Filed Pursuant to Rule 497(e)
Registration File No.: 333-01995
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DEAN WITTER
INCOME BUILDER FUND
PROSPECTUS --OCTOBER 25, 1996
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DEAN WITTER INCOME BUILDER FUND (THE "FUND") IS AN OPEN-END, DIVERSIFIED
MANAGEMENT INVESTMENT COMPANY WHOSE PRIMARY INVESTMENT OBJECTIVE IS TO SEEK
REASONABLE INCOME. GROWTH OF CAPITAL IS THE SECONDARY OBJECTIVE. THE FUND
SEEKS TO ACHIEVE ITS OBJECTIVES BY INVESTING, UNDER NORMAL MARKET CONDITIONS,
AT LEAST 65% OF ITS TOTAL ASSETS IN A DIVERSIFIED PORTFOLIO OF
INCOME-PRODUCING EQUITY SECURITIES, INCLUDING COMMON STOCK, PREFERRED STOCK
AND CONVERTIBLE SECURITIES. UP TO 35% OF THE FUND'S ASSETS MAY BE INVESTED IN
FIXED-INCOME SECURITIES OR COMMON STOCKS THAT DO NOT PAY A REGULAR DIVIDEND
BUT ARE EXPECTED TO CONTRIBUTE TO THE FUND'S ABILITY TO MEET ITS INVESTMENT
OBJECTIVES.
Shares of the Fund are continuously offered at net asset value. However,
redemptions and/or repurchases are subject in most cases to a contingent
deferred sales charge, scaled down from 5% to 1% of the amount redeemed, if
made within six years of purchase, which charge will be paid to the Fund's
Distributor, Dean Witter Distributors Inc. See "Redemptions and
Repurchases--Contingent Deferred Sales Charge." In addition, the Fund pays
the Distributor a distribution fee pursuant to a Plan of Distribution at the
annual rate of 1.0% of the lesser of the (i) average daily aggregate net
sales or (ii) average daily net assets of the Fund. See "Purchase of Fund
Shares--Plan of Distribution."
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated October 25, 1996, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
TABLE OF CONTENTS
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 3
Financial Highlights .................................................. 4
The Fund and its Management ........................................... 4
Investment Objectives and Policies .................................... 5
Risk Considerations .................................................. 7
Investment Restrictions ............................................... 10
Purchase of Fund Shares ............................................... 10
Shareholder Services .................................................. 12
Redemptions and Repurchases ........................................... 14
Dividends, Distributions and Taxes .................................... 16
Performance Information ............................................... 16
Additional Information ................................................ 17
Financial Statements--September 30, 1996 .............................. 18
Report of Independent Accountants ..................................... 26
Appendix .............................................................. 27
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.
DEAN WITTER
INCOME BUILDER FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550 OR
(800) 869-NEWS (TOLL-FREE)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Dean Witter Distributors Inc., Distributor
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PROSPECTUS SUMMARY
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THE FUND The Fund is organized as a Trust, commonly known as a Massachusetts
business trust, and is an open-end, diversified management investment
company. Under normal market conditions, the Fund will invest at least 65%
of its total assets in income-producing equity securities, including common
stock, preferred stock and convertible securities. Up to 35% of the Fund's
assets may be invested in fixed-income securities or common stocks that do
not pay a regular dividend but are expected to contribute to the Fund's
ability to meet its investment objectives.
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SHARES OFFERED Shares of beneficial interest with $.01 par value (see page 17).
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OFFERING PRICE At net asset value (see page 10). Shares redeemed within six years of
purchase are subject to a contingent deferred sales charge under most
circumstances (see page 10.
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MINIMUM Minimum initial investment, $1,000 ($100 if the account is opened through
PURCHASE EasyInvest (Service Mark) ); minimum subsequent investment, $100 (see page 10).
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INVESTMENT The primary investment objective of the Fund is to seek reasonable income.
OBJECTIVE Growth of capital is the secondary objective.
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INVESTMENT Dean Witter InterCapital Inc., the Investment Manager of the Fund, and its
MANAGER wholly-owned subsidiary, Dean Witter Services Company Inc., serve in
various investment management, advisory, management and administrative
capacities to 100 investment companies and other portfolios with net assets
under management of approximately $86.5 billion at September 30, 1996.
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MANAGEMENT FEE The Investment Manager receives a monthly fee at the annual rate of 0.75%
of the Fund's average daily net assets.
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DIVIDENDS AND Dividends from net investment income are paid quarterly. Capital gains, if
DISTRIBUTIONS any, are distributed at least annually or retained for reinvestment by the
Fund. Dividends and capital gains distributions are automatically
reinvested in additional shares at net asset value unless the shareholder
elects to receive cash (see page 16).
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DISTRIBUTOR AND Dean Witter Distributors Inc. (the "Distributor") receives from the Fund a
DISTRIBUTION Rule 12b-1 distribution fee accrued daily and payable monthly at the rate
FEE of 1.0% per annum of the lesser of (i) the Fund's average daily aggregate
net sales (since inception) or (ii) the Fund's average daily net assets.
This fee compensates the Distributor for the services provided in
distributing shares of the Fund which includes payment of sales commissions
to account executives and various other promotional and sales related
expenses. The Distributor also receives the proceeds of any contingent
deferred sales charges (see page 10).
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REDEMPTION-- Shares are redeemable by the shareholder at net asset value. An account may
CONTINGENT be involuntarily redeemed if the total value of the account is less than
DEFERRED SALES $100, or, if the account was opened through Easyinvest (Service Mark), if
CHARGE after twelve months the shareholder has invested less than $1,000 in the
account. Although no commission or sales load is imposed upon the purchase
of shares, a contingent deferred sales charge (which declines from 5% to
1%) is imposed on any redemption of shares if after such redemption the
aggregate