDSC has been imposed or waived, or (b) the
average daily net assets of Class B. The fee is treated by the Fund as an
expense in the year it is accrued. In the case of Class A shares, the entire
amount of the fee currently represents a service fee within the meaning of
the NASD guidelines. In the case of Class B and Class C shares, a portion of
the fee payable pursuant to the Plan, equal to 0.25% of the average daily net
assets of each of these Classes, is currently characterized as a service fee.
A service fee is a payment made for personal service and/or the maintenance
of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses
borne by the Distributor and others in the distribution of the shares of
those Classes, including the payment of commissions for sales of the shares
of those Classes and incentive compensation to and expenses of DWR's account
executives and others who engage in or support distribution of shares or who
service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Fund's shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan in the case of Class B shares to compensate DWR and other Selected
Broker-Dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
For the fiscal year ended July 31, 1996, Class B shares of 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. The
payments accrued under the Plan were calculated pursuant to clause (b) of the
compensation formula under the Plan. All shares held prior to July 28, 1997
have been designated Class B shares.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i)
the payments made by the Fund pursuant to the Plan, and (ii) the proceeds of
CDSCs paid by investors upon the redemption of Class B shares. For example,
if $1 million in expenses in distributing Class B shares of the Fund had been
incurred and $750,000 had been received as described in (i) and (ii) above,
the excess expense would amount to $250,000. The Distributor has advised the
Fund that such excess amounts, including the carrying charge described above,
totalled $16,178,097 at July 31, 1996, which was equal to 3.66% of the net
assets of the Fund on such date. Because there is no requirement under the
Plan that the Distributor be reimbursed for all distribution expenses or any
requirement that the Plan be continued from year to year, such excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made
to the Distributor under the Plan, and the proceeds of CDSCs paid by
investors upon redemption of shares, if for any reason the Plan is terminated
the Trustees will consider at that time the manner in which to treat such
expenses. Any cumulative expenses incurred, but not yet recovered through
distribution fees or CDSCs, may or may not be recovered through future
distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses
representing a gross sales commission credited to account executives at the
time of sale may be reimbursed in the subsequent calendar year. No interest
or other financing charges will be incurred on any Class A or Class C
distribution expenses incurred by the Distributor under the Plan or on any
unreimbursed expenses due to the Distributor pursuant to the Plan.
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<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), on each day that the New York Stock Exchange is
open by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the
Class A, Class B, Class C and Class D shares will be invested together in a
single portfolio. The net asset value of each Class, however, will be
determined separately by subtracting each Class's accrued expenses and
liabilities. The net asset value per share will not be determined on Good
Friday and on such other federal and non-federal holidays as are observed by
the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange 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 applicable Class of the Fund, (or, if specified by the
shareholder, in shares of any other open-end Dean Witter Funds), unless the
shareholder requests that they be paid in cash. Shares so acquired are
acquired at net asset value and are not subject to the imposition of a
front-end sales charge or a CDSC (see "Redemptions and Repurchases").
Investment of Dividends or Distributions Received in Cash. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value next determined after receipt by the
Transfer Agent by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. Shares so acquired are acquired at net
asset value and are not subject to the imposition of a front-end sales charge
or a CDSC (see "Redemptions and Repurchases").
EasyInvest(Service Mark). Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be
25
<PAGE>
transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the 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
CDSC will be imposed on shares redeemed under the Withdrawal Plan (see
"Purchase of Fund Shares"). Therefore, any shareholder participating in the
Withdrawal Plan will have sufficient shares redeemed from his or her account
so that the proceeds (net of any applicable CDSC) to the shareholder will be
the designated monthly or quarterly amount. Withdrawal plan payments should
not be considered as dividends, yields or income. If periodic withdrawal plan
payments continuously exceed net investment income and net capital gains, the
shareholder's original investment will be correspondingly reduced and
ultimately exhausted. Each withdrawal constitutes a redemption of shares and
any gain or loss realized must be recognized for federal income tax purposes.
Shareholders should contact their DWR or other Selected Broker-Dealer
Account Executive or the Transfer Agent for further information about any of
the above services.
Tax Sheltered Retirement Plans. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of
such plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their DWR or other Selected
Broker-Dealer account executive or the Transfer Agent.
Exchange Privilege. Shares of each Class may be exchanged for shares of
the same Class of any other Dean Witter Multi-Class Fund without the
imposition of any exchange fee. Shares may also be exchanged for shares of
the following funds: Dean Witter Short-Term U.S. Treasury Trust, Dean Witter
Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter
Intermediate Term U.S. Treasury Trust and five Dean Witter funds which are
money market funds (the "Exchange Funds"). Class A shares may also be
exchanged for shares of Dean Witter Multi-State Municipal Series Trust and
Dean Witter Hawaii Municipal Trust, which are Dean Witter Funds sold with a
front-end sales charge ("FSC Funds"). Class B shares may also be exchanged
for shares of Dean Witter Global Short-Term Income Fund Inc., Dean Witter
High Income Securities and Dean Witter National Municipal Trust, which are
Dean Witter Funds offered with a CDSC ("CDSC Funds"). Exchanges may be made
after the shares of the Fund acquired by purchase (not by exchange or
dividend reinvestment) have been held for thirty days. There is no waiting
period for exchanges of shares acquired by exchange or dividend reinvestment.
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, any
CDSC Fund or any Exchange Fund that is not a money market fund is on the
basis of the next calculated net asset value per share of each fund after the
exchange order is received. When exchanging into a money market fund from the
Fund, shares of the Fund are redeemed out of the Fund at their next
calculated net asset value and the proceeds of the redemption are used to
purchase shares of the money market fund at their net asset value determined
the following business day. Subsequent exchanges between any of the money
market funds and any of the Dean Witter Multi-Class Funds, FSC Funds or CDSC
Funds or any Exchange Fund that is not a money market fund can be effected on
the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period
of time the shareholder remains in an
26
<PAGE>
Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired), the holding period (for the purpose of
determining the rate of the CDSC) is frozen. If those shares are subsequently
re-exchanged for shares of a Dean Witter Multi-Class Fund or shares of a CDSC
Fund, the holding period previously frozen when the first exchange was made
resumes on the last day of the month in which shares of a Dean Witter
Multi-Class Fund or shares of a CDSC Fund are reacquired. Thus, the CDSC is
based upon the time (calculated as described above) the shareholder was
invested in shares of a Dean Witter Multi-Class Fund or in shares of a CDSC
Fund (see "Purchase of Fund Shares"). In the case of exchanges of Class A
shares which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in shares of a
FSC Fund. However, in the case of shares exchanged into an Exchange Fund on
or after April 23, 1990, upon a redemption of shares which results in a CDSC
being imposed, a credit (not to exceed the amount of the CDSC) will be given
in an amount equal to the Exchange Fund 12b-1 distribution fees incurred on
or after that date which are attributable to those shares. (Exchange Fund
12b-1 distribution fees are described in the prospectuses for those funds.)
Class B shares of the Fund acquired in exchange for Class B shares of another
Dean Witter Multi-Class Fund or shares of a CDSC Fund having a different CDSC
schedule than that of this Fund will be subject to the higher CDSC schedule,
even if such shares are subsequently re-exchanged for shares of the fund with
the lower CDSC schedule.
Additional Information Regarding Exchanges. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional
purchases and/or exchanges from the investor. Although the Fund does not have
any specific definition of what constitutes a pattern of frequent exchanges,
and will consider all relevant factors in determining whether a particular
situation is abusive and contrary to the best interests of the Fund and its
other shareholders, investors should be aware that the Fund and each of the
other Dean Witter Funds may in their discretion limit or otherwise restrict
the number of times this Exchange Privilege may be exercised by any investor.
Any such restriction will be made by the Fund on a prospective basis only,
upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such Dean Witter
Funds for which shares of the Fund 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
of each Class of shares and any other conditions imposed by each fund. In the
case of a shareholder holding a share certificate or certificates, no
exchanges may be made until all applicable share certificates have been
received by the Transfer Agent and deposited in the shareholder's account. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss. However, the ability to deduct capital losses on an
exchange may be limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. The Exchange Privilege is
only available in states where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean
Witter Funds (for which
27
<PAGE>
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 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 each Class of the Fund can be redeemed for cash at
any time at the net asset value per share next determined less the amount of
any applicable CDSC in the case of Class A, Class B or Class C (see "Purchase
of Fund Shares"). If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, 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.
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 or the
Distributor. The offer by DWR and other Selected Broker-Dealers to
repurchase shares may be suspended without notice by them at any time.
In that event, shareholders may redeem their shares through the Fund's
Transfer Agent as set forth above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such
28
<PAGE>
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 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase
in shares of the Fund in the same Class from which such shares were redeemed
or repurchased, at 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 amount and allow the shareholder sixty days to make an additional
investment in an amount which will increase the value of the account to at
least the applicable amount before the redemption is processed. No CDSC will
be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
Dividends and Distributions. The Fund declares dividends separately for
each Class of shares and intends to pay quarterly income dividends and to
distribute net short-term and net long-term capital gains, if any, at least
once each year. The Fund may, however, determine to retain all or part of any
net long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in
additional shares of the same Class and automatically credited to the
shareholder's account without issuance of a share certificate unless the
shareholder requests in writing that all dividends and/or distributions be
paid in cash. Shares acquired by dividend and distribution reinvestments will
not be subject to any front-end sales charge or CDSC. Class B shares acquired
through dividend and distribution reinvestments will become eligible for
conversion to Class A shares on a pro rata basis. Distributions paid on Class
A and Class D shares will be higher than for Class B and Class C shares
because distribution fees paid by Class B and Class C shares are higher. (See
"Shareholder Services--Automatic Investment of Dividends and Distributions.")
Taxes. Because the Fund intends to distribute all of its net investment
income and 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
29
<PAGE>
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 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.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources would, in effect, represent a
return of a portion of each shareholder's investment. All, or a portion, of
such payments would not be taxable to shareholders.
After the end of the calendar year, shareholders will 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
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. These figures are computed separately for Class A,
Class B, Class C and Class D shares. The total return of the Fund is based on
historical earnings and is not intended to indicate future performance. The
"aver-
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<PAGE>
age annual total return" of the Fund refers to a figure reflecting the average
annualized percentage increase (or decrease) in the value of an initial
investment in a Class of the Fund of $1,000 over 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 applicable
Class and all sales charges which would be incurred by shareholders, for the
stated periods. It also assumes reinvestment of all dividends and distributions
paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average, and
year-by-year or other types of total return figures. The Fund may also
advertise a growth of hypothetical investments of $10,000, $50,000 and
$100,000 in each Class of shares of the Fund. Such calculations may or may
not reflect the deduction of any 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 except
that each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other
matter in which the interests of one Class differ from the interests of any
other Class. In addition, Class B shareholders will have the right to vote on
any proposed material increase in Class A's expenses, if such proposal is
submitted separately to Class A shareholders. Also, as discussed herein,
Class A, Class B and Class C bear the expenses related to the distribution of
their respective shares.
The Fund is not required to hold Annual Meetings of Shareholders and, in
ordinary circumstances, the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. 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.
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.
31
<PAGE>
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 ben-efit 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.
Master/Feeder Conversion. The Fund reserves the right to seek to achieve
its investment objective by investing all of its investable assets in a
non-diversified, open-end management investment company having the same
investment objective and policies and substantially the same investment
restrictions as those applicable to the Fund.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover
of this Prospectus.
32
<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
Dean Witter Market Leader Trust
Dean Witter Financial Services Trust
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 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
Barry Fink
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--JULY 28, 1997
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DEAN WITTER
JULY 28, 1997 HEALTH
SCIENCES
TRUST
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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 July 28, 1997, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at 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
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The Fund and its Management................................................ 3
Trustees and Officers ..................................................... 6
Investment Practices and Policies.......................................... 12
Investment Restrictions ................................................... 25
Portfolio Transactions and Brokerage ...................................... 26
The Distributor............................................................ 28
Determination of Net Asset Value........................................... 32
Purchase of Fund Shares ................................................... 33
Shareholder Services....................................................... 35
Redemptions and Repurchases................................................ 40
Dividends, Distributions and Taxes ........................................ 41
Performance Information ................................................... 42
Description of Shares of the Fund.......................................... 43
Custodian and Transfer Agent............................................... 44
Independent Accountants ................................................... 44
Reports to Shareholders ................................................... 44
Legal Counsel ............................................................. 45
Experts.................................................................... 45
Registration Statement .................................................... 45
Financial Statements--July 31, 1996 ....................................... 46
Report of Independent Accountants.......................................... 58
Financial Statements--January 31, 1997 (unaudited) ........................ 59
2
<PAGE>
THE FUND AND ITS MANAGEMENT
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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 Morgan Stanley, Dean Witter,
Discover & Co. ("MSDWD"), a Delaware corporation. In an internal reorganization
which took place in January, 1993, InterCapital assumed the investment
advisory, administrative and management activities previously performed by the
InterCapital Division of Dean Witter Reynolds Inc. ("DWR"), a broker-dealer
affiliate of InterCapital. (As hereinafter used in this Statement of Additional
Information, the terms "InterCapital" and "Investment Manager" refer to DWR's
InterCapital Division prior to the internal reorganization and to Dean Witter
InterCapital Inc. thereafter.) The daily management of the Fund and research
relating to the Fund's portfolio are conducted by or under the direction of
officers of the Fund and of the Investment Manager, subject to review by the
Fund's Board of Trustees. Information as to these Trustees and officers is
contained under the caption "Trustees and Officers."
InterCapital is also the investment manager or investment adviser of the
following management investment companies: 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
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, Dean Witter Financial Services Trust, Dean
Witter Market Leader Trust, Municipal Income Trust, Municipal Income Trust
II, Municipal Income Trust III, Municipal
3
<PAGE>
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 Strategic
Income Trust, TCW/DW Emerging Markets Opportunities Trust, TCW/DW Term Trust
2000, TCW/DW Term Trust 2002 and TCW/DW Term Trust 2003 (the "TCW/DW Funds").
InterCapital also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company; and (ii) sub-administrator
of MassMutual Participation Investors and Templeton Global Governments Income
Trust, closed-end investment companies.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage
the investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help, 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 or by the Distributor of the Fund's shares, Dean Witter
Distributors Inc. ("Distributors" or the "Distributor") (see "The
Distributor") will be paid by the Fund. These expenses will be allocated
among the four classes of shares of the Fund (each, a "Class") pro rata based
on the net assets of the Fund attributable to each Class, except as described
below. The expenses borne by the Fund include, but are not limited to:
expenses of the Plan of Distribution pursuant to Rule 12b-1 (the "12b-1
fee"), charges and expenses of any registrar, custodian, stock transfer and
dividend disbursing agent; brokerage commissions; taxes; engraving and
printing of share certificates; registration costs of the Fund and its shares
under Federal and state securities laws; the cost and expense of printing,
including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Trustees or members of any advisory
board or committee who are not employees of the Investment Manager or any
corporate affiliate of the Investment Manager; all expenses incident to any
dividend, withdrawal or redemption options; charges and expenses of any
outside service used for pricing of the Fund's shares;
4
<PAGE>
fees and expenses of legal counsel, including counsel to the Trustees who are
not interested persons of the Fund or of the Investment Manager (not
including compensation or expenses of attorneys who are employees of the
Investment Manager) and independent accountants; membership dues of industry
associations; interest on Fund borrowings; postage; insurance premiums on
property or personnel (including officers and Trustees) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
relating thereto); and all other costs of the Fund's operation. The 12b-1
fees relating to a particular Class will be allocated directly to that Class.
In addition, other expenses associated with a particular Class (except
advisory or custodial fees) may be allocated directly to that Class, provided
that such expenses are reasonably identified as specifically attributable to
that Class and the direct allocation to that Class is approved by the
Trustees.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
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.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors. The Agreement in no way restricts the Investment
Manager from acting as investment manager or adviser to others.
The Agreement was initially approved by the Board of Trustees on February
21, 1997 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on May 21, 1997. The Agreement is substantially identical
to a prior investment management agreement which was initially approved by
the Board of Trustees on July 29, 1992 and by DWR, the then sole shareholder
of the Fund, on July 31, 1992, and amended by the Fund's Board of Trustees at
their meeting held on April 17, 1996 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. The Agreement
took effect on May 31, 1997 upon the consummation of the merger of Dean
Witter, Discover & Co. with Morgan Stanley Group Inc. The Agreement may be
terminated at any time, without penalty, on thirty days' notice by the Board
of Trustees of the Fund, by the holders of a majority, as defined in the
Investment Company Act of 1940 (the "Act"), of the outstanding shares of the
Fund, or by the Investment Manager. The Agreement will automatically
terminate in the event of its assignment (as defined in the Act).
Under its terms, the Agreement has an initial term ending April 30, 1999
and 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 person at a meeting called for the purpose of
voting on such approval.
The Fund has acknowledged that the name "Dean Witter" is a property right
of DWR. The Fund has agreed that DWR or its parent company may use, or at any
time permit others to use, the name "Dean Witter." The Fund has also agreed
that in the event the Agreement 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.
5
<PAGE>
TRUSTEES AND OFFICERS
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The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the 83 Dean Witter Funds and 14 TCW/DW Funds are shown
below:
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- -------------------------------------------------------
<S> <C>
Michael Bozic (56)......................... Chairman and Chief Executive Officer of Levitz
Trustee Furniture Corporation (since November, 1995); Director
c/o Levitz Furniture Corporation or Trustee of the Dean Witter Funds; formerly President
6111 Broken Sound Parkway, N.W. and Chief Executive Officer of Hills Department Stores
Boca Raton, Florida (May, 1991-July, 1995); formerly variously Chairman,
Chief Executive Officer, President and Chief Operating
Officer (1987-1991) of the Sears Merchandise Group of
Sears, Roebuck and Co.; Director of Eaglemark Financial
Services, Inc., the United Negro College Fund and
Weirton Steel Corporation.
Charles A. Fiumefreddo* (64)............... Chairman, Chief Executive Officer and Director of
Chairman, President, InterCapital, Distributors and DWSC; Executive Vice
Chief Executive Officer and Trustee President and Director of DWR; Chairman, Director or
Two World Trade Center Trustee, President and Chief Executive Officer of the
New York, New York Dean Witter Funds; Chairman, Chief Executive Officer
and Trustee of the TCW/DW Funds; Chairman and Director
of Dean Witter Trust Company ("DWTC"); Director and/or
officer of various MSDWD subsidiaries; formerly
Executive Vice President and Director of Dean Witter,
Discover & Co. (until February, 1993).
Edwin J. Garn (64)......................... Director or Trustee of the Dean Witter Funds; formerly
Trustee United States Senator (R-Utah)(1974-1992) and Chairman,
c/o Huntsman Corporation Senate Banking Committee (1980-1986); formerly Mayor of
500 Huntsman Way Salt Lake City, Utah (1972-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Corporation (since January, 1993);
Director of Franklin Quest (time management systems)
and John Alden Financial Corp (health insurance);
Member of the board of various civic and charitable
organizations.
John R. Haire (72)......................... Chairman of the Audit Committee and Chairman of the
Trustee Committee of the Independent Directors or Trustees and
Two World Trade Center Director or Trustee of the Dean Witter Funds; Chairman
New York, New York of the Audit Committee and Chairman of the Committee of
the Independent Trustees and Trustee of the TCW/DW
Funds; formerly President, Council for Aid to Education
(1978-1989) and Chairman and Chief Executive Officer of
Anchor Corporation, an Investment Adviser (1964-1978);
Director of Washington National Corporation
(insurance).
6
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- -------------------------------------------------------
Wayne E. Hedien** (63)..................... Retired; Director or Trustee of the Dean Witter Funds
Trustee (commencing on September 1, 1997); Director of The PMI
c/o Gordon Altman Butowsky Group, Inc. (private mortgage insurance); Trustee and
Weitzen Shalov & Wein Vice Chairman of The Field Museum of Natural History;
Counsel to the Independent Trustees formerly associated with the Allstate Companies
114 West 47th Street (1966-1994), most recently as Chairman of The Allstate
New York, New York Corporation (March, 1993-December, 1994) and Chairman
and Chief Executive Officer of its wholly-owned
subsidiary, Allstate Insurance Company (July, 1989-
December, 1994); director of various other business and
charitable organizations.
Dr. Manuel H. Johnson (48)................. Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group
c/o Johnson Smick International, Inc. of Seven Council (G7C), an international economic
1133 Connecticut Avenue, N.W. commission; Director or Trustee of the Dean Witter
Washington, DC Funds; Trustee of the TCW/DW Funds; Director of NASDAQ
(since June, 1995); Trustee of the Financial Accounting
Foundation (oversight organization for the Financial
Accounting Standards Board); 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.
Michael E. Nugent (61)..................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Director or Trustee of the Dean
c/o Triumph Capital, L.P. Witter Funds; Trustee of the TCW/DW Funds; formerly
237 Park Avenue Vice President, Bankers Trust Company and BT Capital
New York, New York Corporation (1984-1988); Director of various business
organizations.
Philip J. Purcell* (53).................... Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDWD, DWR, and Novus Credit Services Inc.;
1585 Broadway Director of InterCapital, DWSC, and Distributors;
New York, New York Director or Trustee of the Dean Witter Funds; Director
and/or officer of various MSDWD subsidiaries.
John L. Schroeder (66)..................... Retired; Director or Trustee of the Dean Witter Funds;
Trustee Trustee of the TCW/DW Funds; Director of Citizens
c/o Gordon Altman Butowsky Weitzen Utilities Company; Formerly Executive Vice President
Shalov & Wein and Chief Investment Officer of the Home Insurance
Counsel to the Independent Trustees Company (August, 1991-September, 1995).
114 West 47th Street
New York, New York
7
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- -------------------------------------------------------
Barry Fink (42)............................ Senior Vice President (since March, 1997) and Secretary
Vice President, Secretary and General Counsel (since February, 1997) of
and General Counsel InterCapital and DWSC; Senior Vice President (since
Two World Trade Center March, 1997) and Assistant Secretary and Assistant
New York, New York General Counsel (since February, 1997) of Distributors;
Assistant Secretary of DWR (since August, 1996); Vice
President, Secretary and General Counsel of the Dean
Witter Funds and the TCW/DW Funds (since February,
1997); previously First Vice President (June,
1993-February, 1997), Vice President (until June, 1993)
and Assistant Secretary and Assistant General Counsel
of InterCapital and DWSC and Assistant Secretary of the
Dean Witter Funds and the TCW/DW Funds.
Ronald J. Worobel (54) .................... Senior Vice President of InterCapital (since June
Vice President 1993); Vice President of various Dean Witter Funds;
Two World Trade Center formerly Vice President of InterCapital (June,
New York, New York 1992-June, 1993).
Thomas F. Caloia (51) ..................... First Vice President and Assistant Treasurer of
Treasurer InterCapital and DWSC; Treasurer of the Dean Witter
Two World Trade Center Funds and the TCW/DW Funds.
New York, New York
</TABLE>
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* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
** Mr. Hedien's term as Trustee will commence on September 1, 1997.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Executive Vice President and Director of DWR, Director of
SPS Transaction Services, Inc. and various other MSDWD subsidiaries, 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, First Vice
President and Assistant General Counsel of InterCapital and DWSC, LouAnne D.
McInnis, Carsten Otto and Ruth Rossi, Vice Presidents and Assistant General
Counsels of InterCapital and DWSC, and Frank Bruttomesso, a Staff Attorney
with InterCapital, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees currently consists of eight (8) trustees; as noted
above, Mr. Hedien's term will commence on September 1, 1997. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of
this Statement of Additional Information, there are a total of 83 Dean Witter
Funds, comprised of 126 portfolios. As of June 30, 1997, the Dean Witter
Funds had total net assets of approximately $87.9 billion and more than six
million shareholders.
Six Trustees and Mr. Hedien (77% of the total number) have no affiliation
or business connection with InterCapital or any of its affiliated persons and
do not own any stock or other securities issued by InterCapital's parent
company, MSDWD. These are the "disinterested" or "independent" Trustees. The
other two Trustees (the "management Trustees") are affiliated with
InterCapital. Four of the six independent Trustees are also Independent
Trustees of the TCW/DW Funds.
8
<PAGE>
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Dean Witter Funds seek as Independent
Trustees individuals of distinction and experience in business and finance,
government service or academia; these are people whose advice and counsel are
in demand by others and for whom there is often competition. To accept a
position on the Funds' Boards, such individuals may reject other attractive
assignments because the Funds make substantial demands on their time. Indeed,
by serving on the Funds' Boards, certain Trustees who would otherwise be
qualified and in demand to serve on bank boards would be prohibited by law
from doing so.
All of the current Independent Trustees serve as members of the Audit
Committee and the Committee of the Independent Trustees. Three of them also
serve as members of the Derivatives Committee. During the calendar year ended
December 31, 1996, the three Committees held a combined total of sixteen
meetings. The Committees hold some meetings at InterCapital's offices and
some outside InterCapital. Management Trustees or officers do not attend
these meetings unless they are invited for purposes of furnishing information
or making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading
among Funds in the same complex; and approving fidelity bond and related
insurance coverage and allocations, as well as other matters that arise from
time to time. The Independent Trustees are required to select and nominate
individuals to fill any Independent Trustee vacancy on the Board of any Fund
that has a Rule 12b-1 plan of distribution. Most of the Dean Witter Funds
have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing
engagement; approving professional services provided by the independent
accountants and other accounting firms prior to the performance of such
services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of
the Fund's system of internal controls; and preparing and submitting
Committee meeting minutes to the full Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect
to derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and
the Funds' operations and management. He screens and/or prepares written
materials and identifies critical issues for the Independent Trustees to
consider, develops agendas for Committee meetings, determines the type and
amount of information that the Committees will need to form a judgment on
various issues, and arranges to have that information furnished to Committee
members. He also arranges for the services of independent experts and
consults with them in advance of meetings to help refine reports and to focus
on critical issues. Members of the Committees believe that the person who
serves as Chairman of both Committees and guides their efforts is pivotal to
the effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Manager and other service
providers. In effect, the Chairman of the Committees serves as a combination
of chief executive and support staff of the Independent Trustees.
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
9
<PAGE>
Committee Chairman and Independent Trustee of the Dean Witter Funds and as an
Independent Trustee and, since July 1, 1996, as Chairman of the Committee of
the Independent Trustees and the Audit Committee of the TCW/DW Funds. The
current Committee Chairman has had more than 35 years experience as a senior
executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and
enhances their ability to negotiate on behalf of each Fund with the Fund's
service providers. This arrangement also precludes the possibility of
separate groups of Independent Trustees arriving at conflicting decisions
regarding operations and management of the Funds and avoids the cost and
confusion that would likely ensue. Finally, having the same Independent
Trustees serve on all Fund Boards enhances the ability of each Fund to
obtain, at modest cost to each separate Fund, the services of Independent
Trustees, and a Chairman of their Committees, of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund 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
COMPENSATION
NAME OF INDEPENDENT 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>
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF TOTAL CASH
FOR SERVICE COMMITTEES OF COMPENSATION
AS DIRECTOR OR FOR SERVICE AS INDEPENDENT PAID
TRUSTEE AND TRUSTEE AND DIRECTORS/ FOR SERVICES TO
COMMITTEE MEMBER COMMITTEE MEMBER TRUSTEES AND 79 DEAN WITTER
OF 79 DEAN WITTER OF 11 TCW/DW AUDIT FUNDS AND 11
NAME OF INDEPENDENT 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
ESTIMATED RETIREMENT BENEFITS BENEFITS
CREDITED ACCRUED AS EXPENSES UPON RETIREMENT(4)
YEARS ESTIMATED ------------------- ------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND 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>
- --------------
(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
12
<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
15
<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.
17
<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)
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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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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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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
- -----------------------------------------------------------------------------
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).
25
<PAGE>
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.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially
all of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
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
26
<PAGE>
allocations among the Fund and other client accounts, various factors may be
considered, including the respective investment objectives, the relative size
of portfolio holdings of the same or comparable securities, the availability
of cash for investment, the size of investment commitments generally held and
the opinions of the persons responsible for managing the portfolios of the
Fund and other client accounts. In the case of certain initial and secondary
public offerings, the Investment Manager may utilize a pro-rata allocation
process based on the size of the Dean Witter Funds involved and the number of
shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange,
the Fund's policy is to pay commissions which are considered fair and
reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a
requirement always to seek the lowest possible commission cost could impede
effective portfolio management and preclude the Fund and the Investment
Manager from obtaining a high quality of brokerage and research services. In
seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Investment Manager relies upon its experience and knowledge
regarding commissions generally charged by various brokers and on 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.
27
<PAGE>
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR and other affiliated brokers and dealers. In order
for an affiliated broker or dealer to effect any portfolio transactions for
the Fund, the commissions, fees or other remuneration received by the
affiliated broker or dealer must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on an exchange during a comparable period of time. This standard would
allow the affiliated broker or dealer to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker
in a commensurate arm's-length transaction. Furthermore, the 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 an affiliated broker or dealer are 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). The Fund does not reduce the management fee it pays to the
Investment Manager by any amount of the brokerage commissions it may pay to
an affiliated broker or dealer.
THE DISTRIBUTOR
- -----------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered
into a selected dealer agreement with DWR, which through its own sales
organization sells shares of the Fund 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 MSDWD.
The Trustees of the Fund, including a majority of the Trustees who are not,
and were not at the time they voted, interested persons of the Fund, as
defined in the Act (the "Independent Trustees"), approved, at their meeting
held on June 30, 1997, the current Distribution Agreement appointing the
Distributor the exclusive Distributor of the Fund's shares and providing for
the Distributor to bear distribution expenses not borne by the Fund. By its
terms, the Distribution Agreement has an initial term ending April 30, 1998
and will remain in effect from year to year thereafter if approved by the
Board.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to
account executives. The Distributor also pays certain expenses in connection
with the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears
the costs of initial typesetting, printing and distribution of prospectuses
and supplements thereto to shareholders. The Fund also bears the cost of
registering the Fund and its shares under federal and state securities laws
and pays filing fees in accordance with state securities laws. The Fund and
the Distributor have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. Under the Distribution Agreement, the Distributor uses its best
efforts in rendering services to the Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations, the Distributor is not liable to the Fund or any of its
shareholders for any error of judgment or mistake of law or for any act or
omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan") pursuant to which each Class, other than Class D, pays
the Distributor compensation accrued daily and payable monthly at the
following annual rates: 0.25% and 1.0% of the average daily net assets of
Class A and Class C, respectively, and, with respect to Class B, 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Fund's Class B
shares since the inception of the Fund (not including
28
<PAGE>
reinvestments of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since
the Fund's inception upon which a contingent deferred sales charge has been
imposed or upon which such charge has been waived, or (b) the average daily
net assets of Class B. The Distributor also receives the proceeds of
front-end sales charges and of contingent deferred sales charges imposed on
certain redemptions of shares, which are separate and apart from payments
made pursuant to the Plan (see "Purchase of Fund Shares" in the Prospectus).
The Distributor has informed the Fund that it 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 the entire fee payable by Class
A and a portion of the fees payable by each of Class B or Class C each year
pursuant to the Plan equal to 0.25% of such Class's average daily net assets
are currently each characterized as a "service fee" under the Rules of the
Association of the National Association of Securities Dealers, Inc. (of which
the Distributor is a member). The "service fee" is a payment made for
personal service and/or the maintenance of shareholder accounts. The
remaining portion of the Plan fees payable by a Class, if any, is
characterized as an "asset-based sales charge" as such is defined by the
aforementioned Rules of the Association.
The Plan was adopted by a majority vote of the Board of Trustees,
including all of the Trustees of the Fund who are not "interested persons" of
the Fund (as defined in the Act) and who have no direct or indirect financial
interest in the operation of the Plan (the "Independent 12b-1 Trustees"),
cast in person at a meeting called for the purpose of voting on the Plan, on
July 29, 1992 and by DWR, as 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 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 an internal 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 the Association. At their meeting
held on October 26, 1995, the Trustees of the Fund, including all of the
Independent 12b-1 Trustees, approved an amendment to the Plan to permit
payments to be made under the Plan with respect to certain distribution
expenses incurred in connection with the distribution of shares, including
personal services to shareholders with respect to holdings of such shares, of
an investment company whose assets are acquired by the Fund in a tax-free
reorganization. At their meeting held on June 30, 1997, the Trustees,
including a majority of the Independent 12b-1 Trustees, approved amendments
to the Plan to reflect the multiple-class structure for the Fund, which took
effect on July 28, 1997.
Under the Plan and as required by Rule 12b-1, the Trustees 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. This amount represents
amounts paid by Class B only; there were no Class A or Class C shares
outstanding on such date.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set
forth in the Prospectus.
29
<PAGE>
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value
of the respective accounts for which they are the account executives or
dealers of record in all cases. On orders of $1 million or more (for which no
sales charge was paid) or net asset value purchases by 401(k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal
Revenue Code for which Dean Witter Trust Company ("DWTC") or Dean Witter
Trust FSB ("DWTFSB") serves as Trustee or the 401(k) Support Services Group
of DWR serves as recordkeeper, the Investment Manager compensates DWR's
account executives by paying them, from its own funds, a gross sales credit
of 1.0% of the amount sold.
With respect to Class B shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission,
currently a residual of up to 0.25% of the current value (not including
reinvested dividends or distributions) of the amount sold in all cases. In
the case of retirement plans qualified under Section 401(k) of the Internal
Revenue Code and other employer-sponsored plans qualified under Section
401(a) of the Internal Revenue Code for which DWTC or DWTFSB serves as
Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper,
and which plans are opened on or after July 28, 1997, DWR compensates its
account executives by paying them, from its own funds, a gross sales credit
of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value
of the respective accounts for which they are the account executives of
record.
With respect to Class D shares other than shares held by participants in
the InterCapital mutual fund asset allocation program, the Investment Manager
compensates DWR's account executives by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of
up to 1.0% of the amount sold. There is a chargeback of 100% of the amount
paid if the Class D shares are redeemed in the first year and a chargeback of
50% of the amount paid if the Class D shares are redeemed in the second year
after purchase. The Investment Manager also compensates DWR's account
executives by paying them, from its own funds, an annual residual commission,
currently a residual of up to 0.10% of the current value of the respective
accounts for which they are the account executives of record (not including
accounts of participants in the InterCapital mutual fund asset allocation
program).
The gross sales credit is a charge which reflects commissions paid by 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, in the case of Class B shares, opportunity costs,
such as the gross sales credit and an assumed interest charge thereon
("carrying charge"). In the Distributor's reporting of its distribution
expenses to the Fund, in the case of Class B shares, 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.
30
<PAGE>
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.
These amounts represent amounts paid by Class B only; there were no Class A
or Class C shares outstanding on such date.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments
at the end of each month. The amount of each monthly payment may in no event
exceed an amount equal to a payment at the annual rate of 0.25%, in the case
of Class A, and 1.0%, in the case of Class C, of the average net assets of
the respective Class during the month. No interest or other financing
charges, if any, incurred on any distribution expenses on behalf of Class A
and Class C will be reimbursable under the Plan. With respect to Class A, in
the case of all expenses other than expenses representing the service fee,
and, with respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to account executives, such
amounts shall be determined at the beginning of each calendar quarter by the
Trustees, including, a majority of the Independent 12b-1 Trustees. Expenses
representing the service fee (for Class A) or a gross sales credit or a
residual to account executives (for Class C) may be reimbursed without prior
determination. In the event that the Distributor proposes that monies shall
be reimbursed for other than such expenses, then in making quarterly
determinations of the amounts that may be reimbursed by the Fund, the
Distributor will provide and the Trustees will review a quarterly budget of
projected distribution expenses to be incurred on behalf of the Fund,
together with a report explaining the purposes and anticipated benefits of
incurring such expenses. The Trustees will determine which particular
expenses, and the portions thereof, that may be borne by the Fund, and in
making such a determination shall consider the scope of the Distributor's
commitment to promoting the distribution of the Fund's Class A and Class C
shares.
At any given time, the 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 in the case of Class B
shares the excess distribution expenses, including the carrying charge
designed to approximate the opportunity costs incurred by DWR which arise
from it having advanced monies without having received the amount of any
sales charges imposed at the time of sale of the Fund's Class B shares,
totalled $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 with
respect to Class B shares or any requirement that the Plan be continued from
year to year, this excess amount does not constitute a liability of the Fund.
Although there is no legal obligation for the Fund to pay expenses incurred
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, InterCapital, DWR, DWSC 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.
31
<PAGE>
Under its terms, the Plan had an initial term ending April 30, 1993 and
will continue from year to year thereafter, provided such continuance is
approved annually by a vote of the Trustees in the manner described above.
Prior to the Board's approval of amendments to the Plan to reflect the
multiple-class structure for the Fund, the most recent continuance of the
Plan for one year, until April 30, 1998, was approved by the Board of
Trustees of the Fund, including a majority of the Independent 12b-1 Trustees,
at a Board meeting held on April 24, 1997. Prior to approving the
continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to
continue the Plan, the Trustees considered: (1) the Fund's experience under
the Plan and whether such experience indicates that the Plan is operating as
anticipated; (2) the benefits the Fund had obtained, was obtaining and would
be likely to obtain under the Plan; and (3) what services had been provided
and were continuing to be provided under the Plan to the Fund and its
shareholders. Based upon their review, the Trustees of the Fund, including
each of the Independent 12b-1 Trustees, determined that continuation of the
Plan would be in the best interest of the Fund and would have a reasonable
likelihood of continuing to benefit the Fund and its shareholders. In the
Trustees' quarterly review of the Plan, they will consider its continued
appropriateness and the level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of
the affected Class or Classes of the Fund, and all material amendments to the
Plan must also be approved by the Trustees in the manner described above. The
Plan may be terminated at any time, without payment of any penalty, by vote
of a majority of the Independent 12b-1 Trustees or by a vote of a majority of
the outstanding voting securities of the Fund (as defined in the Act) on not
more than thirty days' written notice to any other party to the Plan. So long
as the Plan is in effect, the election and nomination of Independent 12b-1
Trustees shall be committed to the discretion of the Independent 12b-1
Trustees.
DETERMINATION OF NET ASSET VALUE
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the net asset value per share for each
Class of shares 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
net assets of the Fund, 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, Reverend Dr.
Martin Luther King, Jr. 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 for each Class of shares of the Fund's shares are determined as of such
times. Foreign currency exchange rates
32
<PAGE>
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 net asset value for each Class of shares. 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.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without
an initial sales charge are subject to a contingent deferred sales charge
("CDSC") of 1.0% if redeemed within one year of purchase, except in the
circumstances discussed in the Prospectus.
Right of Accumulation. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for
purchases of shares of the Fund totalling at least $25,000 in net asset
value. For example, if any person or entity who qualifies for this privilege
holds Class A shares of the Fund and/or other Dean Witter Funds that are
multiple class funds ("Dean Witter Multi-Class Funds") or shares of other
Dean Witter Funds sold with a front-end sales charge purchased at a price
including a front-end sales charge having a current value of $5,000, and
purchases $20,000 of additional shares of the Fund, the sales charge
applicable to the $20,000 purchase would be 4.75% of the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the selected broker-dealer or
shareholder when such an order is placed by mail. The reduced sales charge
will not be granted if: (a) such notification is not furnished at the time of
the order; or (b) a review of the records of the Distributor or Dean Witter
Trust Company (the "Transfer Agent") fails to confirm the investor's
represented holdings.
Letter of Intent. As discussed in the Prospectus, reduced sales charges
are available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment
goal to be achieved by any number of purchases over a thirteen-month period.
Each purchase of Class A shares made during the period will receive the
reduced sales commission applicable to the amount represented by the goal, as
if it were a single purchase. A number of shares equal in value to 5% of the
dollar amount of the Letter of Intent will be held in escrow by the Transfer
Agent, in the name of the shareholder. The initial purchase under a Letter of
Intent must be equal to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to
pay the difference between the sales charge otherwise applicable to the
purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the
Distributor is authorized by the shareholder to liquidate a sufficient number
of his or her escrowed shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level,
the sales charge on the entire amount of the purchase that results in passing
that level and on subsequent purchases will be subject to further reduced
sales charges in the same manner as set forth above under "Right of
Accumulation," but there will be no retroactive reduction of sales charges on
previous purchases. For the purpose of determining whether the investor is
entitled to a further reduced sales charge applicable to
33
<PAGE>
purchases at or above a sales charge level which exceeds the stated goal of a
Letter of Intent, the cumulative current net asset value of any shares owned
by the investor in any other Dean Witter Funds held by the shareholder which
were previously purchased at a price including a front-end sales charge
(including shares of the Fund and other Dean Witter Funds acquired in
exchange for those shares, and including in each case shares acquired through
reinvestment of dividends and distributions) will be added to the cost or net
asset value of shares of the Fund owned by the investor. However, shares of
"Exchange Funds" (see "Shareholder Services--Exchange Privilege") and the
purchase of shares of other Dean Witter Funds will not be included in
determining whether the stated goal of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction.
The 5% escrow and minimum purchase requirements will be applicable to the new
stated goal. Investors electing to purchase shares of the Fund pursuant to a
Letter of Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to
a CDSC payable upon most redemptions within six years after purchase. As
stated in the Prospectus, a CDSC will be imposed on any redemption by an
investor if after such redemption the current value of the investor's Class B
shares of the Fund is less than the dollar amount of all payments by the
shareholder for the purchase of Class B shares during the preceding six years
(or, in the case of shares held by certain employer-sponsored benefit plans,
three years). However, no CDSC will be imposed to the extent that the net
asset value of the shares redeemed does not exceed: (a) the current net asset
value of shares purchased more than six years (or, in the case of shares held
by certain employer-sponsored benefit plans, three years) prior to the
redemption, plus (b) the current net asset value of shares purchased through
reinvestment of dividends or distributions of the Fund or another Dean Witter
Fund (see "Shareholder Services--Targeted Dividends"), plus (c) the current
net asset value of shares acquired in exchange for (i) shares of Dean Witter
front-end sales charge funds, or (ii) shares of other Dean Witter Funds for
which shares of front-end sales charge funds have been exchanged (see
"Shareholder Services--Exchange Privilege"), plus (d) increases in the net
asset value of the investor's shares above the total amount of payments for
the purchase of Fund shares made during the preceding six (three) years. The
CDSC will be paid to the Distributor.
In determining the applicability of the CDSC to each redemption, the
amount which represents an increase in the net asset value of the investor's
shares above the amount of the total payments for the purchase of shares
within the last six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) will be redeemed first. In the
event the redemption amount exceeds such increase in value, the next portion
of the amount redeemed will be the amount which represents the net asset
value of the investor's shares purchased more than six (three) years prior to
the redemption and/or shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of Dean Witter
front-end sales charge funds, or for shares of other Dean Witter funds for
which shares of front-end sales charge funds have been exchanged. A portion
of the amount redeemed which exceeds an amount which represents both such
increase in value and the value of shares purchased more than six years (or,
in the case of shares held by certain employer-sponsored benefit plans, three
years) prior to the redemption and/or shares purchased through reinvestment
of dividends or distributions and/or shares acquired in the above-described
exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number
of years from the time of any payment for the purchase of shares, all
payments made during a month will be aggregated and deemed to have been made
on the last day
34
<PAGE>
of the month. The following table sets forth the rates of the CDSC applicable
to most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
<S> <C>
First ...................... 5.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 2.0%
Fifth ...................... 2.0%
Sixth ...................... 1.0%
Seventh and thereafter .... None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund held by 401(k) plans or other employer-sponsored plans
qualified under Section 401(a) of the Internal Revenue Code for which DWTC or
DWTFSB serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper and whose accounts are opened on or after July 28, 1997:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
<S> <C>
First .................... 2.0%
Second ................... 2.0%
Third .................... 1.0%
Fourth and thereafter .... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year or three-year period. This will result in any such
CDSC being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years
(or, in the case of shares held by certain employer-sponsored benefit plans,
three years) of purchase which are in excess of these amounts and which
redemptions do not qualify for waiver of the CDSC, as described in the
Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC
of 1.0% on most redemptions made within one year after purchase, except in
the circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
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 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 Shareholder Investment Account, the
shareholder will be mailed a confirmation of the transaction from the Fund or
from DWR or other Selected Broker-Dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of
the Fund, unless the shareholder requests that they be paid in cash. Each
purchase of shares of the Fund is made upon the condition that the Transfer
Agent is thereby automatically
35
<PAGE>
appointed as agent of the investor to receive all dividends and capital gains
distributions on shares owned by the investor. Such dividends and
distributions will be paid, at the net asset value per share, in shares of
the applicable Class of the Fund (or in cash if the shareholder so requests)
as of the close of business on the record date. At any time an investor may
request the Transfer Agent, in writing, to have subsequent dividends and/or
capital gains distributions paid to him or her in cash rather than shares. To
assure sufficient time to process the change, such request should be received
by the Transfer Agent at least five business days prior to the record date of
the dividend or distribution. In the case of recently purchased shares for
which registration instructions have not been received on the record date,
cash payments will be made to DWR or other selected broker-dealer, and will
be forwarded to the shareholder, upon the receipt of proper instructions.
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 in shares
of the applicable Class at net asset value, without the imposition of a CDSC
upon redemption, by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. If the shareholder returns the
proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset
value per share next determined after receipt of the check or 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 any Class of an
open-end Dean Witter Fund other than Dean Witter Health Sciences Trust or in
another Class of Dean Witter Health Sciences Trust. Such investment will be
made as described above for automatic investment in shares of the applicable
Class of the Fund, at the net asset value per share (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 selected Class of the Dean Witter
Fund targeted to receive investments from dividends at the time they enter
the Targeted Dividends program. Investors should review the prospectus of the
targeted Dean Witter Fund before entering the program.
EasyInvest(Service Mark). 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 or following redemption of shares of a Dean
Witter money market fund, on a semi-monthly, monthly or quarterly basis, to
the Transfer Agent for investment in shares of the Fund. Shares purchased
through EasyInvest will be added to the shareholder's existing account at the
net asset value calculated the same business day the transfer of funds is
effected. 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,
shareholders may make additional investments in any Class of shares of the
Fund for which they qualify at any time by sending a check in any amount, not
less than $100, payable to Dean Witter Health Sciences Trust, and indicating
the selected Class, directly to the Fund's Transfer Agent. In the case of
Class A shares, after deduction of any applicable sales charge, the balance
will be applied to the purchase of Fund shares, and, in the case of shares of
the other Classes, the entire amount will be applied to the purchase of Fund
shares, at the net asset value per share next computed after receipt of the
check or purchase payment by the Transfer Agent. The shares so purchased will
be credited to the investor's account.
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
36
<PAGE>
CDSC will be imposed on shares redeemed under the Withdrawal Plan (see
"Purchase of Fund Shares" 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 CDSC) to
the shareholder will be the designated monthly or quarterly amount.
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 or amounts credited to a
shareholder's DWR or other selected broker-dealer brokerage account, within
five business days after the date of redemption. The Withdrawal Plan may be
terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net
investment income and net capital gains, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the CDSC applicable to the redemption of
shares previously purchased (see "Purchase of Fund Shares").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the
account must send complete written instructions to the Transfer Agent to
enroll in the Withdrawal Plan. The shareholder's signature on such
instructions must be guaranteed by an eligible guarantor acceptable to the
Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is 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 each Class of
shares of the Fund may exchange their shares for shares of the same Class of
shares of any other Dean Witter Multi-Class Fund without the imposition of
any exchange fee. Shares may also be exchanged for shares of any of the
following funds: Dean Witter Short-Term U.S. Treasury Trust, Dean Witter
Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter
Intermediate Term U.S. Treasury Trust and five Dean Witter Funds which are
money market funds (the foregoing nine funds are hereinafter referred to as
the "Exchange Funds"). Class A shares may also be exchanged for shares of
Dean Witter Multi-State Municipal Series Trust and Dean Witter Hawaii
Municipal Trust, which are Dean Witter Funds sold with a front-end sales
charge ("FSC Funds"). Class B shares may also be exchanged for shares of Dean
Witter Global Short-Term Income Fund Inc., Dean Witter High Income Securities
and Dean Witter National Municipal Trust, which are Dean Witter Funds offered
with a CDSC ("CDSC Funds"). Exchanges may be made after the shares of
37
<PAGE>
the Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment. An exchange will be treated
for federal income tax purposes the same as a repurchase or redemption of
shares, on which the shareholder may realize a capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to
the contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit
should not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares" a CDSC may be imposed upon a redemption, depending on a number
of factors, including the number of years from the time of purchase until the
time of redemption or exchange ("holding period"). When shares of a Dean
Witter Multi-Class Fund or any CDSC Fund are exchanged for shares of 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
the shareholder remains in an Exchange Fund (calculated from the last day of
the month in which the Exchange Fund shares were acquired), the holding
period or "year since purchase payment made" is frozen. When shares are
redeemed out of an Exchange Fund, they will be subject to a CDSC which would
be based upon the period of time the shareholder held shares in a Dean Witter
Multi-Class Fund or in a CDSC Fund. However, in the case of shares exchanged
into an Exchange Fund on or after April 23, 1990, upon a redemption of shares
which results in a CDSC being imposed, a credit (not to exceed the amount of
the CDSC) will be given in an amount equal to the Exchange Fund's 12b-1
distribution fees incurred on or after that date which are attributable to
those shares. Shareholders acquiring shares of an Exchange Fund pursuant to
this exchange privilege may exchange those shares back into a Dean Witter
Multi-Class Fund or in a CDSC Fund from the Exchange Fund, with no CDSC being
imposed on such exchange. The holding period previously frozen when shares
were first exchanged for shares of Exchange Fund resumes on the last day of
the month in which shares of a Dean Witter Multi-Class Fund or a CDSC Fund
are reacquired. A CDSC is imposed only upon an ultimate redemption, based
upon the time (calculated as described above) the shareholder was invested in
a Dean Witter Multi-Class Fund or in a CDSC Fund. In the case of exchanges of
Class A shares which are subject to a CDSC, the holding period also includes
the time (calculated as described above) the shareholder was invested in a
FSC Fund.
When shares initially purchased in a Dean Witter Multi-Class Fund or in a
CDSC Fund are exchanged for shares of a Dean Witter Multi-Class Fund, shares
of a CDSC Fund, shares of a FSC Fund, or shares of an Exchange Fund, the date
of purchase of the shares of the fund exchanged into, for purposes of the
CDSC upon redemption, will be the last day of the month in which the shares
being exchanged were originally purchased. In allocating the purchase
payments between funds for purposes of the CDSC, the amount which represents
the current net asset value of shares at the time of the exchange which were
(i) purchased more than one, three or six years (depending on the CDSC
schedule applicable to the shares) prior to the exchange, (ii) originally
acquired through reinvestment of dividends or distributions and (iii)
acquired in exchange for shares of FSC Funds, or for shares of other Dean
Witter Funds for which shares of FSC Funds have been exchanged (all such
shares called "Free Shares"), will be exchanged first. After an exchange, all
dividends earned on shares in an Exchange Fund will be considered Free
Shares. If the exchanged amount exceeds the value of such Free Shares, an
exchange is made, on a block-by-block basis, of non-Free Shares held for the
longest period of time (except that with respect to Class B shares if shares
held for identical periods of time but subject to different CDSC schedules
are held in the same Exchange Privilege Account, the shares of that block
that are subject to a lower CDSC rate will be exchanged prior to the shares
of that block that are subject to a higher CDSC rate). Shares equal to any
appreciation in the value of non-Free Shares exchanged will be treated as
Free Shares, and the amount of the purchase payments for the non-Free Shares
of the fund exchanged into will be equal to the lesser of (a) the purchase
payments for, or (b) the current net asset value of, the
38
<PAGE>
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 "Purchase of Fund Shares," any applicable CDSC will be imposed
upon the ultimate redemption of shares of any fund, regardless of the number
of exchanges since those shares were originally purchased.
With respect to the repurchase of shares of the Fund, the application of
proceeds to the purchase of new shares in the Fund or any other of the funds
and the general administration of the Exchange Privilege, the Transfer Agent
acts as agent for the Distributor 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, the Distributor or any Selected Broker-Dealer.
The Distributor and any Selected Broker-Dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
the shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
Selected Broker-Dealer for any transactions pursuant to this Exchange
Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account for each Class is $5,000 for Dean Witter Liquid
Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter
California Tax-Free Daily Income Trust, and Dean Witter New York Municipal
Money Market Trust, although those funds may, at their discretion accept
initial investments of as low as $1,000. The minimum initial investment for
the Exchange Privilege account for each Class is $10,000 for Dean Witter
Short-Term U.S. Treasury Trust although that Fund, in its discretion, may
accept initial purchases of as low as $5,000. The minimum initial investment
for the Exchange Privilege account for each Class is $5,000 for Dean Witter
Special Value Fund. The minimum initial investment for the Exchange Privilege
account for each Class 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 Exchange Funds 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, policies and restrictions.
39
<PAGE>
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Dealer Account Executive or the
Transfer Agent.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount
of any applicable CDSC (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.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other
than the record owner, or if the proceeds are to be paid to a corporation
(other than the Distributor or a selected broker-dealer for the account of
the shareholder), partnership, trust or fiduciary, or sent to the shareholder
at an address other than the registered address, signatures must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A stock
power may be obtained from any dealer or commercial bank. The Fund may change
the signature guarantee requirements from time to time upon notice to
shareholders, which may be by means of a new prospectus.
Repurchase. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by
DWR and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer
reduced by any applicable CDSC.
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares of any Class presented for repurchase or
redemption will be made by check within seven days after receipt by the
Transfer Agent of the certificate and/or written request in good order. The
term "good order" means that the share certificate, if any, and request for
redemption are properly signed, accompanied by any documentation required by
the Transfer Agent, and bear signature guarantees when required by the Fund
or the Transfer Agent. Such payment may be postponed or the right of
redemption suspended at times (a) when the New York Stock Exchange is closed
for other than customary weekends and holidays, (b) when trading on that
Exchange is restricted, (c) when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable
or it is not reasonably practicable for the Fund fairly to determine the
value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules
and regulations of the Securities and Exchange Commission shall govern as to
whether the conditions prescribed in (b) or (c) exist. If the shares to be
redeemed have recently been purchased by check (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). Shareholders maintaining margin accounts with DWR or
another selected broker-dealer are referred to their account executive
regarding restrictions on redemption of shares of the Fund pledged in the
margin account.
Transfers of Shares. In the event a shareholder requests a transfer of
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of
40
<PAGE>
shares which are either subject to the CDSC or free of such charge (and with
regard to the length of time shares subject to the 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 CDSC 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 35 days after the date of
the redemption or repurchase, reinstate any portion or all of the proceeds of
such redemption or repurchase in shares of the Fund in the same Class at 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, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to
distribute or to retain all or part of any net long-term capital gains in any
year for reinvestment. If any such gains are retained, the Fund will pay
federal income tax thereon, and, if the Fund makes an election, the
shareholders would include such undistributed gains in their income and
shareholders will be able to claim their share of the tax paid by the Fund as
a credit against their individual federal income tax.
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
41
<PAGE>
foreign corporations, the Fund would be eligible and would determine whether
or not to file an election with the Internal Revenue Service pursuant to
which shareholders of the Fund will be required to include their respective
pro rata portions of such withholding taxes in their United States income tax
returns as gross income, treat such respective pro rata portions as taxes
paid by them, and deduct such respective pro rata portions in computing their
taxable income or, alternatively, use them as foreign tax credits against
their United States income taxes. If the Fund 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. These figures are
computed separately for Class A, Class B, Class C and Class D shares. The
Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten
year period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. The ending redeemable value
is reduced by any CDSC at the end of the one, five or ten year or other
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing the average
annual total return involves a percentage obtained by dividing the ending
redeemable value by the amount of the initial investment, taking a root of
the quotient (where the root is equivalent to the number of years in the
period) and subtracting 1 from the result. The average annual total 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. These returns are for Class B only; there were no other
Classes of shares outstanding on such date.
42
<PAGE>
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for
Class A or the deduction of the CDSC for each of Class B and Class C which,
if reflected, would reduce the performance quoted. For example, the average
annual total return of the Fund may be calculated in the manner described
above, but without deduction for any applicable sales charge. Based on this
calculation, the 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%, respectively. These
returns are for Class B only; there were no other Classes of shares
outstanding on such date.
In addition, the Fund may compute its aggregate total return for each
Class for specified periods by determining the aggregate percentage rate
which will result in the ending value of a hypothetical $1,000 investment
made at the beginning of the period. For the purpose of this calculation, it
is assumed that all dividends and distributions are reinvested. The formula
for computing aggregate total return involves a percentage obtained by
dividing the ending value (without the reduction for any 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%, respectively. These returns are for Class B
only; there were no other Classes of shares outstanding on such date.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1
to the Fund's aggregate total return to date (expressed as a decimal and
without taking into account the effect of any applicable CDSC) and
multiplying by $9,475, $48,000 and $97,000 in the case of Class A
(investments of $10,000, $50,000 and $100,000 adjusted for the initial sales
charge) or by $10,000, $50,000 and $100,000 in the case of each of Class B,
Class C and Class D, as the case may be. 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,
respectively. This information is for Class B only; there were no other
Classes of shares outstanding on such date.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and 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 have been elected by the shareholders of the
Fund, most recently at a Special Meeting of Shareholders held on May 21,
1997. On that date, Wayne E. Hedien was also elected as a Trustee of the
Fund, with his term to commence on September 1, 1997. The Trustees themselves
have the power to alter the number and the terms of office of the Trustees,
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. The Trustees have not authorized any such additional
series or classes of shares other than as set forth in the Prospectus.
43
<PAGE>
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.
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,
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.
44
<PAGE>
LEGAL COUNSEL
- -----------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- -----------------------------------------------------------------------------
The Annual Financial Statements of the Fund for the year ended July 31,
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.
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.
45
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
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
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
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
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
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
<PAGE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
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
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
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
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
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
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
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
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
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
===== ============
<PAGE>
<FN>
- ---------------------
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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1996
<TABLE>
<S> <C>
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
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
NET INVESTMENT INCOME:
INCOME
<S> <C>
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
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
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>
52
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
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.
53
<PAGE>
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.
54
<PAGE>
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.
55
<PAGE>
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 beneficialinterest 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.
56
<PAGE>
Dean Witter Health Sciences Trust
Financial Highlights
Selected ratios and per share data for a share of beneficial
interest outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JULY 31 OCTOBER 30, 1992*
-------------------------- THROUGH
1996 1995 1994 JULY 31, 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 -- -- --
</TABLE>
* 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
57
<PAGE>
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.
58
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS January 31, 1997 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.4%)
Agriculture Related (0.3%)
40,000 Delta & Pine Land Co. .......................................... $ 1,495,000
--------------
Biotechnology (20.9%)
100,000 Affymetrix, Inc.* ............................................... 2,900,000
170,000 Agouron Pharmaceutical, Inc.* ................................... 14,577,500
30,000 Aksys Ltd.* ..................................................... 375,000
150,000 Alexion Pharmaceuticals, Inc.* .................................. 1,818,750
250,000 Alkermes, Inc.* ................................................. 5,718,750
30,000 Allelix Biopharmaceuticals, Inc.* (Canada) ...................... 342,832
140,000 Biochem Pharma, Inc.* ........................................... 7,857,500
60,000 Biofield Corp.* ................................................. 682,500
220,000 Biomira, Inc.* (Canada) ......................................... 1,141,596
70,000 Cambridge Heart, Inc. .......................................... 866,250
100,000 Cardiothoracic Systems, Inc. .................................... 2,500,000
80,000 Cardiovascular Dynamics, Inc.* .................................. 790,000
170,000 Cell Genesys, Inc.* ............................................. 1,253,750
140,000 Centocor, Inc.* ................................................. 5,337,500
150,000 Cephalon Inc.* .................................................. 3,881,250
100,000 Cytotherapeutics, Inc.* ......................................... 987,500
50,100 Cytyc Corp. .................................................... 1,239,975
50,000 ESC Medical Systems Ltd.* (Israel) .............................. 1,625,000
170,000 Genzyme Corp. General Division* ................................. 4,738,750
185,000 Gilead Sciences, Inc.* .......................................... 6,035,625
120,000 Gliatech, Inc.* ................................................. 1,275,000
232,000 IDEC Pharmaceuticals Corp.* ..................................... 5,365,000
75,000 Immune Response Corp. .......................................... 609,375
130,000 Lifecore Biomedical, Inc.* ...................................... 2,340,000
130,000 Ligand Pharmaceuticals, Inc. (Class B) .......................... 1,803,750
60,000 Liposome Co., Inc.* ............................................. 1,372,500
150,000 Matritech, Inc.* ................................................ 1,181,250
90,000 Maxim Pharmaceuticals, Inc. .................................... 686,250
60,000 Medimmune, Inc.* ................................................ 952,500
100,000 Neurogen Corp.* ................................................. 1,950,000
90,000 Norland Medical Systems, Inc. .................................. 607,500
60,000 OEC Medical Systems, Inc.* ...................................... 1,035,000
80,000 Pharmacopeia, Inc. ............................................. 1,560,000
120,000 Protein Design Labs, Inc.* ...................................... 4,110,000
200,000 Scios, Inc.* .................................................... 1,187,500
140,000 Sepracor Inc. .................................................. 3,692,500
150,000 Vertex Pharmaceuticals, Inc.* ................................... 7,350,000
110,000 Virus Research Institute, Inc. ................................. 742,500
60,000 Visible Genetics Inc. (Canada) .................................. 465,000
--------------
102,955,653
--------------
Business Services (0.3%)
50,000 Cognizant Corp.* ................................................ $ 1,606,250
--------------
Chemicals (0.2%)
40,000 Fresenius Medical Care AG (ADR)(Germany) ........................ 1,190,000
--------------
Commercial Services (4.9%)
127,500 ABR Information Services, Inc.* ................................. 5,578,125
33,000 Advanced Health Corp. .......................................... 379,500
20,000 American Medical Response, Inc. ................................ 795,000
40,000 Complete Management, Inc. ...................................... 515,000
150,000 Equity Corporation International* ............................... 2,943,750
60,000 Interim Services, Inc.* ......................................... 2,175,000
100,000 Medquist, Inc.* ................................................. 2,475,000
30,000 Pharmaceutical Product Development, Inc. ....................... 855,000
70,000 Physician Support Systems, Inc. ................................ 1,225,000
97,000 RTW, Inc.* ...................................................... 1,200,375
156,250 Stewart Enterprises, Inc. (Class A) ............................. 5,507,812
40,000 Urocor, Inc.* ................................................... 410,000
20,000 Walsh International Inc.* ....................................... 157,500
--------------
24,217,062
--------------
Computer Software (2.7%)
80,000 Apache Medical Systems, Inc ..................................... 450,000
20,000 HCIA, Inc.* ..................................................... 765,000
130,000 Healthdyne Information Enterprises, Inc. ....................... 771,875
120,000 MDL Information Systems, Inc.* .................................. 2,640,000
180,000 Medic Computer Systems, Inc.* ................................... 6,975,000
60,000 QuadraMed Corp. ................................................ 697,500
60,000 Tripos, Inc. ................................................... 1,140,000
--------------
13,439,375
--------------
Computer Software & Services (0.5%)
30,000 Health Systems Design Corp. .................................... 255,000
50,000 ImageMatrix Corp. (Units)+* ..................................... 153,125
40,000 Lanvision Systems, Inc.* ........................................ 285,000
100,000 Sunquest Information Systems, Inc.* ............................. 1,575,000
--------------
2,268,125
--------------
Drugs (4.9%)
30,000 Atrix Laboratories, Inc. ....................................... 375,000
100,000 Columbia Laboratories, Inc. .................................... 1,487,500
280,000 Dura-Pharmaceuticals, Inc.* ..................................... 11,760,000
110,000 Elan Corp. PLC (ADR)* (Ireland) ................................. 4,235,000
100,000 Labopharm Inc.* (Canada) ........................................ 489,760
160,000 Nexstar Pharmaceuticals, Inc.* .................................. 2,400,000
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS January 31, 1997 (unaudited) continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
20,000 Scherer (R.P.) Corp.* ........................................... $ 1,132,500
40,000 Teva Pharmaceutical Industries Ltd. (ADR)(Israel) ............... 2,180,000
--------------
24,059,760
--------------
Electronics (0.2%)
42,436 Del Global Technologies Corp.* .................................. 381,924
40,000 Galileo Corp. ................................................... 740,000
--------------
1,121,924
--------------
Finance (0.1%)
45,000 HealthCare Financial Partners, Inc. ............................ 697,500
--------------
Health Equipment & Services (3.5%)
70,000 ADAC Laboratories ............................................... 1,732,500
30,000 Matria Healthcare, Inc.* ........................................ 150,000
197,400 Renal Treatment Centers, Inc. .................................. 5,551,875
270,000 RoTech Medical Corp.* ........................................... 4,657,500
60,000 Sybron International Corp.* ..................................... 1,852,500
100,000 Vivra, Inc.* .................................................... 3,050,000
--------------
16,994,375
--------------
Healthcare (0.5%)
100,000 Allegiance Corp. ................................................ 2,562,500
--------------
Healthcare-Diversified (2.3%)
30,000 Foundation Health Corp. ........................................ 997,500
110,000 Healthsouth Corp.* .............................................. 4,798,750
100,000 Mentor Corp. ................................................... 2,812,500
100,000 Universal Health Services, Inc. (Class B)* ...................... 2,900,000
--------------
11,508,750
--------------
Healthcare-Miscellaneous (0.4%)
15,000 Cornell Corrections, Inc. ...................................... 161,250
70,000 MedPartners, Inc. .............................................. 1,303,750
20,500 Trigon Healthcare, Inc. ........................................ 363,875
--------------
1,828,875
--------------
Hospital Management (4.7%)
180,750 American HomePatient, Inc.* ..................................... 4,247,625
100,000 Enterprise Systems, Inc.* ....................................... 2,075,000
150,000 FPA Medical Management, Inc. ................................... 3,693,750
50,000 Harborside Healthcare Corp. ..................................... 612,500
50,000 Impath, Inc.* ................................................... 875,000
195,000 PhyCor, Inc.* ................................................... 6,825,000
35,000 Pro-Dex, Inc.* .................................................. 72,187
75,000 Renal Care Group, Inc.* ......................................... 2,700,000
50,000 Sterling House Corp. ........................................... 475,000
48,600 Total Renal Care Holdings, Inc.* ................................ 1,779,975
--------------
23,356,037
--------------
<PAGE>
Hospital Management & Health
Maintenance Organizations (1.0%)
120,000 Collaborative Clinical Research, Inc.* .......................... $ 1,200,000
74,400 NCS Healthcare, Inc. (Class A) .................................. 2,511,000
120,000 Raytel Medical Corp. ........................................... 1,200,000
--------------
4,911,000
--------------
Hospital Supply (0.2%)
120,000 Boston Biomedica, Inc. .......................................... 960,000
--------------
Life Insurance (0.7%)
50,000 CRA Managed Care, Inc. ......................................... 2,425,000
70,000 Provident American Corp. ....................................... 910,000
--------------
3,335,000
--------------
Manufacturing (0.9%)
35,000 Axogen Ltd. (Units)+ ............................................ 962,500
67,500 Memtec Ltd. (ADR)(Australia) .................................... 1,957,500
45,000 Waters Corp.* ................................................... 1,333,125
--------------
4,253,125
--------------
Medical Equipment (1.7%)
50,000 AccuMed International, Inc. .................................... 165,625
50,000 Applied Imaging Corp. .......................................... 362,500
10,000 Biopsys Medical, Inc. .......................................... 267,500
80,000 Endovascular Technologies, Inc. ................................ 930,000
110,000 Steris Corp.* ................................................... 3,245,000
30,000 Stryker Corp. .................................................. 870,000
90,000 Thermo Cardiosystems, Inc.* ..................................... 2,306,250
--------------
8,146,875
--------------
Medical Products & Supplies (19.2%)
165,000 Angeion Corp.* .................................................. 804,375
80,000 Aradigm Corp.* .................................................. 700,000
70,000 ArQule, Inc. ................................................... 1,487,500
60,000 Avecor Cardiovascular, Inc. .................................... 705,000
75,000 Biosource International, Inc.* .................................. 553,125
70,000 Calypte Biomedical Corp.* ....................................... 472,500
192,600 Capstone Pharmacy Services, Inc.* ............................... 2,214,900
145,500 ClinTrials Research Inc.* ....................................... 4,292,250
82,500 Conmed Corp.* ................................................... 1,598,437
200,000 Cryolife, Inc.* ................................................. 2,075,000
30,000 Dentsply International, Inc. .................................... 1,492,500
100,000 EP MedSystems, Inc. ............................................ 350,000
110,000 Hanger Orthopedic Group, Inc.* .................................. 673,750
50,000 Heartport, Inc.* ................................................ 1,575,000
100,000 I-STAT Corp.* ................................................... 2,725,000
130,000 IDEXX Laboratories, Inc.* ....................................... 4,225,000
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS January 31, 1997 (unaudited) continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
75,000 Imagyn Medical, Inc.* ........................................... $ 684,375
120,000 Immunomedics, Inc.* ............................................. 712,500
150,000 Innerdyne, Inc.* ................................................ 562,500
110,000 Invacare Corp. ................................................. 2,915,000
110,000 IRIDEX Corp.* ................................................... 770,000
75,000 Kensey Nash Corp. .............................................. 900,000
120,000 Kinetic Concepts, Inc. ......................................... 1,470,000
80,000 Laser Industries, Ltd.* (Israel) ................................ 850,000
81,000 Life Medical Sciences, Inc.* .................................... 425,250
100,000 Lincare Holdings, Inc.* ......................................... 3,762,500
170,000 Med-Design Corp. ............................................... 1,147,500
120,000 Minimed Inc. ................................................... 3,990,000
20,000 Minntech Corp. ................................................. 210,000
40,000 NewVision Technology, Inc. (Units)+* ............................ 235,000
100,000 Novoste Corp. .................................................. 1,675,000
220,000 Omnicare, Inc. ................................................. 6,077,500
100,000 Oncogene Science, Inc. ......................................... 750,000
150,000 PLC Systems, Inc.* (Canada) ..................................... 3,712,500
120,000 Possis Medical, Inc.* ........................................... 2,235,000
100,000 ResMed, Inc. ................................................... 2,175,000
170,000 Sano Corp.* ..................................................... 2,210,000
110,000 Serologicals Corp.* ............................................. 3,245,000
160,000 Staar Surgical Co.* ............................................. 2,140,000
30,000 Sterile Recoveries, Inc. ....................................... 502,500
90,000 Target Therapeutics, Inc.* ...................................... 6,266,250
40,000 Thoratec Laboratories Corp.* .................................... 400,000
110,000 United States Surgical Corp. ................................... 4,413,750
100,000 Urologix, Inc. ................................................. 1,725,000
90,000 Ventana Medical Systems, Inc.* .................................. 1,215,000
70,000 VISX, Inc.* ..................................................... 1,505,000
160,000 Vivus, Inc.* .................................................... 9,700,000
--------------
94,526,462
--------------
Medical Services (4.3%)
40,000 Alternative Living Services, Inc. .............................. 525,000
40,000 Atria Communities, Inc. ........................................ 480,000
15,000 Kapson Senior Quarters Corp. ................................... 144,375
65,200 Medical Alliance, Inc. ......................................... 912,800
110,000 Medical Resources, Inc.* ........................................ 1,182,500
230,000 NABI, Inc.* ..................................................... 2,501,250
30,000 Oxford Health Plans, Inc.* ...................................... 1,631,250
40,000 Patient Infosystems, Inc. ...................................... 325,000
20,000 Phoenix International Life Sciences, Inc.* (Canada) ............. 153,606
115,000 Prime Medical Services, Inc.* ................................... 1,322,500
120,000 Quintiles Transnational Corp.* .................................. 8,940,000
<PAGE>
103,000 Transkaryotic Therapies, Inc. .................................. $ 2,034,250
80,000 Zoll Medical Corp.* ............................................. 790,000
--------------
20,942,531
--------------
Personal Products (0.2%)
50,000 National Dentex Corp.* .......................................... 862,500
--------------
Pharmaceuticals (23.3%)
100,000 Algos Pharmaceutical Corp. ..................................... 1,350,000
160,000 Alliance Pharmaceutical Corp.* .................................. 2,000,000
100,000 Amrion, Inc.* ................................................... 1,812,500
80,000 Andrx Corp. ..................................................... 1,500,000
100,000 Aronex Pharmaceuticals, Inc.* ................................... 787,500
50,000 Autoimmune, Inc.* ............................................... 831,250
60,000 Biotransplant, Inc.* ............................................ 435,000
228,968 Biovail Corporation International* .............................. 6,611,451
167,500 Bone Care International, Inc.* .................................. 1,298,125
50,000 Cadus Pharmaceutical Corp. ..................................... 693,750
100,000 Cambridge Neuroscience, Inc. ................................... 1,187,500
100,000 Collagenex Pharmaceuticals, Inc. ............................... 925,000
50,000 Coulter Pharmaceutical, Inc. ................................... 600,000
180,000 Curative Health Services, Inc.* ................................. 5,827,500
100,000 Cygnus, Inc.* ................................................... 1,450,000
200,000 Cypros Pharmaceutical Corp.* .................................... 1,075,000
150,000 DUSA Pharmaceuticals, Inc. ..................................... 1,143,750
150,000 Emisphere Technologies, Inc. ................................... 3,487,500
130,000 Ergo Science Corp.* ............................................. 1,820,000
30,000 Flamel Technologies (ADR)* (France) ............................. 225,000
70,000 Geltex Pharmaceuticals, Inc. ................................... 1,697,500
80,000 Genset (ADR)* (France) .......................................... 1,130,000
397,500 Guilford Pharmaceuticals, Inc.* ................................. 9,738,750
50,000 Hyal Pharmaceutical Corp. (Canada) .............................. 194,791
120,000 ICOS Corp.* ..................................................... 960,000
200,000 Imclone Systems, Inc.* .......................................... 1,575,000
120,000 Incyte Pharmaceuticals, Inc.* ................................... 7,920,000
80,000 Intercardia, Inc.* .............................................. 1,240,000
200,000 Interferon Sciences, Inc.* ...................................... 518,750
185,100 Interneuron Pharmaceuticals, Inc.* .............................. 5,460,450
97,500 Jones Medical Industries, Inc. ................................. 3,692,813
200,000 Medarex, Inc.* .................................................. 1,775,000
160,000 Medicis Pharmaceutical Corp. (Class A)* ......................... 10,040,000
50,000 Microcide Pharmaceuticals, Inc.* ................................ 593,750
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS January 31, 1997 (unaudited) continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
20,000 Millennium Pharmaceuticals, Inc.* ............................... $ 387,500
50,000 Neose Technologies, Inc. ....................................... 900,000
110,000 Neurocrine Bioscience, Inc. .................................... 1,003,750
220,000 North American Vaccine, Inc.* ................................... 5,390,000
85,000 NPS Pharmaceuticals, Inc.* ...................................... 956,250
100,000 Onyx Pharmaceuticals, Inc. ..................................... 1,000,000
130,000 Orphan Medical, Inc.* ........................................... 991,250
100,000 Parexel International Corp. .................................... 5,825,000
150,000 Pathogenesis Corp. ............................................. 4,537,500
45,000 Pharmacyclics, Inc.* ............................................ 860,625
75,000 Ribozyme Pharmaceuticals, Inc.* ................................. 890,625
180,000 Sangstat Medical Corp.* ......................................... 5,512,500
100,000 Sequus Pharmaceuticals, Inc. ................................... 1,337,500
100,000 Sonus Pharmaceuticals, Inc. .................................... 2,725,000
12,500 SuperGen, Inc.* ................................................. 156,250
100,000 Zila, Inc.* ..................................................... 806,250
--------------
114,877,630
--------------
Retail -Specialty (1.5%)
110,000 Cole National Corp.* ............................................ 3,135,000
125,000 Rexall Sundown, Inc.* ........................................... 3,968,750
--------------
7,103,750
--------------
TOTAL COMMON STOCKS
(Identified Cost $346,332,483) .................................. 489,220,059
--------------
WARRANTS (0.0%)
Medical Products & Supplies (0.0%)
70,000 ATS Medical, Inc. (due 03/02/97)* ............................... 21,875
--------------
Pharmaceuticals (0.0%)
30,000 SuperGen, Inc. (due 03/12/01)* .................................. 163,125
--------------
TOTAL WARRANTS
(Identified Cost $43,448) ....................................... 185,000
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (1.0%)
REPURCHASE AGREEMENT
$4,875 The Bank of New York 5.25% due 02/31/97 (dated 01/31/97;
proceeds $4,876,953; collateralized by $4,611,138 FNMA 6.25% due
11/10/99 valued at $4,664,958 and $440,265 U.S. Treasury Strip
0.00% due 11/15/02 valued at $307,358)(Identified Cost
$4,874,820) .................................................... $4,874,820
-------------
TOTAL INVESTMENTS
(Identified Cost $351,250,751) (a)............................... 100.4% 494,279,879
LIABILITIES IN EXCESS OF
OTHER ASSETS..................................................... (0.4) (1,909,875)
-------- --------------
NET ASSETS....................................................... 100.0% $492,370,004
======== ==============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
+ Consists of more than one class of securities traded together as a
unit; stocks with attached warrants.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$164,106,142 and the aggregate gross unrealized depreciation is
$21,077,014, resulting in net unrealized appreciation of
$143,029,128.
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $351,250,751)....................................... $494,279,879
Receivable for:
Investments sold.................................................... 5,273,061
Shares of beneficial interest sold ................................. 1,008,320
Deferred organizational expenses ..................................... 24,012
Prepaid expenses...................................................... 129,996
------------
TOTAL ASSETS ....................................................... 500,715,268
------------
LIABILITIES:
Payable for:
Investments purchased............................................... 6,634,899
Shares of beneficial interest repurchased........................... 767,562
Plan of distribution fee ........................................... 408,198
Investment advisory fee ............................................ 408,198
Accrued expenses ..................................................... 126,407
------------
TOTAL LIABILITIES................................................... 8,345,264
------------
NET ASSETS:
Paid-in-capital....................................................... 363,100,261
Net unrealized appreciation .......................................... 143,029,128
Accumulated net investment loss....................................... (5,058,494)
Accumulated net realized loss......................................... (8,700,891)
------------
NET ASSETS.......................................................... $492,370,004
============
NET ASSET VALUE PER SHARE,
31,334,590 shares outstanding (unlimited shares authorized of $.01
par value)........................................................... $ 15.71
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended January 31, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.......................................... $ 206,421
Dividends (net of $2,467 foreign withholding
tax)............................................. 104,859
-----------
TOTAL INCOME ................................... 311,280
-----------
EXPENSES
Plan of distribution fee ......................... 2,406,821
Investment advisory fee .......................... 2,406,219
Transfer agent fees and expenses ................. 347,086
Registration fees ................................ 57,367
Shareholder reports and notices .................. 33,577
Custodian fees ................................... 29,406
Professional fees ................................ 27,968
Organizational expenses .......................... 16,244
Trustees' fees and expenses ...................... 11,972
Other ............................................ 4,766
-----------
TOTAL EXPENSES ................................. 5,341,426
-----------
NET INVESTMENT LOSS............................. (5,030,146)
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ................................ 2,570,344
Net change in unrealized appreciation ............ 54,559,089
-----------
NET GAIN ....................................... 57,129,433
-----------
NET INCREASE ..................................... $52,099,287
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 1997 JULY 31, 1996
- ---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss.................................... $ (5,030,146) $ (7,836,792)
Net realized gain...................................... 2,570,344 38,104,756
Net change in unrealized appreciation.................. 54,559,089 16,813,336
------------ ------------
NET INCREASE ........................................ 52,099,287 47,081,300
------------ ------------
Distributions from net realized gain .................. (28,286,327) (22,643,391)
Net increase from transactions in shares of beneficial
interest.............................................. 25,681,466 144,702,568
------------ ------------
NET INCREASE ........................................ 49,494,426 169,140,477
NET ASSETS:
Beginning of period ................................... 442,875,578 273,735,101
------------ ------------
END OF PERIOD
(Including accumulated net investment losses of
$5,058,494 and $28,348, respectively)................ $492,370,004 $442,875,578
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
65
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 1997 (unaudited)
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 or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where a security is traded on more than one exchange, the
security is valued on the exchange designated as the primary market pursuant
to procedures adopted by the Trustees); (2) all other portfolio securities
for which over-the-counter market quotations are readily available are valued
at the latest available bid price prior to the time of valuation; (3) when
market quotations are not readily available, including circumstances under
which it is determined by Dean Witter InterCapital Inc. (the "Investment
Manager") that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in
good faith under procedures established by and under the general supervision
of the Trustees (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); (4) 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.
66
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 1997 (unaudited) 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 -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $162,000 which have been
reimbursed for the full amount thereof. Such expenses have been deferred and
are being amortized on the straight-line method over a period not to exceed
five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates 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.
67
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 1997 (unaudited) 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, total
$17,093,930 at January 31, 1997.
The Distributor has informed the Fund that for the six months ended January
31, 1997, it received approximately $509,000 in contingent deferred sales
charges from certain redemptions of the Fund's shares.
68
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 1997 (unaudited) 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 six months ended January 31, 1997
aggregated $159,976,549 and $155,061,958, respectively.
For the six months ended January 31, 1997, the Fund incurred brokerage
commissions of $6,330 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 January 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $40,000.
The Fund has an unfunded noncontributory defined benefit pension plan
covering all independent Trustees of the Fund who will have served as
independent Trustees for at least five years at the time of retirement.
Benefits under this plan are based on years of service and compensation
during the last five years of service. Aggregate pension costs for the six
months ended January 31, 1997 included in Trustees' fees and expenses in the
Statement of Operations amounted to $2,497. At January 31, 1997, the Fund had
an accrued pension liability of $30,096 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 SIX
MONTHS ENDED FOR THE YEAR ENDED
JANUARY 31, 1997 JULY 31, 1996
----------------------------- ------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sold 8,052,051 $ 126,429,499 26,005,478 $ 429,545,190
Reinvestment of distributions 1,860,102 26,655,267 1,434,910 21,121,878
--------- ------------- ---------- -------------
9,912,153 153,084,766 27,440,388 450,667,068
Repurchased (8,170,765) (127,403,300) (19,102,244) (305,964,500)
--------- ------------- ---------- -------------
Net increase 1,741,388 $ 25,681,466 8,338,144 $ 144,702,568
========= ============= ========== =============
</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.
69
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED JULY 31 OCTOBER 30, 1992*
MONTHS ENDED ---------------------------------------- THROUGH
JANUARY 31, 1997 1996 1995 1994 JULY 31, 1993
- --------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $14.97 $12.88 $ 9.32 $ 9.22 $10.00
------ ------ ------ ------ ------
Net investment loss........................ (0.16) (0.26) (0.24) (0.22) (0.08)
Net realized and unrealized gain (loss) ... 1.85 3.44 3.80 0.32 (0.70)
------ ------ ------ ------ ------
Total from investment operations........... 1.69 3.18 3.56 0.10 (0.78)
------ ------ ------ ------ ------
Less distributions from net realized gain (0.95) (1.09) -- -- --
------ ------ ------ ------ ------
Net asset value, end of period............. $15.71 $14.97 $12.88 $ 9.32 $ 9.22
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+ .................. 11.90%(1) 24.84% 38.20% 1.08% (7.80)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 2.22%(2) 2.20% 2.30% 2.30% 2.38%(2)
Net investment loss........................ (2.09)%(2) (2.03)% (2.05)% (2.06)% (1.38)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ... $492,370 $442,876 $273,735 $228,573 $231,646
Portfolio turnover rate ................... 33%(1) 63% 145% 106% 55%(1)
Average commission rate paid............... $0.0547 $0.0562 -- -- --
</TABLE>
- ------------
* 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
70
<PAGE>
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 years
ended July 31, 1994, 1995 and 1996 and for
the six months ended January 31, 1997
(unaudited)......................................... 6
(2) Financial statements included in the Statement
of Additional Information (Part B): Page in
SAI
---
Portfolio of Investments at July 31, 1996.......... 46
Statement of Assets and Liabilities at
July 31, 1996 ..................................... 50
Statement of Operations for the year ended July
31, 1996 ......................................... 51
Statement of changes in net assets for the
years ended July 31, 1995 and 1996................. 52
Notes to Financial Statements at July 31, 1996..... 53
Financial highlights for the period October 30,
1992 through July 31, 1993 and for the
years ended July 31, 1994, 1995 and 1996 .......... 57
Portfolio of Investments at January 31, 1997
(unaudited)........................................ 59
Statement of Assets and Liabilities at January 31,
1997 (unaudited)................................... 63
Statement of Operations for the six months
ended January 31, 1997 (unaudited)................. 64
Statement of Changes in Net Assets for the six
months ended January 31, 1997 (unaudited) and for
the year ended July 31, 1996....................... 65
1
<PAGE>
Notes to Financial Statements at January 31, 1997
(unaudited).......................................... 66
Financial highlights for the period October 30,
1992 through July 31, 1993 and for the
years ended July 31, 1994, 1995 and 1996 and for
the six months ended January 31, 1997 (unaudited).... 70
(3) Financial statements included in Part C:
None
(b) Exhibits:
1. -- Form of Instrument Establishing and Designating
Additional Classes.
5. -- Form of Investment Management Agreement between
the Registrant and Dean Witter InterCapital Inc.
6.(a) -- Form of Distribution Agreement between the
Registrant and Dean Witter Distributors Inc.
6.(b) -- Form of Multiple-Class Distribution Agreement
between the Registrant and Dean Witter
Distributors Inc.
11. -- Consent of Independent Accountants.
15. -- Form of Amended and Restated Plan of
Distribution pursuant to Rule 12b-1.
27. -- Financial Data Schedule.
Other -- Form of Multiple-Class Plan pursuant to Rule 18f-3.
- --------------
All other exhibits were previously filed and are hereby incorporated by
reference.
Item 25. Persons Controlled by or Under Common Control With
Registrant.
None
Item 26. Number of Holders of Securities.
(1) (2)
Number of Record Holders
Title of Class at June 30, 1997
-------------- ----------------
Shares of Beneficial Interest 54,580
2
<PAGE>
Item 27. Indemnification
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and
under Section 4.8 of the Registrant's By-Laws, the indemnification of the
Registrant's trustees, officers, employees and agents is permitted if it is
determined that they acted under the belief that their actions were in or not
opposed to the best interest of the Registrant, and, with respect to any
criminal proceeding, they had reasonable cause to believe their conduct was not
unlawful. In addition, indemnification is permitted only if it is determined
that the actions in question did not render them liable by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties
or by reason of reckless disregard of their obligations and duties to the
Registrant. Trustees, officers, employees and agents will be indemnified for
the expense of litigation if it is determined that they are entitled to
indemnification against any liability established in such litigation. The
Registrant may also advance money for these expenses provided that they give
their undertakings to repay the Registrant unless their conduct is later
determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the
Registrant shall be liable for any action or failure to act, except in the case
of bad faith, willful misfeasance, gross negligence or reckless disregard of
duties to the Registrant.
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.
3
<PAGE>
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for
which Registrant itself is not permitted to indemnify him.
Item 28. Business and Other Connections of Investment Adviser.
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment adviser. The following information is given
regarding officers of Dean Witter InterCapital Inc. InterCapital is a
wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co. The
principal address of the Dean Witter Funds is Two World Trade Center, New York,
New York 10048.
The term "Dean Witter Funds" used below refers to the following
registered investment companies:
Closed-End Investment Companies
- -------------------------------
(1) InterCapital Income Securities Inc.
(2) High Income Advantage Trust
(3) 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
4
<PAGE>
(2) Dean Witter Tax-Exempt Securities Trust
(3) Dean Witter Tax-Free Daily Income Trust
(4) Dean Witter Dividend Growth Securities Inc.
(5) Dean Witter Convertible Securities Trust
(6) Dean Witter Liquid Asset Fund Inc.
(7) Dean Witter Developing Growth Securities Trust
(8) Dean Witter Retirement Series
(9) Dean Witter Federal Securities Trust
(10) Dean Witter World Wide Investment Trust
(11) Dean Witter U.S. Government Securities Trust
(12) Dean Witter Select Municipal Reinvestment Fund
(13) Dean Witter High Yield Securities Inc.
(14) Dean Witter Intermediate Income Securities
(15) Dean Witter New York Tax-Free Income Fund
(16) Dean Witter California Tax-Free Income Fund
(17) Dean Witter Health Sciences Trust
(18) Dean Witter California Tax-Free Daily Income Trust
(19) Dean Witter Global Asset Allocation Fund
(20) Dean Witter American Value Fund
(21) Dean Witter Strategist Fund
(22) Dean Witter Utilities Fund
(23) Dean Witter World Wide Income Trust
(24) Dean Witter New York Municipal Money Market Trust
(25) Dean Witter Capital Growth Securities
(26) Dean Witter Precious Metals and Minerals Trust
(27) Dean Witter European Growth Fund Inc.
(28) Dean Witter Global Short-Term Income Fund Inc.
(29) Dean Witter Pacific Growth Fund Inc.
(30) Dean Witter Multi-State Municipal Series Trust
(31) Dean Witter Short-Term U.S. Treasury Trust
(32) Dean Witter Diversified Income Trust
(33) Dean Witter U.S. Government Money Market Trust
(34) Dean Witter Global Dividend Growth Securities
(35) Active Assets California Tax-Free Trust
(36) Dean Witter Natural Resource Development Securities Inc.
(37) Active Assets Government Securities Trust
(38) Active Assets Money Trust
(39) Active Assets Tax-Free Trust
(40) Dean Witter Limited Term Municipal Trust
(41) Dean Witter Variable Investment Series
(42) Dean Witter Value-Added Market Series
(43) Dean Witter Global Utilities Fund
(44) Dean Witter High Income Securities
(45) Dean Witter National Municipal Trust
(46) Dean Witter International SmallCap Fund
(47) Dean Witter Mid-Cap Growth Fund
(48) Dean Witter Select Dimensions Investment Series
(49) Dean Witter Balanced Growth Fund
(50) Dean Witter Balanced Income Fund
(51) Dean Witter Hawaii Municipal Trust
(52) Dean Witter Capital Appreciation Fund
(53) Dean Witter Intermediate Term U.S. Treasury Trust
(54) Dean Witter Information Fund
(55) Dean Witter Japan Fund
5
<PAGE>
(56) Dean Witter Income Builder Fund
(57) Dean Witter Special Value Fund
(58) Dean Witter Financial Services Trust
(59) Dean Witter Market Leader Trust
The term "TCW/DW Funds" refers to the following registered investment
companies:
Open-End Investment Companies
- -----------------------------
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10)TCW/DW Strategic Income Trust
Closed-End Investment Companies
- -------------------------------
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Charles A. Fiumefreddo Executive Vice President and Director of Dean
Chairman, Chief Witter Reynolds Inc. ("DWR"); Chairman, Chief
Executive Officer and Executive Officer and Director of Dean Witter
Director Distributors Inc. ("Distributors") and Dean
Witter Services Company Inc. ("DWSC"); Chairman
and Director of Dean Witter Trust Company
("DWTC"); Chairman, Director or Trustee, President
and Chief Executive Officer of the Dean Witter
Funds and Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Director and/or
officer of various Morgan Stanley, Dean Witter,
Discover & Co. ("MSDWD") subsidiaries; Formerly
Executive Vice President and Director of Dean
Witter, Discover & Co.
Philip J. Purcell Chairman, Chief Executive Officer and Director of
Director of MSDWD and DWR; Director of DWSC and
Distributors; Director or Trustee of the Dean
Witter Funds; Director and/or officer of various
MSDWD subsidiaries.
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
- ----------------- ------------------------------------------------
Richard M. DeMartini President and Chief Operating Officer
Director of Dean Witter Capital, a division
of DWR; Director of DWR, DWSC, Distributors and
DWTC; Trustee of the TCW/DW Funds.
James F. Higgins President and Chief Operating Officer of
Director Dean Witter Financial; Director of DWR,
DWSC, Distributors and DWTC.
Thomas C. Schneider Executive Vice President and Chief Strategic
Executive Vice and Administrative Officer of MSDWD; Executive
President, Chief Vice President and Chief Financial Officer of
Financial Officer and DWSC and Distributors; Director of DWR,
Director DWSC and Distributors.
Christine A. Edwards Executive Vice President, Chief Legal Officer
Director and Secretary of MSDWD; Executive Vice
President, Secretary and Chief Legal Officer
of Distributors; Director of DWR, DWSC and
Distributors.
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of DWTC;
Vice President of the Dean Witter Funds and the
TCW/DW Funds.
Mitchell M. Merin President and Chief Strategic Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Strategic Officer Executive Vice President and Director of DWTC;
Executive Vice President and Director of DWR;
Director of SPS Transaction Services, Inc. and
various other MSDWD subsidiaries.
John B. Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Joseph J. McAlinden
Executive Vice President
and Chief Investment Vice President of the Dean Witter Funds and
Officer Director of DWTC.
Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
Secretary and General President, Assistant Secretary and Assistant
Counsel General Counsel of Distributors; Vice President,
Secretary and General Counsel of the Dean Witter
Funds and the TCW/DW Funds.
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
- ----------------- ------------------------------------------------
Peter M. Avelar
Senior Vice President Vice President of various Dean Witter Funds.
Mark Bavoso
Senior Vice President Vice President of various Dean Witter Funds.
Richard Felegy
Senior Vice President
Edward F. Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone Senior Vice President of DWSC, Distributors
Senior Vice President and DWTC and Director of DWTC; Vice President
of the Dean Witter Funds and the TCW/DW Funds.
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
Kenton J. Hinchcliffe
Senior Vice President Vice President of various Dean Witter Funds.
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
Jenny Beth Jones Vice President of Dean Witter Special Value Fund.
Senior Vice President
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
Anita H. Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira N. Ross
Senior Vice President Vice President of various Dean Witter Funds.
Guy G. Rutherfurd, Jr. Vice President of Dean Witter Market Leader
Senior Vice President Trust.
Rafael Scolari Vice President of Prime Income Trust.
Senior Vice President
Rochelle G. Siegel
Senior Vice President Vice President of various Dean Witter Funds.
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
- ----------------- ------------------------------------------------
Jayne M. Stevlingston Vice President of various Dean Witter Funds.
Senior Vice President
Paul D. Vance
Senior Vice President Vice President of various Dean Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
Ronald J. Worobel
Senior Vice President Vice President of various Dean Witter Funds.
Douglas Brown
First Vice President
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC, Assistant Treasurer of Distributors;
and Assistant Treasurer and Chief Financial Officer of the
Treasurer Dean Witter Funds and the TCW/DW Funds.
Thomas Chronert
First Vice President
Rosalie Clough
First Vice President
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of DWSC; Assistant
and Assistant Secretary Secretary of the Dean Witter Funds and the TCW/DW
Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors;First Vice
and Controller President and Treasurer of DWTC.
David Johnson
First Vice President
Stanley Kapica
First Vice President
Robert Zimmerman
First Vice President
Dale Albright
Vice President
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
- ----------------- ------------------------------------------------
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds.
Kirk Balzer
Vice President Vice President of Various Dean Witter Funds.
Nancy Belza
Vice President
Dale Boettcher
Vice President
Joseph Cardwell
Vice President
Philip Casparius
Vice President
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
Frank J. DeVito
Vice President Vice President of DWSC.
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
Michael Geringer
Vice President
Stephen Greenhut
Vice President
Peter W. Gurman
Vice President
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
- ----------------- ------------------------------------------------
Matthew Haynes Vice President of Dean Witter
Vice President Variable Investment Series
Peter Hermann
Vice President Vice President of various Dean Witter Funds
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
Christopher Jones
Vice President
James P. Kastberg
Vice President
Michelle Kaufman
Vice President Vice President of various Dean Witter Funds
Michael Knox
Vice President Vice President of various Dean Witter Funds
Paula LaCosta
Vice President Vice President of various Dean Witter Funds.
Thomas Lawlor
Vice President
Gerard J. Lian
Vice President Vice President of various Dean Witter Funds.
Catherine Maniscalco Vice President of Dean Witter Natural
Vice President Resource Development Securities Inc.
Albert McGarity
Vice President
LouAnne D. McInnis Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
11
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Mary Beth Mueller
Vice President
David Myers Vice President of Dean Witter Natural
Vice President Resource Development Securities Inc.
James Nash
Vice President
Richard Norris
Vice President
Carsten Otto Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
George Paoletti
Vice President
Anne Pickrell Vice President of Dean Witter Global Short-
Vice President Term Income Fund Inc.
Michael Roan
Vice President
Hugh Rose
Vice President
Robert Rossetti Vice President of Dean Witter Precious Metal and
Vice President Minerals Trust.
Ruth Rossi Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Carl F. Sadler
Vice President
Peter Seeley Vice President of Dean Witter World
Vice President Wide Income Trust
Naomi Stein
Vice President
Kathleen H. Stromberg
Vice President Vice President of various Dean Witter Funds.
Marybeth Swisher
Vice President
12
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Vinh Q. Tran
Vice President Vice President of various Dean Witter Funds.
Robert Vanden Assem
Vice President
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
Katherine Wickham
Vice President
Item 29. Principal Underwriters
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant.
Distributors is also the principal underwriter of the following
investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Global Asset Allocation
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(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
13
<PAGE>
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Federal Securities Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Value-Added Market Series
(43) Dean Witter Global Utilities Fund
(44) Dean Witter High Income Securities
(45) Dean Witter National Municipal Trust
(46) Dean Witter International SmallCap Fund
(47) Dean Witter Balanced Growth Fund
(48) Dean Witter Balanced Income Fund
(49) Dean Witter Hawaii Municipal Trust
(50) Dean Witter Variable Investment Series
(51) Dean Witter Capital Appreciation Fund
(52) Dean Witter Intermediate Term U.S. Treasury Trust
(53) Dean Witter Information Fund
(54) Dean Witter Japan Fund
(55) Dean Witter Income Builder Fund
(56) Dean Witter Special Value Fund
(57) Dean Witter Financial Services Trust
(58) Dean Witter Market Leader Trust
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income Trust
(b) The following information is given regarding directors and officers of
Distributors not listed in Item 28 above. The principal address of Distributors
is Two World Trade Center, New York, New York 10048. None of the following
persons has any position or office with the Registrant.
Positions and
Office with
Name Distributors
- ---- ------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
14
<PAGE>
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.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
PostEffective 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 17th day of July, 1997.
DEAN WITTER HEALTH SCIENCES TRUST
By /s/ Barry Fink
--------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
PostEffective Amendment No. 6 has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 07/17/97
-------------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 07/17/97
------------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 07/17/97
------------------------------
Barry Fink
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 07/17/97
-------------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
DEAN WITTER HEALTH SCIENCES TRUST
1. -- Form of Instrument Establishing and
Designating Additional Classes.
5. -- Form of Investment Management Agreement
between the Registrant and Dean Witter
InterCapital Inc.
6.(a) -- Form of Distribution Agreement between the
Registrant and Dean Witter Distributors Inc.
(b) -- Form of Multiple-Class Distribution Agreement
between the Registrant and Dean Witter
Distributors Inc.
11. -- Consent of Independent Accountants.
15. -- Form of Amended and Restated Plan of
Distribution pursuant to Rule 12b-1.
27. -- Financial Data Schedule.
Other -- Form of Multiple-Class Plan pursuant to Rule
18f-3.
- -------------
All other exhibits were previously filed and are hereby incorporated by
reference.
<PAGE>
CERTIFICATE
The undersigned hereby certifies that he is the Secretary of
Dean Witter Health Sciences Trust (the "Trust"), an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts, that
annexed hereto is an Instrument Establishing and Designating Additional Classes
of Shares of the Trust unanimously adopted by the Trustees of the Trust on June
30, 1997, as provided in Section 6.9(h) of the said Declaration, said Instrument
to take effect on July 28, 1997, and I do hereby further certify that such
Instrument has not been amended and is on the date hereof in full force and
effect.
Dated this 28th day of July, 1997.
--------------------------------
Barry Fink
Secretary
(SEAL)
<PAGE>
DEAN WITTER HEALTH SCIENCES TRUST
INSTRUMENT ESTABLISHING AND DESIGNATING
ADDITIONAL CLASSES OF SHARES
WHEREAS, Dean Witter Health Sciences Trust (the "Trust") was established by the
Declaration of Trust dated May 26, 1992, as amended from time to time (the
"Declaration"), under the laws of the Commonwealth of Massachusetts;
WHEREAS, Section 6.9(h) of the Declaration provides that the establishment and
designation of any additional class of shares shall be effective upon the
execution by a majority of the then Trustees of an instrument setting forth
such establishment and designation and the relative rights, preferences,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of such class, or as otherwise provided in such
instrument, which instrument shall have the status of an amendment to the
Declaration; and
WHEREAS, the Trustees of the Trust have deemed it advisable to establish and
designate three additional classes of shares and to designate classes for the
existing shares held prior to July 28, 1997 ("Existing Class") as provided
herein.
NOW, THEREFORE, BE IT RESOLVED, pursuant to Section 6.9(h) of the Declaration,
there are hereby established and designated three additional classes of
shares, to be known as: Class A, Class C and Class D (the "Additional
Classes"), each of which shall be subject to the relative rights, preferences,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption set forth in the Declaration with respect
to the Existing Class, except to the extent the Dean Witter Funds Multiple
Class Plan Pursuant to Rule 18f-3 attached hereto as Exhibit A sets forth
differences (i) between each of the Additional Classes, or (ii) among each of
the Existing Class and the Additional Classes; and be it further
RESOLVED, pursuant to Section 6.9(h) of the Declaration, all shares of the
Trust held prior to July 28, 1997 are hereby designated as Class B shares of
the Trust.
This instrument may be executed in more than one counterpart, each of which
shall be deemed an original, but all of which together shall constitute one
and the same document.
<PAGE>
IN WITNESS THEREOF, the undersigned, the Trustees of the Trust, have executed
this instrument this 30th day of June, 1997.
/s/ Michael Bozic /s/ Manuel H. Johnson
- -------------------------------- --------------------------------
Michael Bozic, as Trustee Manuel H. Johnson, as Trustee
and not individually and not individually
c/o Levitz Furniture Corp. c/o Johnson Smick International Inc.
6111 Broken Sound Parkway, N.W. 1133 Connecticut Avenue, N.W.
Boca Raton, FL 33487 Washington, D.C. 20036
/s/ Charles A. Fiumefreddo /s/ Michael E. Nugent
- -------------------------------- --------------------------------
Charles A. Fiumefreddo, as Trustee Michael E. Nugent, as Trustee
and not individually and not individually
Two World Trade Center c/o Triumph Capital, L.P.
New York, NY 10048 237 Park Avenue
New York, NY 10017
/s/ Edwin J. Garn Philip J. Purcell
- -------------------------------- --------------------------------
Edwin J. Garn, as Trustee Philip J. Purcell, as Trustee
and not individually and not individually
c/o Huntsman Chemical Corporation Two World Trade Center
500 Huntsman Way New York, NY 10048
Salt Lake City, UT 84111
/s/ John R. Haire /s/ John L. Schroeder
- -------------------------------- --------------------------------
John R. Haire, as Trustee John L. Schroeder, as Trustee
and not individually and not individually
Two World Trade Center c/o Gordon Altman Butowsky Weitzen
New York, NY 10048 Shalov & Wein
Counsel to the Independent Trustees
114 West 47th Street
New York, NY 10036
<PAGE>
STATE OF NEW YORK )
)ss:
COUNTY OF NEW YORK )
On this 30th day of June, 1997, MICHAEL BOZIC, CHARLES A.
FIUMEFREDDO, EDWIN J. GARN, JOHN R. HAIRE, MANUEL H. JOHNSON, MICHAEL E.
NUGENT, PHILIP J. PURCELL and JOHN L. SCHROEDER, known to me to be the
individuals described in and who executed the foregoing instrument, personally
appeared before me and they severally acknowledged the foregoing instrument to
be their free act and deed.
/s/ Marilyn K. Cranney
---------------------------
Notary Public
My Commission expires:
MARILYN K. CRANNEY
NOTARY PUBLIC, STATE OF NEW YORK
NO. 24-4795538
QUALIFIED IN KINGS COUNTY
COMMISSION EXPIRES MAY 31, 1999
<PAGE>
EXHIBIT A
DEAN WITTER
FUNDS
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
INTRODUCTION
This plan (the "Plan") is adopted pursuant to Rule 18f-3(d) of the Investment
Company Act of 1940, as amended (the "1940 Act"), and will be effective as of
July 28, 1997. The Plan relates to shares of the open-end investment companies
to which Dean Witter InterCapital Inc. acts as investment manager, that are
listed on Schedule A, as may be amended from time to time (each, a "Fund" and
collectively, the "Funds"). The Funds are distributed pursuant to a system (the
"Multiple Class System") in which each class of shares (each, a "Class" and
collectively, the "Classes") of a Fund represents a pro rata interest in the
same portfolio of investments of the Fund and differs only to the extent
outlined below.
I. DISTRIBUTION ARRANGEMENTS
One or more Classes of shares of the Funds are offered for purchase by
investors with the sales load structures described below. In addition, pursuant
to Rule 12b-1 under the 1940 Act, the Funds have each adopted a Plan of
Distribution (the "12b-1 Plan") under which shares of certain Classes are
subject to the service and/or distribution fees ("12b-1 fees") described below.
1. Class A Shares
Class A shares are offered with a front-end sales load ("FESL"). The schedule
of sales charges applicable to a Fund and the circumstances under which the
sales charges are subject to reduction are set forth in each Fund's current
prospectus. As stated in each Fund's current prospectus, Class A shares may be
purchased at net asset value (without a FESL): (i) in the case of certain large
purchases of such shares; and (ii) by certain limited categories of investors,
in each case, under the circumstances and conditions set forth in each Fund's
current prospectus. Class A shares purchased at net asset value may be subject
to a contingent deferred sales charge ("CDSC") on redemptions made within one
year of purchase. Further information relating to the CDSC, including the manner
in which it is calculated, is set forth in paragraph 6 below. Class A shares are
also subject to payments under each Fund's 12b-1 Plan to reimburse Dean Witter
Distributors Inc., Dean Witter Reynolds Inc. ("DWR"), its affiliates and other
broker-dealers for distribution expenses incurred by them specifically on behalf
of the Class, assessed at an annual rate of up to 0.25% of average daily net
assets. The entire amount of the 12b-1 fee represents a service fee within the
meaning of National Association of Securities Dealers, Inc. ("NASD") guidelines.
2. Class B Shares
Class B shares are offered without a FESL, but will in most cases be subject
to a six-year declining CDSC which is calculated in the manner set forth in
paragraph 6 below. Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a three-year declining CDSC
which is calculated in the manner set forth in paragraph 6 below. The schedule
of CDSC charges applicable to each Fund is set forth in each Fund's current
prospectus. With the exception of certain of the Funds which have a different
formula described below (Dean Witter American Value Fund, Dean Witter Natural
Resource Development Securities Inc., Dean Witter Strategist Fund and Dean
Witter Dividend Growth Securities
1
<PAGE>
Inc.)(1), Class B shares are also subject to a fee under each Fund's respective
12b-1 Plan, assessed at the annual rate of up to 1.0% of either: (a) the lesser
of (i) the average daily aggregate gross sales of the Fund's Class B shares
since the inception of the Fund (not including reinvestment of dividends or
capital gains distributions), less the average daily aggregate net asset value
of the Fund's Class B shares redeemed since the Fund's inception upon which a
CDSC has been imposed or waived, or (ii) the average daily net assets of Class
B; or (b) the average daily net assets of Class B. A portion of the 12b-1 fee
equal to up to 0.25% of the Fund's average daily net assets is characterized as
a service fee within the meaning of the NASD guidelines and the remaining
portion of the 12b-1 fee, if any, is characterized as an asset-based sales
charge. Also, Class B shares have a conversion feature ("Conversion Feature")
under which such shares convert to Class A shares after a certain holding
period. Details of the Conversion Feature are set forth in Section IV below.
3. Class C Shares
Class C shares are offered without imposition of a FESL, but will in most
cases be subject to a CDSC of 1.0% on redemptions made within one year after
purchase. Further information relating to the CDSC is set forth in paragraph 6
below. In addition, Class C shares, under each Fund's 12b-1 Plan, are subject to
12b-1 payments to reimburse Dean Witter Distributors Inc., DWR, its affiliates
and other broker-dealers for distribution expenses incurred by them specifically
on behalf of the Class, assessed at the annual rate of up to 1.0% of the average
daily net assets of the Class. A portion of the 12b-1 fee equal to up to 0.25%
of the Fund's average daily net assets is characterized as a service fee within
the meaning of NASD guidelines. Unlike Class B shares, Class C shares do not
have the Conversion Feature.
4. Class D Shares
Class D shares are offered without imposition of a FESL, CDSC or a 12b-1 fee
for purchases of Fund shares by (i) investors meeting an initial minimum
investment requirement and (ii) certain other limited categories of investors,
in each case, as may be approved by the Boards of Directors/Trustees of the
Funds and as disclosed in each Fund's current prospectus.
5. Additional Classes of Shares
The Boards of Directors/Trustees of the Funds have the authority to create
additional Classes, or change existing Classes, from time to time, in accordance
with Rule 18f-3 under the 1940 Act.
6. Calculation of the CDSC
Any applicable CDSC is calculated based upon the lesser of net asset value of
the shares at the time of purchase or at the time of redemption. The CDSC does
not apply to amounts representing an increase in share value due to capital
appreciation and shares acquired through the reinvestment of dividends or
- ------------
(1)The payments under the 12b-1 Plan for each of Dean Witter American Value
Fund, Dean Witter Natural Resource Development Securities Inc. and Dean Witter
Dividend Growth Securities Inc. are assessed at the annual rate of 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Fund's Class B
shares since the inception of the Fund's Plan (not including reinvestment of
dividends or capital gains distributions), less the average daily aggregate net
asset value of the Fund's Class B shares redeemed since the Plan's inception
upon which a contingent deferred sales charge has been imposed or waived, or (b)
the average daily net assets of Class B attributable to shares issued, net of
related shares redeemed, since inception of the Plan. The payments under the
12b-1 Plan for the Dean Witter Strategist Fund are assessed at the annual rate
of: (i) 1% of the lesser of (a) the average daily aggregate gross sales of the
Fund's Class B shares since the effectiveness of the first amendment of the Plan
on November 8, 1989 (not including reinvestment of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the effectiveness of the first amended Plan, upon
which a contingent deferred sales charge has been imposed or waived, or (b) the
average daily net assets of Class B attributable to shares issued, net of
related shares redeemed, since the effectiveness of the first amended Plan; plus
(ii) 0.25% of the average daily net assets of Class B attributable to shares
issued, net of related shares redeemed, prior to effectiveness of the first
amended Plan.
2
<PAGE>
capital gains distributions. The CDSC schedule applicable to a Fund and the
circumstances in which the CDSC is subject to waiver are set forth in each
Fund's prospectus.
II. EXPENSE ALLOCATIONS
Expenses incurred by a Fund are allocated among the various Classes of shares
pro rata based on the net assets of the Fund attributable to each Class, except
that 12b-1 fees relating to a particular Class are allocated directly to that
Class. In addition, other expenses associated with a particular Class (except
advisory or custodial fees), may be allocated directly to that Class, provided
that such expenses are reasonably identified as specifically attributable to
that Class and the direct allocation to that Class is approved by the Fund's
Board of Directors/Trustees.
III. CLASS DESIGNATION
All shares of the Funds held prior to July 28, 1997 (other than the shares
held by certain employee benefit plans established by DWR and its affiliate, SPS
Transaction Services, Inc., shares of Funds offered with a FESL, and shares of
Dean Witter Balanced Growth Fund and Dean Witter Balanced Income Fund) have been
designated Class B shares. Shares held prior to July 28, 1997 by such employee
benefit plans have been designated Class D shares. Shares held prior to July 28,
1997 of Funds offered with a FESL have been designated Class D shares. In
addition, shares of Dean Witter American Value Fund purchased prior to April 30,
1984, shares of Dean Witter Strategist Fund purchased prior to November 8, 1989
and shares of Dean Witter Natural Resource Development Securities Inc. and Dean
Witter Dividend Growth Securities Inc. purchased prior to July 2, 1984 (with
respect to such shares of each Fund, including such proportion of shares
acquired through reinvestment of dividends and capital gains distributions as
the total number of shares acquired prior to each of the preceding dates in this
sentence bears to the total number of shares purchased and owned by the
shareholder of that Fund) have been designated Class D shares. Shares of Dean
Witter Balanced Growth Fund and Dean Witter Balanced Income Fund held prior to
July 28, 1997 have been designated Class C shares except that shares of Dean
Witter Balanced Growth Fund and Dean Witter Balanced Income Fund held prior to
July 28, 1997 that were acquired in exchange for shares of an investment company
offered with a CDSC have been designated Class B shares and those that were
acquired in exchange for shares of an investment company offered with a FESL
have been designated Class A shares.
IV. THE CONVERSION FEATURE
Class B shares held before May 1, 1997 will convert to Class A shares in May,
2007, except that Class B shares which are purchased before July 28, 1997 by
trusts for which Dean Witter Trust Company ("DWTC") or Dean Witter Trust FSB
("DWTFSB") provides discretionary trustee services will convert to Class A
shares on or about August 29, 1997 (the CDSC will not be applicable to such
shares upon the conversion). In all other instances, Class B shares of each Fund
will automatically convert to Class A shares, based on the relative net asset
values of the shares of the two Classes on the conversion date, which will be
approximately ten (10) years after the date of the original purchase.
Conversions will be effected once a month. The 10 year period will be calculated
from the last day of the month in which the shares were purchased or, in the
case of Class B shares acquired through an exchange or a series of exchanges,
from the last day of the month in which the original Class B shares were
purchased, provided that shares originally purchased before May 1, 1997 will
convert to Class A shares in May, 2007. Except as set forth below, the
conversion of shares purchased on or after May 1, 1997 will take place in the
month following the tenth anniversary of the purchase. There will also be
converted at that time such proportion of Class B shares acquired through
automatic reinvestment of dividends owned by the shareholder as the total number
of his or her Class B shares converting at the time bears to the total number of
outstanding Class B shares purchased and owned by the shareholder. In the case
of Class B shares held by a 401(k) plan or other employer-sponsored plan
qualified under Section 401(a) of the Internal Revenue Code (the "Code") and for
which DWTC or DWTFSB serves as Trustee or the 401(k) Support Services Group of
DWR serves as recordkeeper, all Class B shares will convert to Class A shares on
the conversion date of the first shares of a Fund purchased by that plan. In the
case of Class B shares previously exchanged
3
<PAGE>
for shares of an "Exchange Fund" (as such term is defined in the prospectus of
each Fund), the period of time the shares were held in the Exchange Fund
(calculated from the last day of the month in which the Exchange Fund shares
were acquired) is excluded from the holding period for conversion. If those
shares are subsequently re-exchanged for Class B shares of a Fund, the holding
period resumes on the last day of the month in which Class B shares are
reacquired.
Effectiveness of the Conversion Feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel to the effect that (i) the conversion of shares does not constitute a
taxable event under the Code; (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion; and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The Conversion Feature may be suspended if the Ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B fees under the applicable Fund's 12b-1 Plan.
V. EXCHANGE PRIVILEGES
Shares of each Class may be exchanged for shares of the same Class of the
other Funds and for shares of certain other investment companies without the
imposition of an exchange fee as described in the prospectuses and statements of
additional information of the Funds. The exchange privilege of each Fund may be
terminated or revised at any time by the Fund upon such notice as may be
required by applicable regulatory agencies as described in each Fund's
prospectus.
VI. VOTING
Each Class shall have exclusive voting rights on any matter that relates
solely to its 12b-1 Plan, except that Class B shareholders will have the right
to vote on any proposed material increase in Class A's expenses, including
payments under the Class A 12b-1 Plan, if such proposal is submitted separately
to Class A shareholders. If the amount of expenses, including payments under the
Class A 12b-1 Plan, is increased materially without the approval of Class B
shareholders, the Fund will establish a new Class A for Class B shareholders
whose shares automatically convert on the same terms as applied to Class A
before the increase. In addition, each Class shall have separate voting rights
on any matter submitted to shareholders in which the interests of one Class
differ from the interests of any other Class.
4
<PAGE>
DEAN WITTER FUNDS
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
SCHEDULE A
AT JULY 28, 1997
<TABLE>
<CAPTION>
<S> <C>
1) Dean Witter American Value Fund
2) Dean Witter Balanced Growth Fund
3) Dean Witter Balanced Income Fund
4) Dean Witter California Tax-Free Income Fund
5) Dean Witter Capital Appreciation Fund
6) Dean Witter Capital Growth Securities
7) Dean Witter Convertible Securities Trust
8) Dean Witter Developing Growth Securities Trust
9) Dean Witter Diversified Income Trust
10) Dean Witter Dividend Growth Securities Inc.
11) Dean Witter European Growth Fund Inc.
12) Dean Witter Federal Securities Trust
13) Dean Witter Financial Services Trust
14) Dean Witter Global Asset Allocation Fund
15) Dean Witter Global Dividend Growth Securities
16) Dean Witter Global Utilities Fund
17) Dean Witter Health Sciences Trust
18) Dean Witter High Yield Securities Inc.
19) Dean Witter Income Builder Fund
20) Dean Witter Information Fund
21) Dean Witter Intermediate Income Securities
22) Dean Witter International SmallCap Fund
23) Dean Witter Japan Fund
24) Dean Witter Managers' Select Fund
25) Dean Witter Market Leader Trust
26) Dean Witter Mid-Cap Growth Fund
27) Dean Witter Natural Resource Development Securities Inc.
28) Dean Witter New York Tax-Free Income Fund
29) Dean Witter Pacific Growth Fund Inc.
30) Dean Witter Precious Metals and Minerals Trust
31) Dean Witter Special Value Fund
32) Dean Witter Strategist Fund
33) Dean Witter Tax-Exempt Securities Trust
34) Dean Witter U.S. Government Securities Trust
35) Dean Witter Utilities Fund
36) Dean Witter Value-Added Market Series/Equity Portfolio
37) Dean Witter World Wide Income Trust
38) Dean Witter World Wide Investment Trust
</TABLE>
5
<PAGE>
Exhibit 5
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 31st day of May, 1997, 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
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and equipment and such clerical help and bookkeeping services as the Fund shall
reasonably require in the conduct of its business. The Investment Manager shall
also bear the cost of telephone service, heat, light, power and other utilities
provided to the Fund.
5. The Fund assumes and shall pay or cause to be paid all other expenses of
the Fund, including without limitation: fees pursuant to any plan of
distribution that the Fund may adopt; the charges and expenses of any registrar,
any custodian or depository appointed by the Fund for the safekeeping of its
cash, portfolio securities or commodities and other property, and any stock
transfer or dividend agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio transactions to which the
Fund is a party; all taxes, including securities or commodities issuance and
transfer taxes, and fees payable by the Fund to federal, state or other
governmental agencies; the cost and expense of engraving or printing
certificates representing shares of the Fund; all costs and expenses in
connection with the registration and maintenance of registration of the Fund and
its shares with the Securities and Exchange Commission and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel); the cost and expense of printing, including typesetting, and
distributing prospectuses and statements of additional information of the Fund
and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees of
the Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Trustees of the Fund who are not interested
persons (as defined in the Act) of the Fund or the Investment Manager, and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Trustees) of the Fund which inure to its benefit; extraordinary expenses
(including but not limited to legal claims and liabilities and litigation costs
and any indemnification related thereto); and all other charges and costs of the
Fund's operation unless otherwise explicitly provided herein.
6. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Manager, the Fund shall pay to the Investment
Manager monthly compensation determined by applying the 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
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at the end of the 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, 1999 and from year
to year thereafter provided such continuance is approved at least annually by
the vote of holders of a majority, as defined in the Investment Company Act of
1940, as amended (the "Act"), of the outstanding voting securities of the Fund
or by the Trustees of the Fund; provided that in either event such continuance
is also approved annually by the vote of a majority of the Trustees of the Fund
who are not parties to this Agreement or "interested persons" (as defined in the
Act) of any such party, which vote must be cast in person at a meeting called
for the purpose of voting on such approval; provided, however, that (a) the Fund
may, at any time and without the payment of any penalty, terminate this
Agreement upon thirty days' written notice to the Investment Manager, either by
majority vote of the Trustees of the Fund or by the vote of a majority of the
outstanding voting securities of the Fund; (b) this Agreement shall immediately
terminate in the event of its assignment (to the extent required by the Act and
the rules thereunder) unless such automatic terminations shall be prevented by
an exemptive order of the Securities and Exchange Commission; and (c) the
Investment Manager may terminate this Agreement without payment of penalty on
thirty days' written notice to the Fund. Any notice under this Agreement shall
be given in writing, addressed and delivered, or mailed post-paid, to the other
party at the principal office of such party.
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, Morgan
Stanley, Dean Witter,
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Discover & Co., or any corporate affiliate of the Investment Manager's parent,
may use or grant to others the right to use the name "Dean Witter," or any
combination or abbreviation thereof, as all or a portion of a corporate or
business name or for any commercial purpose, including a grant of such right to
any other investment company, (iv) at the request of the Investment Manager or
its parent, the Fund will take such action as may be required to provide its
consent to the use of the name "Dean Witter," or any combination or abbreviation
thereof, by the Investment Manager or its parent or any corporate affiliate of
the Investment Manager's parent, or by any person to whom the Investment Manager
or its parent or any corporate affiliate of the Investment Manager's parent
shall have granted the right to such use, and (v) upon the termination of any
investment advisory agreement into which the Investment Manager and the Fund may
enter, or upon termination of affiliation of the Investment Manager with its
parent, the Fund shall, upon request by the Investment Manager or its parent,
cease to use the name "Dean Witter" as a component of its name, and shall not
use the name, or any combination or abbreviation thereof, as a part of its name
or for any other commercial purpose, and shall cause its officers, Trustees and
shareholders to take any and all actions which the Investment Manager or its
parent may request to effect the foregoing and to reconvey to the Investment
Manager or its parent any and all rights to such name.
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 on the day and year first above written in New York, New York.
DEAN WITTER HEALTH SCIENCES TRUST
By:..................................
Attest: ................................
DEAN WITTER INTERCAPITAL INC.
Attest: ................................
By:..................................
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Exhibit 6(a)
DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 31st day of May, 1997 between each of the
open-end investment companies to which Dean Witter InterCapital Inc. acts as
investment manager, that are listed on Schedule A, as may be amended from
time to time (each, a "Fund" and collectively, the "Funds"), and Dean Witter
Distributors Inc., a Delaware corporation (the "Distributor").
W I T N E S S E T H:
WHEREAS, each Fund is registered as an open-end investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and it is in
the interest of each Fund to offer its shares for sale continuously, and
WHEREAS, each Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of each Fund's
transferable shares, of $0.01 par value (the "Shares"), to commence on the
date listed above, in order to promote the growth of each Fund and facilitate
the distribution of its shares.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Appointment of the Distributor.
(a) Each Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Fund to sell Shares to the public on the terms set
forth in this Agreement and that Fund's prospectus and the Distributor hereby
accepts such appointment and agrees to act hereunder. Each Fund, during the
term of this Agreement, shall sell Shares to the Distributor upon the terms
and conditions set forth herein.
(b) The Distributor agrees to purchase Shares, as principal for its own
account, from each Fund and to sell Shares as principal to investors, and
securities dealers, including Dean Witter Reynolds Inc. ("DWR"), an affiliate
of the Distributor, upon the terms described herein and in that Fund's
prospectus (the "Prospectus") and statement of additional information
included in the Fund's registration statement (the "Registration Statement")
most recently filed from time to time with the Securities and Exchange
Commission (the "SEC") and effective under the Securities Act of 1933, as
amended (the "1933 Act"), and the 1940 Act or as the Prospectus may be
otherwise amended or supplemented and filed with the SEC pursuant to Rule 497
under the 1933 Act.
SECTION 2 Exclusive Nature of Duties. The Distributor shall be the
exclusive principal underwriter and distributor of each Fund, except that the
exclusive rights granted to the Distributor to sell the Shares shall not
apply to Shares issued by each Fund: (i) in connection with the merger or
consolidation of any other investment company or personal holding company
with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company
by the Fund; (ii) pursuant to reinvestment of dividends or capital gains
distributions; or (iii) pursuant to the reinstatement privilege afforded
redeeming shareholders.
SECTION 3. Purchase of Shares from each Fund.
(a) The Distributor shall have the right to buy from each Fund the Shares
needed, but not more than the Shares needed (except for clerical errors in
transmission), to fill unconditional orders for Shares placed with the
Distributor by investors or securities dealers. The price which the
Distributor shall pay for the Shares so purchased from the Fund shall be the
net asset value, determined as set forth in the Prospectus, used in
determining the public offering price on which such orders were based.
(b) The Shares are to be resold by the Distributor at the public offering
price of Shares as set forth in the Prospectus, to investors or to securities
dealers, including DWR, who have entered into selected dealer agreements with
the Distributor upon the terms and conditions set forth in Section 7 hereof
("Selected Dealers").
(c) Each Fund shall have the right to suspend the sale of the Shares at
times when redemption is suspended pursuant to the conditions set forth in
Section 4(f) hereof. Each Fund shall also have the right
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to suspend the sale of the Shares if trading on the New York Stock Exchange
shall have been suspended, if a banking moratorium shall have been declared
by federal or New York authorities, or if there shall have been some other
extraordinary event which, in the judgment of a Fund, makes it impracticable
to sell its Shares.
(d) Each Fund, or any agent of a Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by a Fund; provided, however, that a
Fund will not arbitrarily or without reasonable cause refuse to accept orders
for the purchase of Shares. The Distributor will confirm orders upon their
receipt, and each Fund (or its agent) upon receipt of payment therefor and
instructions will deliver share certificates for such Shares or a statement
confirming the issuance of Shares. Payment shall be made to the Fund in New
York Clearing House funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Fund (or its agent).
(e) With respect to Shares sold by any Selected Dealer, the Distributor is
authorized to direct each Fund's transfer agent to receive instructions
directly from the Selected Dealer on behalf of the Distributor as to
registration of Shares in the names of investors and to confirm issuance of
the Shares to such investors. The Distributor is also authorized to instruct
the transfer agent to receive payment directly from the Selected Dealer on
behalf of the Distributor, for prompt transmittal to each Fund's custodian,
of the purchase price of the Shares. In such event the Distributor shall
obtain from the Selected Dealer and maintain a record of such registration
instructions and payments.
SECTION 4. Repurchase or Redemption of Shares.
(a) Any of the outstanding Shares of a Fund may be tendered for redemption
at any time, and each Fund agrees to redeem its Shares so tendered in
accordance with the applicable provisions set forth in its Prospectus. The
price to be paid to redeem the Shares shall be equal to the net asset value
determined as set forth in the Prospectus less, in the case of a Fund whose
Shares are offered with a contingent deferred sales charge ("CDSC"), any
applicable CDSC. Upon any redemption of Shares the Fund shall pay the total
amount of the redemption price in New York Clearing House funds in accordance
with applicable provisions of the Prospectus.
(b) In the case of a Fund whose Shares are offered with a front-end sales
charge, the redemption by a Fund of any of its Shares purchased by or through
the Distributor will not affect the applicable front-end sales charge secured
by the Distributor or any Selected Dealer in the course of the original sale,
except that if any Shares are tendered for redemption within seven business
days after the date of the confirmation of the original purchase, the right
to the applicable front-end sales charge shall be forfeited by the
Distributor and the Selected Dealer which sold such Shares.
(c) In the case of a Fund whose Shares are offered with a CDSC, the
proceeds of any redemption of Shares shall be paid by each Fund as follows:
(i) any applicable CDSC shall be paid to the Distributor or to the Selected
Dealer, or, when applicable, pursuant to the Rules of the Association of the
National Association of Securities Dealers, Inc. ("NASD"), retained by the
Fund and (ii) the balance shall be paid to the redeeming shareholders, in
each case in accordance with applicable provisions of its Prospectus in New
York Clearing House funds. The Distributor is authorized to direct a Fund to
pay directly to the Selected Dealer any CDSC payable by a Fund to the
Distributor in respect of Shares sold by the Selected Dealer to the redeeming
shareholders.
(d) The Distributor is authorized, as agent for the Fund, to repurchase
Shares, represented by a share certificate which is delivered to any office
of the Distributor in accordance with applicable provisions set forth in each
Fund's Prospectus. The Distributor shall promptly transmit to the transfer
agent of the Fund for redemption all Shares so delivered. The Distributor
shall be responsible for the accuracy of instructions transmitted to the
Fund's transfer agent in connection with all such repurchases.
(e) The Distributor is authorized, as agent for each Fund, to repurchase
Shares held in a shareholder's account with a Fund for which no share
certificate has been issued, upon the telephonic request of the shareholders,
or at the discretion of the Distributor. The Distributor shall promptly
transmit to the
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transfer agent of the Fund, for redemption, all such orders for repurchase of
Shares. Payment for Shares repurchased may be made by a Fund to the
Distributor for the account of the shareholder. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Fund's
transfer agent in connection with all such repurchases.
(f) Redemption of its Shares or payment by a Fund may be suspended at
times when the New York Stock Exchange is closed, when trading on said
Exchange is restricted, when an emergency exists as a result of which
disposal by a Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for a Fund fairly to determine the value of
its net assets, or during any other period when the SEC, by order, so
permits.
(g) With respect to its Shares tendered for redemption or repurchase by
any Selected Dealer on behalf of its customers, the Distributor is authorized
to instruct the transfer agent of a Fund to accept orders for redemption or
repurchase directly from the Selected Dealer on behalf of the Distributor and
to instruct the Fund to transmit payments for such redemptions and
repurchases directly to the Selected Dealer on behalf of the Distributor for
the account of the shareholder. The Distributor shall obtain from the
Selected Dealer, and shall maintain, a record of such orders. The Distributor
is further authorized to obtain from the Fund, and shall maintain, a record
of payment made directly to the Selected Dealer on behalf of the Distributor.
SECTION 5. Duties of the Fund.
(a) Each Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of its Shares, including
one certified copy, upon request by the Distributor, of all financial
statements prepared by the Fund and examined by independent accountants. Each
Fund shall, at the expense of the Distributor, make available to the
Distributor such number of copies of its Prospectus as the Distributor shall
reasonably request.
(b) Each Fund shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares and to register Shares under the 1933 Act, to the end that
there will be available for sale such number of Shares as investors may
reasonably be expected to purchase.
(c) Each Fund shall use its best efforts to pay the filing fees for an
appropriate number of its Shares to be sold under the securities laws of such
states as the Distributor and the Fund may approve. Any qualification to sell
its Shares in a state may be withheld, terminated or withdrawn by a Fund at
any time in its discretion. As provided in Section 8(c) hereof, such filing
fees shall be paid by the Fund. The Distributor shall furnish any information
and other material relating to its affairs and activities as may be required
by a Fund in connection with the sale of its Shares in any state.
(d) Each Fund shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of its annual
and interim reports.
SECTION 6. Duties of the Distributor.
(a) The Distributor shall sell shares of each Fund through DWR and may
sell shares through other securities dealers and its own Account Executives,
and shall devote reasonable time and effort to promote sales of the Shares,
but shall not be obligated to sell any specific number of Shares. The
services of the Distributor hereunder are not exclusive and it is understood
that the Distributor may act as principal underwriter for other registered
investment companies, so long as the performance of its obligations hereunder
is not impaired thereby. It is also understood that Selected Dealers,
including DWR, may also sell shares for other registered investment
companies.
(b) Neither the Distributor nor any Selected Dealer shall give any
information or make any representations, other than those contained in the
Registration Statement or related Prospectus and any sales literature
specifically approved by the appropriate Fund.
(c) The Distributor agrees that it will at all times comply with the
applicable terms and limitations of the Rules of the Association of the NASD.
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SECTION 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into selected dealer
agreements with Selected Dealers for the sale of Shares. In making agreements
with Selected Dealers, the Distributor shall act only as principal and not as
agent for a Fund. Shares sold to Selected Dealers shall be for resale by such
dealers only at the public offering price set forth in the Prospectus. With
respect to Funds whose Shares are offered with a front-end sales charge, in
such agreement the Distributor shall have the right to fix the portion of the
applicable front-end sales charge which may be allocated to the Selected
Dealers.
(b) Within the United States, the Distributor shall offer and sell Shares
only to Selected Dealers that are members in good standing of the NASD.
(c) The Distributor shall adopt and follow procedures, as approved by each
Fund, for the confirmation of sales of its Shares to investors and Selected
Dealers, the collection of amounts payable by investors and Selected Dealers
on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the NASD, as such requirements
may from time to time exist.
SECTION 8. Payment of Expenses.
(a) Each Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of legal counsel including counsel to the
Directors/Trustees of each Fund who are not interested persons (as defined in
the 1940 Act) of the Fund or the Distributor, and independent accountants, in
connection with the preparation and filing of any required Registration
Statements and Prospectuses and all amendments and supplements thereto, and
the expense of preparing, printing, mailing and otherwise distributing
prospectuses and statements of additional information, annual or interim
reports or proxy materials to shareholders.
(b) The Distributor shall bear all expenses incurred by it in connection
with its duties and activities under this Agreement including the payment to
Selected Dealers of any sales commissions, service fees and other expenses
for sales of a Fund's Shares (except such expenses as are specifically
undertaken herein by a Fund) incurred or paid by Selected Dealers, including
DWR. The Distributor shall bear the costs and expenses of preparing, printing
and distributing any supplementary sales literature used by the Distributor
or furnished by it for use by Selected Dealers in connection with the
offering of the Shares for sale. Any expenses of advertising incurred in
connection with such offering will also be the obligation of the Distributor.
It is understood and agreed that, so long as a Fund's Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1 Plan") continues in
effect, any expenses incurred by the Distributor hereunder may be paid in
accordance with the terms of such Rule 12b-1 Plan.
(c) Each Fund shall pay the filing fees, and, if necessary or advisable in
connection therewith, bear the cost and expense of qualifying each Fund as a
broker or dealer, in such states of the United States or other jurisdictions
as shall be selected by the Fund and the Distributor pursuant to Section 5(c)
hereof and the cost and expenses payable to each such state for continuing to
offer Shares therein until the Fund decides to discontinue selling Shares
pursuant to Section 5(c) hereof.
SECTION 9. Indemnification.
(a) Each Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and
reasonable counsel fees incurred in connection therewith) arising by reason
of any person acquiring any Shares, which may be based upon the 1933 Act, or
on any other statute or at common law, on the ground that the Registration
Statement or related Prospectus and Statement of Additional Information, as
from time to time amended and supplemented, or the annual or interim reports
to shareholders of a Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of a
Fund in
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favor of the Distributor and any such controlling persons to be deemed to
protect the Distributor or any such controlling persons thereof against any
liability to a Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties
or by reason of reckless disregard of its obligations and duties under this
Agreement; or (ii) is a Fund to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or any
such controlling persons, as the case may be, shall have notified the Fund in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. Each Fund will be entitled to participate at its
own expense in the defense, or, if it so elects, to assume the defense, of
any such suit brought to enforce any such liability, but if a Fund elects to
assume the defense, such defense shall be conducted by counsel chosen by it
and satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them, but,
in case the Fund does not elect to assume the defense of any such suit, it
will reimburse the Distributor or such controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of
any counsel retained by them. Each Fund shall promptly notify the Distributor
of the commencement of any litigation or proceedings against it or any of its
officers or Directors/Trustees in connection with the issuance or sale of the
Shares.
(b) (i) The Distributor shall indemnify and hold harmless each Fund and
each of its Directors/Trustees and officers and each person, if any, who
controls the Fund against any loss, liability, claim, damage, or expense
described in the indemnity contained in subsection (a) of this Section, but
only with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to a Fund in writing by or on behalf
of the Distributor for use in connection with the Registration Statement or
related Prospectus and Statement of Additional Information, as from time to
time amended, or the annual or interim reports to shareholders.
(ii) The Distributor shall indemnify and hold harmless each Fund and
each Fund's transfer agent, individually and in its capacity as the Fund's
transfer agent, from and against any claims, damages and liabilities which
arise as a result of actions taken pursuant to instructions from, or on
behalf of, the Distributor to: (1) redeem all or a part of shareholder
accounts in the Fund pursuant to Section 4(g) hereof and pay the proceeds to,
or as directed by, the Distributor for the account of each shareholder whose
Shares are so redeemed; and (2) register Shares in the names of investors,
confirm the issuance thereof and receive payment therefor pursuant to Section
3(e) hereof.
(iii) In case any action shall be brought against a Fund or any person
so indemnified by this Section 9(b) in respect of which indemnity may be
sought against the Distributor, the Distributor shall have the rights and
duties given to a Fund, and the Fund and each person so indemnified shall
have the rights and duties given to the Distributor, by the provisions of
subsection (a) of this Section 9.
(c) If the indemnification provided for in this Section 9 is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages, liabilities or expenses
(or actions in respect thereof) referred to herein, then each indemnifiying
party shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by a Fund on the one hand and the
Distributor on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of a Fund on the one hand and the Distributor on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses (or actions
5
<PAGE>
in respect thereof), as well as any other relevant equitable considerations.
The relative benefits received by a Fund on the one hand and the Distributor
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Fund
bear to the total compensation received by the Distributor, in each case as
set forth in the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by a Fund or the Distributor
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Each Fund and
the Distributor agree that it would not be just and equitable if contribution
were determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) referred to above shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such claim. Notwithstanding the provisions of
this subsection (c), the Distributor shall not be required to contribute any
amount in excess of the amount by which the total price at which the Shares
distributed by it to the public were offered to the public exceeds the amount
of any damages which it has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
SECTION 10. Duration and Termination of this Agreement. This Agreement
shall become effective with respect to a Fund as of the date first above
written and shall remain in force until April 30, 1998, and thereafter, but
only so long as such continuance is specifically approved at least annually
by (i) the Board of Directors/Trustees of each Fund, or by the vote of a
majority of the outstanding voting securities of the Fund, cast in person or
by proxy, and (ii) a majority of those Directors/Trustees who are not parties
to this Agreement or interested persons of any such party and who have no
direct or indirect financial interest in this Agreement or in the operation
of the Fund's Rule 12b-1 Plan or in any agreement related thereto, cast in
person at a meeting called for the purpose of voting upon such approval.
This Agreement may be terminated at any time without the payment of any
penalty, by the Directors/Trustees of a Fund, by a majority of the
Directors/Trustees of a Fund who are not interested persons of the Fund and
who have no direct or indirect financial interest in this Agreement, or by
vote of a majority of the outstanding voting securities of a Fund, or by the
Distributor, on sixty days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested person," when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
SECTION 11. Amendments of this Agreement. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the
Directors/Trustees of a Fund, or by the vote of a majority of outstanding
voting securities of a Fund, and (ii) a majority of those Directors/Trustees
of a Fund who are not parties to this Agreement or interested persons of any
such party and who have no direct or indirect financial interest in this
Agreement or in any Agreement related to the Fund's Rule 12b-1 Plan, cast in
person at a meeting called for the purpose of voting on such approval.
SECTION 12. Additional Funds. If at any time another Fund desires to
appoint the Distributor as its principal underwriter and distributor under
this Agreement, it shall notify the Distributor in writing. If the
Distributor is willing to serve as the Fund's principal underwriter and
distributor under this Agreement, it shall notify the Fund in writing,
whereupon such other Fund shall become a Fund hereunder.
SECTION 13. Governing Law. This Agreement shall be construed in accordance
with the law of the State of New York and the applicable provisions of the
1940 Act. To the extent the applicable law of the State of New York, or any
of the provisions herein, conflicts with the applicable provisions of the
1940 Act, the latter shall control.
6
<PAGE>
SECTION 14. Personal Liability. With respect to any Fund that is organized
as an unincorporated business trust under the laws of the Commonwealth of
Massachusetts, its Declaration of the Trust (each, a "Declaration") is on
file in the office of the Secretary of the Commonwealth of Massachusetts.
Each Declaration provides that the name of the Fund refers to the Trustees
under the Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent of any
Fund shall be held to any personal liability, nor shall resort be had to
their private property for the satisfaction of any obligation or claim or
otherwise, in connection with the affairs of any Fund, but the Trust Estate
only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first written in New York, New York.
ON BEHALF OF THE FUNDS SET FORTH ON
SCHEDULE A, ATTACHED HERETO
By:
..................................
DEAN WITTER DISTRIBUTORS INC.
By:
..................................
7
<PAGE>
DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
SCHEDULE A
AT MAY 31, 1997
<TABLE>
<CAPTION>
<S> <C>
1) Dean Witter American Value Fund
2) Dean Witter Balanced Growth Fund
3) Dean Witter Balanced Income Fund
4) Dean Witter California Tax-Free Income Fund
5) Dean Witter Capital Appreciation Fund
6) Dean Witter Capital Growth Securities
7) Dean Witter Convertible Securities Trust
8) Dean Witter Developing Growth Securities Trust
9) Dean Witter Diversified Income Trust
10) Dean Witter Dividend Growth Securities Inc.
11) Dean Witter European Growth Fund Inc.
12) Dean Witter Federal Securities Trust
13) Dean Witter Financial Services Trust
14) Dean Witter Global Asset Allocation Fund
15) Dean Witter Global Dividend Growth Securities
16) Dean Witter Global Utilities Fund
17) Dean Witter Health Sciences Trust
18) Dean Witter High Yield Securities Inc.
19) Dean Witter Income Builder Fund
20) Dean Witter Information Fund
21) Dean Witter Intermediate Income Securities
22) Dean Witter International SmallCap Fund
23) Dean Witter Japan Fund
24) Dean Witter Managers' Select Fund
25) Dean Witter Market Leader Trust
26) Dean Witter Mid-Cap Growth Fund
27) Dean Witter NaturalResource Development Securities Inc.
28) Dean Witter New York Tax-Free Income Fund
29) Dean Witter Pacific Growth Fund Inc.
30) Dean Witter Precious Metals and Minerals Trust
31) Dean Witter Special Value Fund
32) Dean Witter Strategist Fund
33) Dean Witter Tax-Exempt Securities Trust
34) Dean Witter U.S. Government Securities Trust
35) Dean Witter Utilities Fund
36) Dean Witter Value-Added Market Series/Equity Portfolio
37) Dean Witter World Wide Income Trust
38) Dean Witter World Wide Investment Trust
</TABLE>
8
<PAGE>
Exhibit 6(b)
DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 28th day of July, 1997 between each of the open-end
investment companies to which Dean Witter InterCapital Inc. acts as investment
manager, that are listed on Schedule A, as may be amended from time to time
(each, a "Fund" and collectively, the "Funds"), and Dean Witter Distributors
Inc., a Delaware corporation (the "Distributor").
W I T N E S S E T H:
WHEREAS, each Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and it is in the
interest of each Fund to offer its shares for sale continuously, and
WHEREAS, each Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of each Fund's transferable
shares, of $0.01 par value (the "Shares"), to commence on the date listed above,
in order to promote the growth of each Fund and facilitate the distribution of
its shares.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Appointment of the Distributor.
(a) Each Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Fund to sell Shares to the public on the terms set forth
in this Agreement and that Fund's prospectus and the Distributor hereby accepts
such appointment and agrees to act hereunder. Each Fund, during the term of this
Agreement, shall sell Shares to the Distributor upon the terms and conditions
set forth herein.
(b) The Distributor agrees to purchase Shares, as principal for its own
account, from each Fund and to sell Shares as principal to investors, and
securities dealers, including Dean Witter Reynolds Inc. ("DWR"), an affiliate of
the Distributor, upon the terms described herein and in that Fund's prospectus
(the "Prospectus") and statement of additional information included in the
Fund's registration statement (the "Registration Statement") most recently filed
from time to time with the Securities and Exchange Commission (the "SEC") and
effective under the Securities Act of 1933, as amended (the "1933 Act"), and the
1940 Act or as the Prospectus may be otherwise amended or supplemented and filed
with the SEC pursuant to Rule 497 under the 1933 Act.
SECTION 2 Exclusive Nature of Duties. The Distributor shall be the exclusive
principal underwriter and distributor of each Fund, except that the exclusive
rights granted to the Distributor to sell the Shares shall not apply to Shares
issued by each Fund: (i) in connection with the merger or consolidation of any
other investment company or personal holding company with the Fund or the
acquisition by purchase or otherwise of all (or substantially all) the assets or
the outstanding shares of any such company by the Fund; (ii) pursuant to
reinvestment of dividends or capital gains distributions; or (iii) pursuant to
the reinstatement privilege afforded redeeming shareholders.
SECTION 3. Purchase of Shares from each Fund. The Shares are offered in four
classes (each, a "Class"), as described in the Prospectus, as amended or
supplemented from time to time.
(a) The Distributor shall have the right to buy from each Fund the Shares of
the particular class needed, but not more than the Shares needed (except for
clerical errors in transmission), to fill unconditional orders for Shares of the
applicable class placed with the Distributor by investors or securities dealers.
The price which the Distributor shall pay for the Shares so purchased from the
Fund shall be the net asset value, determined as set forth in the Prospectus,
used in determining the public offering price on which such orders were based.
(b) The Shares are to be resold by the Distributor at the public offering
price of Shares of the applicable class as set forth in the Prospectus, to
investors or to securities dealers, including DWR, who have entered into
selected dealer agreements with the Distributor upon the terms and conditions
set forth in Section 7 hereof ("Selected Dealers").
1
<PAGE>
(c) Each Fund shall have the right to suspend the sale of the Shares at times
when redemption is suspended pursuant to the conditions set forth in Section
4(f) hereof. Each Fund shall also have the right to suspend the sale of the
Shares if trading on the New York Stock Exchange shall have been suspended, if a
banking moratorium shall have been declared by federal or New York authorities,
or if there shall have been some other extraordinary event which, in the
judgment of a Fund, makes it impracticable to sell its Shares.
(d) Each Fund, or any agent of a Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by a Fund; provided, however, that a Fund
will not arbitrarily or without reasonable cause refuse to accept orders for the
purchase of Shares. The Distributor will confirm orders upon their receipt, and
each Fund (or its agent) upon receipt of payment therefor and instructions will
deliver share certificates for such Shares or a statement confirming the
issuance of Shares. Payment shall be made to the Fund in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Fund (or its agent).
(e) With respect to Shares sold by any Selected Dealer, the Distributor is
authorized to direct each Fund's transfer agent to receive instructions directly
from the Selected Dealer on behalf of the Distributor as to registration of
Shares in the names of investors and to confirm issuance of the Shares to such
investors. The Distributor is also authorized to instruct the transfer agent to
receive payment directly from the Selected Dealer on behalf of the Distributor,
for prompt transmittal to each Fund's custodian, of the purchase price of the
Shares. In such event the Distributor shall obtain from the Selected Dealer and
maintain a record of such registration instructions and payments.
SECTION 4. Repurchase or Redemption of Shares.
(a) Any of the outstanding Shares of a Fund may be tendered for redemption at
any time, and each Fund agrees to redeem its Shares so tendered in accordance
with the applicable provisions set forth in its Prospectus. The price to be paid
to redeem the Shares shall be equal to the net asset value determined as set
forth in the Prospectus less any applicable contingent deferred sales charge
("CDSC"). Upon any redemption of Shares the Fund shall pay the total amount of
the redemption price in New York Clearing House funds in accordance with
applicable provisions of the Prospectus.
(b) The redemption by a Fund of any of its Class A Shares purchased by or
through the Distributor will not affect the applicable front-end sales charge
secured by the Distributor or any Selected Dealer in the course of the original
sale, except that if any Class A Shares are tendered for redemption within seven
business days after the date of the confirmation of the original purchase, the
right to the applicable front-end sales charge shall be forfeited by the
Distributor and the Selected Dealer which sold such Shares.
(c) The proceeds of any redemption of Class A, Class B or Class C Shares
shall be paid by each Fund as follows: (i) any applicable CDSC shall be paid to
the Distributor or to the Selected Dealer, or, when applicable, pursuant to the
Rules of the Association of the National Association of Securities Dealers, Inc.
("NASD"), retained by the Fund and (ii) the balance shall be paid to the
redeeming shareholders, in each case in accordance with applicable provisions of
its Prospectus in New York Clearing House funds. The Distributor is authorized
to direct a Fund to pay directly to the Selected Dealer any CDSC payable by a
Fund to the Distributor in respect of Class A, Class B, or Class C Shares sold
by the Selected Dealer to the redeeming shareholders.
(d) The Distributor is authorized, as agent for the Fund, to repurchase
Shares, represented by a share certificate which is delivered to any office of
the Distributor in accordance with applicable provisions set forth in each
Fund's Prospectus. The Distributor shall promptly transmit to the transfer agent
of the Fund for redemption all Shares so delivered. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Fund's transfer
agent in connection with all such repurchases.
(e) The Distributor is authorized, as agent for each Fund, to repurchase
Shares held in a shareholder's account with a Fund for which no share
certificate has been issued, upon the telephonic request of the shareholders, or
at the discretion of the Distributor. The Distributor shall promptly transmit to
the
2
<PAGE>
transfer agent of the Fund, for redemption, all such orders for repurchase of
Shares. Payment for Shares repurchased may be made by a Fund to the Distributor
for the account of the shareholder. The Distributor shall be responsible for the
accuracy of instructions transmitted to the Fund's transfer agent in connection
with all such repurchases.
(f) Redemption of its Shares or payment by a Fund may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for a Fund fairly to determine the value of its net assets, or
during any other period when the SEC, by order, so permits.
(g) With respect to its Shares tendered for redemption or repurchase by any
Selected Dealer on behalf of its customers, the Distributor is authorized to
instruct the transfer agent of a Fund to accept orders for redemption or
repurchase directly from the Selected Dealer on behalf of the Distributor and to
instruct the Fund to transmit payments for such redemptions and repurchases
directly to the Selected Dealer on behalf of the Distributor for the account of
the shareholder. The Distributor shall obtain from the Selected Dealer, and
shall maintain, a record of such orders. The Distributor is further authorized
to obtain from the Fund, and shall maintain, a record of payment made directly
to the Selected Dealer on behalf of the Distributor.
SECTION 5. Duties of the Fund.
(a) Each Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of its Shares, including one
certified copy, upon request by the Distributor, of all financial statements
prepared by the Fund and examined by independent accountants. Each Fund shall,
at the expense of the Distributor, make available to the Distributor such number
of copies of its Prospectus as the Distributor shall reasonably request.
(b) Each Fund shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares and to register Shares under the 1933 Act, to the end that
there will be available for sale such number of Shares as investors may
reasonably be expected to purchase.
(c) Each Fund shall use its best efforts to pay the filing fees for an
appropriate number of its Shares to be sold under the securities laws of such
states as the Distributor and the Fund may approve. Any qualification to sell
its Shares in a state may be withheld, terminated or withdrawn by a Fund at any
time in its discretion. As provided in Section 8(c) hereof, such filing fees
shall be paid by the Fund. The Distributor shall furnish any information and
other material relating to its affairs and activities as may be required by a
Fund in connection with the sale of its Shares in any state.
(d) Each Fund shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of its annual and
interim reports.
SECTION 6. Duties of the Distributor.
(a) The Distributor shall sell shares of each Fund through DWR and may sell
shares through other securities dealers and its own Account Executives, and
shall devote reasonable time and effort to promote sales of the Shares, but
shall not be obligated to sell any specific number of Shares. The services of
the Distributor hereunder are not exclusive and it is understood that the
Distributor may act as principal underwriter for other registered investment
companies, so long as the performance of its obligations hereunder is not
impaired thereby. It is also understood that Selected Dealers, including DWR,
may also sell shares for other registered investment companies.
(b) Neither the Distributor nor any Selected Dealer shall give any
information or make any representations, other than those contained in the
Registration Statement or related Prospectus and any sales literature
specifically approved by the appropriate Fund.
(c) The Distributor agrees that it will at all times comply with the
applicable terms and limitations of the Rules of the Association of the NASD.
3
<PAGE>
SECTION 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into selected dealer
agreements with Selected Dealers for the sale of Shares. In making agreements
with Selected Dealers, the Distributor shall act only as principal and not as
agent for a Fund. Shares sold to Selected Dealers shall be for resale by such
dealers only at the public offering price set forth in the Prospectus. With
respect to Class A Shares, in such agreement the Distributor shall have the
right to fix the portion of the applicable front-end sales charge which may be
allocated to the Selected Dealers.
(b) Within the United States, the Distributor shall offer and sell Shares
only to Selected Dealers that are members in good standing of the NASD.
(c) The Distributor shall adopt and follow procedures, as approved by each
Fund, for the confirmation of sales of its Shares to investors and Selected
Dealers, the collection of amounts payable by investors and Selected Dealers on
such sales, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the NASD, as such requirements may from time
to time exist.
SECTION 8. Payment of Expenses.
(a) Each Fund shall bear all costs and expenses of the Fund, including fees
and disbursements of legal counsel including counsel to the Directors/Trustees
of each Fund who are not interested persons (as defined in the 1940 Act) of the
Fund or the Distributor, and independent accountants, in connection with the
preparation and filing of any required Registration Statements and Prospectuses
and all amendments and supplements thereto, and the expense of preparing,
printing, mailing and otherwise distributing prospectuses and statements of
additional information, annual or interim reports or proxy materials to
shareholders.
(b) The Distributor shall bear all expenses incurred by it in connection with
its duties and activities under this Agreement including the payment to Selected
Dealers of any sales commissions, service fees and other expenses for sales of a
Fund's Shares (except such expenses as are specifically undertaken herein by a
Fund) incurred or paid by Selected Dealers, including DWR. The Distributor shall
bear the costs and expenses of preparing, printing and distributing any
supplementary sales literature used by the Distributor or furnished by it for
use by Selected Dealers in connection with the offering of the Shares for sale.
Any expenses of advertising incurred in connection with such offering will also
be the obligation of the Distributor. It is understood and agreed that, so long
as a Fund's Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act
("Rule 12b-1 Plan") continues in effect, any expenses incurred by the
Distributor hereunder may be paid in accordance with the terms of such Rule
12b-1 Plan.
(c) Each Fund shall pay the filing fees, and, if necessary or advisable in
connection therewith, bear the cost and expense of qualifying each Fund as a
broker or dealer, in such states of the United States or other jurisdictions as
shall be selected by the Fund and the Distributor pursuant to Section 5(c)
hereof and the cost and expenses payable to each such state for continuing to
offer Shares therein until the Fund decides to discontinue selling Shares
pursuant to Section 5(c) hereof.
SECTION 9. Indemnification.
(a) Each Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith) arising by reason of any person acquiring
any Shares, which may be based upon the 1933 Act, or on any other statute or at
common law, on the ground that the Registration Statement or related Prospectus
and Statement of Additional Information, as from time to time amended and
supplemented, or the annual or interim reports to shareholders of a Fund,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished to the Fund in connection
therewith by or on behalf of the Distributor; provided, however, that in no case
(i) is the indemnity of a Fund in
4
<PAGE>
favor of the Distributor and any such controlling persons to be deemed to
protect the Distributor or any such controlling persons thereof against any
liability to a Fund or its security holders to which the Distributor or any such
controlling persons would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under this Agreement; or (ii)
is a Fund to be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against the Distributor or any such controlling
persons, unless the Distributor or any such controlling persons, as the case may
be, shall have notified the Fund in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Distributor or such controlling persons
(or after the Distributor or such controlling persons shall have received notice
of such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve it from any liability which it may have to the
person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph. Each Fund will be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense, of any such suit brought to enforce any such liability, but if a
Fund elects to assume the defense, such defense shall be conducted by counsel
chosen by it and satisfactory to the Distributor or such controlling person or
persons, defendant or defendants in the suit. In the event the Fund elects to
assume the defense of any such suit and retain such counsel, the Distributor or
such controlling person or persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them, but, in
case the Fund does not elect to assume the defense of any such suit, it will
reimburse the Distributor or such controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. Each Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors/Trustees in connection with the issuance or sale of the Shares.
(b) (i) The Distributor shall indemnify and hold harmless each Fund and
each of its Directors/ Trustees and officers and each person, if any, who
controls the Fund against any loss, liability, claim, damage, or expense
described in the indemnity contained in subsection (a) of this Section, but
only with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to a Fund in writing by or on behalf
of the Distributor for use in connection with the Registration Statement or
related Prospectus and Statement of Additional Information, as from time to
time amended, or the annual or interim reports to shareholders.
(ii) The Distributor shall indemnify and hold harmless each Fund and
each Fund's transfer agent, individually and in its capacity as the Fund's
transfer agent, from and against any claims, damages and liabilities which arise
as a result of actions taken pursuant to instructions from, or on behalf of, the
Distributor to: (1) redeem all or a part of shareholder accounts in the Fund
pursuant to Section 4(g) hereof and pay the proceeds to, or as directed by, the
Distributor for the account of each shareholder whose Shares are so redeemed;
and (2) register Shares in the names of investors, confirm the issuance thereof
and receive payment therefor pursuant to Section 3(e) hereof.
(iii) In case any action shall be brought against a Fund or any person
so indemnified by this Section 9(b) in respect of which indemnity may be sought
against the Distributor, the Distributor shall have the rights and duties given
to a Fund, and the Fund and each person so indemnified shall have the rights and
duties given to the Distributor, by the provisions of subsection (a) of this
Section 9.
(c) If the indemnification provided for in this Section 9 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to herein, then each indemnifiying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
benefits received by a Fund on the one hand and the Distributor on the other
from the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of a Fund on the one hand and the
Distributor on the other in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses (or actions
5
<PAGE>
in respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by a Fund on the one hand and the Distributor on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Fund bear to the
total compensation received by the Distributor, in each case as set forth in the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by a Fund or the Distributor and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Each Fund and the Distributor agree that it would not be
just and equitable if contribution were determined by pro rata allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to above. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to above shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such claim. Notwithstanding the
provisions of this subsection (c), the Distributor shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Shares distributed by it to the public were offered to the public exceeds
the amount of any damages which it has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
SECTION 10. Duration and Termination of this Agreement. This Agreement shall
become effective with respect to a Fund as of the date first above written and
shall remain in force until April 30, 1998, and thereafter, but only so long as
such continuance is specifically approved at least annually by (i) the Board of
Directors/Trustees of each Fund, or by the vote of a majority of the outstanding
voting securities of the Fund, cast in person or by proxy, and (ii) a majority
of those Directors/Trustees who are not parties to this Agreement or interested
persons of any such party and who have no direct or indirect financial interest
in this Agreement or in the operation of the Fund's Rule 12b-1 Plan or in any
agreement related thereto, cast in person at a meeting called for the purpose of
voting upon such approval.
This Agreement may be terminated at any time without the payment of any
penalty, by the Directors/Trustees of a Fund, by a majority of the
Directors/Trustees of a Fund who are not interested persons of the Fund and who
have no direct or indirect financial interest in this Agreement, or by vote of a
majority of the outstanding voting securities of a Fund, or by the Distributor,
on sixty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested person," when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
SECTION 11. Amendments of this Agreement. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the
Directors/Trustees of a Fund, or by the vote of a majority of outstanding voting
securities of a Fund, and (ii) a majority of those Directors/Trustees of a Fund
who are not parties to this Agreement or interested persons of any such party
and who have no direct or indirect financial interest in this Agreement or in
any Agreement related to the Fund's Rule 12b-1 Plan, cast in person at a meeting
called for the purpose of voting on such approval.
SECTION 12. Additional Funds. If at any time another Fund desires to appoint
the Distributor as its principal underwriter and distributor under this
Agreement, it shall notify the Distributor in writing. If the Distributor is
willing to serve as the Fund's principal underwriter and distributor under this
Agreement, it shall notify the Fund in writing, whereupon such other Fund shall
become a Fund hereunder.
SECTION 13. Governing Law. This Agreement shall be construed in accordance
with the law of the State of New York and the applicable provisions of the 1940
Act. To the extent the applicable law of the State of New York, or any of the
provisions herein, conflicts with the applicable provisions of the 1940 Act, the
latter shall control.
6
<PAGE>
SECTION 14. Personal Liability. With respect to any Fund that is organized as
an unincorporated business trust under the laws of the Commonwealth of
Massachusetts, its Declaration of the Trust (each, a "Declaration") is on file
in the office of the Secretary of the Commonwealth of Massachusetts. Each
Declaration provides that the name of the Fund refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of any Fund shall be held to
any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim or otherwise, in connection with the
affairs of any Fund, but the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first written in New York, New York.
ON BEHALF OF THE FUNDS SET FORTH ON
SCHEDULE A, ATTACHED HERETO
By: ....................................
DEAN WITTER DISTRIBUTORS INC.
By: ....................................
7
<PAGE>
DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
SCHEDULE A
AT JULY 28, 1997
<TABLE>
<CAPTION>
<S> <C>
1) Dean Witter American Value Fund
2) Dean Witter Balanced Growth Fund
3) Dean Witter Balanced Income Fund
4) Dean Witter California Tax-Free Income Fund
5) Dean Witter Capital Appreciation Fund
6) Dean Witter Capital Growth Securities
7) Dean Witter Convertible Securities Trust
8) Dean Witter Developing Growth Securities Trust
9) Dean Witter Diversified Income Trust
10) Dean Witter Dividend Growth Securities Inc.
11) Dean Witter European Growth Fund Inc.
12) Dean Witter Federal Securities Trust
13) Dean Witter Financial Services Trust
14) Dean Witter Global Asset Allocation Fund
15) Dean Witter Global Dividend Growth Securities
16) Dean Witter Global Utilities Fund
17) Dean Witter Health Sciences Trust
18) Dean Witter High Yield Securities Inc.
19) Dean Witter Income Builder Fund
20) Dean Witter Information Fund
21) Dean Witter Intermediate Income Securities
22) Dean Witter International SmallCap Fund
23) Dean Witter Japan Fund
24) Dean Witter Managers' Select Fund
25) Dean Witter Market Leader Trust
26) Dean Witter Mid-Cap Growth Fund
27) Dean Witter Natural Resource Development Securities Inc.
28) Dean Witter New York Tax-Free Income Fund
29) Dean Witter Pacific Growth Fund Inc.
30) Dean Witter Precious Metals and Minerals Trust
31) Dean Witter Special Value Fund
32) Dean Witter Strategist Fund
33) Dean Witter Tax-Exempt Securities Trust
34) Dean Witter U.S. Government Securities Trust
35) Dean Witter Utilities Fund
36) Dean Witter Value-Added Market Series/Equity Portfolio
37) Dean Witter World Wide Income Trust
38) Dean Witter World Wide Investment Trust
</TABLE>
8
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 6 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.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 14, 1997
<PAGE>
Exhibit 15
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 October 26, 1995, 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 July 28, 1997 (which superseded a Distribution Agreement
dated May 31, 1997, which Agreement in turn superseded an Agreement dated 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 with respect to
the Class A, Class B and Class C shares of the Fund:
1(a)(i). With respect to Class A and Class C shares of the Fund, the
Distributor hereby undertakes to directly bear all costs of rendering the
services to be performed by it under this Plan and under the Distribution
Agreement, except for those specific expenses that the Trustees determine to
reimburse as hereinafter set forth.
1(a)(ii). The Fund is hereby authorized to reimburse the Distributor, DWR,
its affiliates and other broker-dealers for distribution expenses incurred by
them specifically on behalf of Class A and Class C shares of the Fund.
Reimbursement will be made through payments at the end of each month. The amount
of each monthly payment may in no event exceed an amount equal to a payment at
the annual rate of 0.25%, in the case of Class A, and 1.0%, in the case of Class
C, of the average net assets of the respective Class during the month. With
respect to Class A, in the case of all expenses other than expenses representing
the service fee and, with respect to Class C, in the case of all expenses other
than expenses representing a gross sales credit or a residual to account
executives, such amounts shall be determined at the beginning of each calendar
quarter by the Trustees, including a majority of the Trustees who are not
"interested persons" of the Fund, as defined in the Act. Expenses representing
the service fee (for Class A) or a gross sales credit or a residual to account
executives (for Class C) may be reimbursed without prior determination. In the
event that the Distributor proposes that monies shall be reimbursed for other
than such expenses, then in making the quarterly determinations of the amounts
that may be expended by the Fund, the Distributor shall provide, and the
Trustees shall review, a quarterly budget of projected distribution expenses to
be incurred by the Distributor, DWR, its affiliates or other broker-dealers on
behalf of the Fund together with a report explaining the purposes and
anticipated benefits of incurring
<PAGE>
such expenses. The Trustees shall determine the particular expenses, and the
portion thereof that may be borne by the Fund, and in making such determination
shall consider the scope of the Distributor's commitment to promoting the
distribution of the Fund's Class A and Class C shares directly or through DWR,
its affiliates or other broker-dealers.
1(a)(iii). If, as of the end of any calendar year, the actual expenses
incurred by the Distributor, DWR, its affiliates and other broker-dealers on
behalf of Class A or Class C shares of the Fund (including accrued expenses and
amounts reserved for incentive compensation and bonuses) are less than the
amount of payments made by such Class pursuant to this Plan, the Distributor
shall promptly make appropriate reimbursement to the appropriate Class. If,
however, as of the end of any calendar year, the actual expenses (other than
expenses representing a gross sales credit) of the Distributor, DWR, its
affiliates and other broker-dealers are greater than the amount of payments made
by Class A or Class C shares of the Fund pursuant to this Plan, such Class will
not reimburse the Distributor, DWR, its affiliates or other broker-dealers for
such expenses through payments accrued pursuant to this Plan in the subsequent
fiscal year. Expenses representing a gross sales credit may be reimbursed in the
subsequent calendar year.
1(b). With respect to Class B shares of the Fund, the Fund shall pay to the
Distributor, as the distributor of securities of which the Fund is the issuer,
compensation for distribution of its Class B shares at the rate of the lesser of
(i) 1.0% per annum of the average daily aggregate sales of the Fund's Class B
shares since the Fund's inception (not including reinvestment of dividends and
capital gains distributions from the Fund) less the average daily aggregate net
asset value of the Fund's Class B shares redeemed since the Fund's inception
upon which a contingent deferred sales charge has been imposed or upon which
such charge has been waived, or (ii) 1.0% per annum of the average daily net
assets of Class B. Such compensation shall be calculated and accrued daily and
paid monthly or at such other intervals as the Trustees shall determine.
The Distributor may direct that all or any part of the amounts receivable by
it under this Plan be paid directly to DWR, its affiliates or other
broker-dealers who provide distribution and shareholder services. All payments
made hereunder pursuant to the Plan shall be in accordance with the terms and
limitations of the Rules of the Association of the National Association of
Securities Dealers, Inc.
2. With respect to expenses incurred by each Class, the amount set forth in
paragraph 1 of this Plan shall be paid for services of the Distributor, DWR its
affiliates and other broker-dealers it may select in connection with the
distribution of the Fund's shares, including personal services to shareholders
with respect to their holdings of Fund shares, and may be spend by the
Distributor, DWR, its affiliates and such broker-dealers on any activities or
expenses related to the distribution of the Fund's shares or services to
shareholders, including, but not limited to: compensation to, and expenses of,
account executives or other employees of the Distributor, DWR, its affiliates or
other broker-dealers; overhead and other branch office distribution-related
expenses and telephone expenses of persons who engage in or support distribution
of shares or who provide personal services to shareholders; printing of
prospectuses and reports for other than existing shareholders; preparation,
printing and distribution of sales literature and advertising materials and,
with respect to Class B, opportunity costs in incurring the foregoing expenses
(which may be calculated as a carrying charge on the excess of the distribution
expenses incurred by the Distributor, DWR, its affiliates or other
broker-dealers over distribution revenues received by them, such excess being
hereinafter referred to as "carryover expenses"). The overhead and other branch
office distribution-related expenses referred to in this paragraph 2 may
include: (a) the expenses operating the branch offices of the Distributor or
other broker-dealers, including DWR, in connection with the sale of the Fund
shares, including lease costs, the salaries and employee benefits of operations
and sales support personnel, utility costs, communications costs and the costs
of stationery and supplies; (b) the costs of client sales seminars; (c) travel
expenses of mutual fund sales coordinators to promote the sale of Fund shares;
and (d) other expenses relating to branch promotion of Fund sales. Payments may
also be made with respect to distribution expenses incurred in connection with
the distribution of shares, including personal services to shareholders with
respect to holdings of such shares, of an investment company whose assets are
acquired by the Fund in a tax-free reorganization, provided that, with respect
to Class B, carryover expenses as a percentage of Fund assets will not be
materially increased thereby. It is
2
<PAGE>
contemplated that, with respect to Class A shares, the entire fee set forth in
paragraph 1(a) will be characterized as a service fee within the meaning of the
National Association of Securities Dealers, Inc. guidelines and that, with
respect to Class B and Class C shares, payments at the annual rate of 0.25% will
be so characterized.
3. This Plan, as amended and restated, shall not take effect with respect to
any particular Class until it has been approved, together with any related
agreements, by votes of a majority of the Board of Trustees of the Fund and of
the Trustees who are not "interested persons" of the Fund (as defined in the
Act) and have no direct financial interest in the operation of this Plan or any
agreements related to it (the "Rule 12b-1 Trustees"), cast in person at a
meeting (or meetings) called for the purpose of voting on this Plan and such
related agreements.
4. This Plan shall continue in effect with respect to each Class until April
30, 1998, and from year to year thereafter, provided such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in paragraph 3 hereof.
5. The Distributor shall provide to the Trustees of the Fund and the Trustees
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made. In this regard, the
Trustees shall request the Distributor to specify such items of expenses as the
Trustees deem appropriate. The Trustees shall consider such items as they deem
relevant in making the determinations required by paragraph 4 hereof.
6. This Plan may be terminated at any time with respect to a Class by vote of
a majority of the Rule 12b-1 Trustees, or by vote of a majority of the
outstanding voting securities of the Fund. The Plan may remain in effect with
the respect to a particular Class even if the Plan has been terminated in
accordance with this paragraph 6 with respect to any other Class. In the event
of any such termination or in the event of nonrenewal, the Fund shall have no
obligation to pay expenses which have been incurred by the Distributor, DWR, its
affiliates or other broker-dealers in excess of payments made by the Fund
pursuant to this Plan. However, with respect to Class B, this shall not preclude
consideration by the Trustees of the manner in which such excess expenses shall
be treated.
7. This Plan may not be amended with respect to any Class to increase
materially the amount each Class may spend for distribution provided in
paragraph 1 hereof unless such amendment is approved by a vote of at least a
majority (as defined in the Act) of the outstanding voting securities of that
Class, and no material amendment to the Plan shall be made unless approved in
the manner provided for approval in paragraph 3 hereof. Class B shares will have
the right to vote on any material increase in the fee set forth in paragraph
1(a) above affecting Class A shares.
8. While this Plan is in effect, the selection and nomination of Trustees who
are not interested persons (as defined in the Act) of the Fund shall be
committed to the discretion of the Trustees who are not interested persons.
9. The Fund shall preserve copies of this Plan and any related agreements and
all reports made pursuant to paragraph 5 hereof, for a period of not less than
six years from the date of this Plan, any such agreement or any such report, as
the case may be, the first two years in an easily accessible place.
10. The Declaration of Trust establishing Dean Witter 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 this
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.
3
<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
As Amended on January 4, 1993,
April 28, 1993, October 26, 1995
and July 28, 1997
Attest: DEAN WITTER HEALTH SCIENCES TRUST
.................................. By: .................................
Attest: DEAN WITTER DISTRIBUTORS INC.
.................................. By: .................................
Attest: DEAN WITTER REYNOLDS INC.
.................................. By: .................................
4
<PAGE>
OTHER
DEAN WITTER
FUNDS
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
INTRODUCTION
This plan (the "Plan") is adopted pursuant to Rule 18f-3(d) of the Investment
Company Act of 1940, as amended (the "1940 Act"), and will be effective as of
July 28, 1997. The Plan relates to shares of the open-end investment companies
to which Dean Witter InterCapital Inc. acts as investment manager, that are
listed on Schedule A, as may be amended from time to time (each, a "Fund" and
collectively, the "Funds"). The Funds are distributed pursuant to a system (the
"Multiple Class System") in which each class of shares (each, a "Class" and
collectively, the "Classes") of a Fund represents a pro rata interest in the
same portfolio of investments of the Fund and differs only to the extent
outlined below.
I. DISTRIBUTION ARRANGEMENTS
One or more Classes of shares of the Funds are offered for purchase by
investors with the sales load structures described below. In addition, pursuant
to Rule 12b-1 under the 1940 Act, the Funds have each adopted a Plan of
Distribution (the "12b-1 Plan") under which shares of certain Classes are
subject to the service and/or distribution fees ("12b-1 fees") described below.
1. Class A Shares
Class A shares are offered with a front-end sales load ("FESL"). The schedule
of sales charges applicable to a Fund and the circumstances under which the
sales charges are subject to reduction are set forth in each Fund's current
prospectus. As stated in each Fund's current prospectus, Class A shares may be
purchased at net asset value (without a FESL): (i) in the case of certain large
purchases of such shares; and (ii) by certain limited categories of investors,
in each case, under the circumstances and conditions set forth in each Fund's
current prospectus. Class A shares purchased at net asset value may be subject
to a contingent deferred sales charge ("CDSC") on redemptions made within one
year of purchase. Further information relating to the CDSC, including the manner
in which it is calculated, is set forth in paragraph 6 below. Class A shares are
also subject to payments under each Fund's 12b-1 Plan to reimburse Dean Witter
Distributors Inc., Dean Witter Reynolds Inc. ("DWR"), its affiliates and other
broker-dealers for distribution expenses incurred by them specifically on behalf
of the Class, assessed at an annual rate of up to 0.25% of average daily net
assets. The entire amount of the 12b-1 fee represents a service fee within the
meaning of National Association of Securities Dealers, Inc. ("NASD") guidelines.
2. Class B Shares
Class B shares are offered without a FESL, but will in most cases be subject
to a six-year declining CDSC which is calculated in the manner set forth in
paragraph 6 below. Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a three-year declining CDSC
which is calculated in the manner set forth in paragraph 6 below. The schedule
of CDSC charges applicable to each Fund is set forth in each Fund's current
prospectus. With the exception of certain of the Funds which have a different
formula described below (Dean Witter American Value Fund, Dean Witter Natural
Resource Development Securities Inc., Dean Witter Strategist Fund and Dean
Witter Dividend Growth Securities
1
<PAGE>
Inc.)(1), Class B shares are also subject to a fee under each Fund's respective
12b-1 Plan, assessed at the annual rate of up to 1.0% of either: (a) the lesser
of (i) the average daily aggregate gross sales of the Fund's Class B shares
since the inception of the Fund (not including reinvestment of dividends or
capital gains distributions), less the average daily aggregate net asset value
of the Fund's Class B shares redeemed since the Fund's inception upon which a
CDSC has been imposed or waived, or (ii) the average daily net assets of Class
B; or (b) the average daily net assets of Class B. A portion of the 12b-1 fee
equal to up to 0.25% of the Fund's average daily net assets is characterized as
a service fee within the meaning of the NASD guidelines and the remaining
portion of the 12b-1 fee, if any, is characterized as an asset-based sales
charge. Also, Class B shares have a conversion feature ("Conversion Feature")
under which such shares convert to Class A shares after a certain holding
period. Details of the Conversion Feature are set forth in Section IV below.
3. Class C Shares
Class C shares are offered without imposition of a FESL, but will in most
cases be subject to a CDSC of 1.0% on redemptions made within one year after
purchase. Further information relating to the CDSC is set forth in paragraph 6
below. In addition, Class C shares, under each Fund's 12b-1 Plan, are subject to
12b-1 payments to reimburse Dean Witter Distributors Inc., DWR, its affiliates
and other broker-dealers for distribution expenses incurred by them specifically
on behalf of the Class, assessed at the annual rate of up to 1.0% of the average
daily net assets of the Class. A portion of the 12b-1 fee equal to up to 0.25%
of the Fund's average daily net assets is characterized as a service fee within
the meaning of NASD guidelines. Unlike Class B shares, Class C shares do not
have the Conversion Feature.
4. Class D Shares
Class D shares are offered without imposition of a FESL, CDSC or a 12b-1 fee
for purchases of Fund shares by (i) investors meeting an initial minimum
investment requirement and (ii) certain other limited categories of investors,
in each case, as may be approved by the Boards of Directors/Trustees of the
Funds and as disclosed in each Fund's current prospectus.
5. Additional Classes of Shares
The Boards of Directors/Trustees of the Funds have the authority to create
additional Classes, or change existing Classes, from time to time, in accordance
with Rule 18f-3 under the 1940 Act.
6. Calculation of the CDSC
Any applicable CDSC is calculated based upon the lesser of net asset value of
the shares at the time of purchase or at the time of redemption. The CDSC does
not apply to amounts representing an increase in share value due to capital
appreciation and shares acquired through the reinvestment of dividends or
- ------------
(1)The payments under the 12b-1 Plan for each of Dean Witter American Value
Fund, Dean Witter Natural Resource Development Securities Inc. and Dean Witter
Dividend Growth Securities Inc. are assessed at the annual rate of 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Fund's Class B
shares since the inception of the Fund's Plan (not including reinvestment of
dividends or capital gains distributions), less the average daily aggregate net
asset value of the Fund's Class B shares redeemed since the Plan's inception
upon which a contingent deferred sales charge has been imposed or waived, or (b)
the average daily net assets of Class B attributable to shares issued, net of
related shares redeemed, since inception of the Plan. The payments under the
12b-1 Plan for the Dean Witter Strategist Fund are assessed at the annual rate
of: (i) 1% of the lesser of (a) the average daily aggregate gross sales of the
Fund's Class B shares since the effectiveness of the first amendment of the Plan
on November 8, 1989 (not including reinvestment of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the effectiveness of the first amended Plan, upon
which a contingent deferred sales charge has been imposed or waived, or (b) the
average daily net assets of Class B attributable to shares issued, net of
related shares redeemed, since the effectiveness of the first amended Plan; plus
(ii) 0.25% of the average daily net assets of Class B attributable to shares
issued, net of related shares redeemed, prior to effectiveness of the first
amended Plan.
2
<PAGE>
capital gains distributions. The CDSC schedule applicable to a Fund and the
circumstances in which the CDSC is subject to waiver are set forth in each
Fund's prospectus.
II. EXPENSE ALLOCATIONS
Expenses incurred by a Fund are allocated among the various Classes of shares
pro rata based on the net assets of the Fund attributable to each Class, except
that 12b-1 fees relating to a particular Class are allocated directly to that
Class. In addition, other expenses associated with a particular Class (except
advisory or custodial fees), may be allocated directly to that Class, provided
that such expenses are reasonably identified as specifically attributable to
that Class and the direct allocation to that Class is approved by the Fund's
Board of Directors/Trustees.
III. CLASS DESIGNATION
All shares of the Funds held prior to July 28, 1997 (other than the shares
held by certain employee benefit plans established by DWR and its affiliate, SPS
Transaction Services, Inc., shares of Funds offered with a FESL, and shares of
Dean Witter Balanced Growth Fund and Dean Witter Balanced Income Fund) have been
designated Class B shares. Shares held prior to July 28, 1997 by such employee
benefit plans have been designated Class D shares. Shares held prior to July 28,
1997 of Funds offered with a FESL have been designated Class D shares. In
addition, shares of Dean Witter American Value Fund purchased prior to April 30,
1984, shares of Dean Witter Strategist Fund purchased prior to November 8, 1989
and shares of Dean Witter Natural Resource Development Securities Inc. and Dean
Witter Dividend Growth Securities Inc. purchased prior to July 2, 1984 (with
respect to such shares of each Fund, including such proportion of shares
acquired through reinvestment of dividends and capital gains distributions as
the total number of shares acquired prior to each of the preceding dates in this
sentence bears to the total number of shares purchased and owned by the
shareholder of that Fund) have been designated Class D shares. Shares of Dean
Witter Balanced Growth Fund and Dean Witter Balanced Income Fund held prior to
July 28, 1997 have been designated Class C shares except that shares of Dean
Witter Balanced Growth Fund and Dean Witter Balanced Income Fund held prior to
July 28, 1997 that were acquired in exchange for shares of an investment company
offered with a CDSC have been designated Class B shares and those that were
acquired in exchange for shares of an investment company offered with a FESL
have been designated Class A shares.
IV. THE CONVERSION FEATURE
Class B shares held before May 1, 1997 will convert to Class A shares in May,
2007, except that Class B shares which are purchased before July 28, 1997 by
trusts for which Dean Witter Trust Company ("DWTC") or Dean Witter Trust FSB
("DWTFSB") provides discretionary trustee services will convert to Class A
shares on or about August 29, 1997 (the CDSC will not be applicable to such
shares upon the conversion). In all other instances, Class B shares of each Fund
will automatically convert to Class A shares, based on the relative net asset
values of the shares of the two Classes on the conversion date, which will be
approximately ten (10) years after the date of the original purchase.
Conversions will be effected once a month. The 10 year period will be calculated
from the last day of the month in which the shares were purchased or, in the
case of Class B shares acquired through an exchange or a series of exchanges,
from the last day of the month in which the original Class B shares were
purchased, provided that shares originally purchased before May 1, 1997 will
convert to Class A shares in May, 2007. Except as set forth below, the
conversion of shares purchased on or after May 1, 1997 will take place in the
month following the tenth anniversary of the purchase. There will also be
converted at that time such proportion of Class B shares acquired through
automatic reinvestment of dividends owned by the shareholder as the total number
of his or her Class B shares converting at the time bears to the total number of
outstanding Class B shares purchased and owned by the shareholder. In the case
of Class B shares held by a 401(k) plan or other employer-sponsored plan
qualified under Section 401(a) of the Internal Revenue Code (the "Code") and for
which DWTC or DWTFSB serves as Trustee or the 401(k) Support Services Group of
DWR serves as recordkeeper, all Class B shares will convert to Class A shares on
the conversion date of the first shares of a Fund purchased by that plan. In the
case of Class B shares previously exchanged
3
<PAGE>
for shares of an "Exchange Fund" (as such term is defined in the prospectus of
each Fund), the period of time the shares were held in the Exchange Fund
(calculated from the last day of the month in which the Exchange Fund shares
were acquired) is excluded from the holding period for conversion. If those
shares are subsequently re-exchanged for Class B shares of a Fund, the holding
period resumes on the last day of the month in which Class B shares are
reacquired.
Effectiveness of the Conversion Feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel to the effect that (i) the conversion of shares does not constitute a
taxable event under the Code; (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion; and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The Conversion Feature may be suspended if the Ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B fees under the applicable Fund's 12b-1 Plan.
V. EXCHANGE PRIVILEGES
Shares of each Class may be exchanged for shares of the same Class of the
other Funds and for shares of certain other investment companies without the
imposition of an exchange fee as described in the prospectuses and statements of
additional information of the Funds. The exchange privilege of each Fund may be
terminated or revised at any time by the Fund upon such notice as may be
required by applicable regulatory agencies as described in each Fund's
prospectus.
VI. VOTING
Each Class shall have exclusive voting rights on any matter that relates
solely to its 12b-1 Plan, except that Class B shareholders will have the right
to vote on any proposed material increase in Class A's expenses, including
payments under the Class A 12b-1 Plan, if such proposal is submitted separately
to Class A shareholders. If the amount of expenses, including payments under the
Class A 12b-1 Plan, is increased materially without the approval of Class B
shareholders, the Fund will establish a new Class A for Class B shareholders
whose shares automatically convert on the same terms as applied to Class A
before the increase. In addition, each Class shall have separate voting rights
on any matter submitted to shareholders in which the interests of one Class
differ from the interests of any other Class.
4
<PAGE>
DEAN WITTER FUNDS
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
SCHEDULE A
AT JULY 28, 1997
<TABLE>
<CAPTION>
<S> <C>
1) Dean Witter American Value Fund
2) Dean Witter Balanced Growth Fund
3) Dean Witter Balanced Income Fund
4) Dean Witter California Tax-Free Income Fund
5) Dean Witter Capital Appreciation Fund
6) Dean Witter Capital Growth Securities
7) Dean Witter Convertible Securities Trust
8) Dean Witter Developing Growth Securities Trust
9) Dean Witter Diversified Income Trust
10) Dean Witter Dividend Growth Securities Inc.
11) Dean Witter European Growth Fund Inc.
12) Dean Witter Federal Securities Trust
13) Dean Witter Financial Services Trust
14) Dean Witter Global Asset Allocation Fund
15) Dean Witter Global Dividend Growth Securities
16) Dean Witter Global Utilities Fund
17) Dean Witter Health Sciences Trust
18) Dean Witter High Yield Securities Inc.
19) Dean Witter Income Builder Fund
20) Dean Witter Information Fund
21) Dean Witter Intermediate Income Securities
22) Dean Witter International SmallCap Fund
23) Dean Witter Japan Fund
24) Dean Witter Managers' Select Fund
25) Dean Witter Market Leader Trust
26) Dean Witter Mid-Cap Growth Fund
27) Dean Witter Natural Resource Development Securities Inc.
28) Dean Witter New York Tax-Free Income Fund
29) Dean Witter Pacific Growth Fund Inc.
30) Dean Witter Precious Metals and Minerals Trust
31) Dean Witter Special Value Fund
32) Dean Witter Strategist Fund
33) Dean Witter Tax-Exempt Securities Trust
34) Dean Witter U.S. Government Securities Trust
35) Dean Witter Utilities Fund
36) Dean Witter Value-Added Market Series/Equity Portfolio
37) Dean Witter World Wide Income Trust
38) Dean Witter World Wide Investment Trust
</TABLE>
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000888122
<NAME> DEAN WITTER HEALTH SCIENCES TRUST
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 351,250,751
<INVESTMENTS-AT-VALUE> 494,279,879
<RECEIVABLES> 6,282,092
<ASSETS-OTHER> 153,297
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 500,715,268
<PAYABLE-FOR-SECURITIES> 6,634,899
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,710,365
<TOTAL-LIABILITIES> 8,345,264
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 363,100,261
<SHARES-COMMON-STOCK> 31,334,590
<SHARES-COMMON-PRIOR> 29,593,202
<ACCUMULATED-NII-CURRENT> (5,058,494)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,700,891)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 143,029,128
<NET-ASSETS> 492,370,004
<DIVIDEND-INCOME> 104,859
<INTEREST-INCOME> 206,421
<OTHER-INCOME> 0
<EXPENSES-NET> 5,341,426
<NET-INVESTMENT-INCOME> (5,030,146)
<REALIZED-GAINS-CURRENT> 2,570,344
<APPREC-INCREASE-CURRENT> 54,559,089
<NET-CHANGE-FROM-OPS> 52,099,287
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (28,286,327)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,052,051
<NUMBER-OF-SHARES-REDEEMED> (8,170,765)
<SHARES-REINVESTED> 1,860,102
<NET-CHANGE-IN-ASSETS> 49,494,426
<ACCUMULATED-NII-PRIOR> (28,348)
<ACCUMULATED-GAINS-PRIOR> 17,015,092
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,406,219
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,341,426
<AVERAGE-NET-ASSETS> 477,440,008
<PER-SHARE-NAV-BEGIN> 14.97
<PER-SHARE-NII> (.16)
<PER-SHARE-GAIN-APPREC> 1.85
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.95)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.71
<EXPENSE-RATIO> 2.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
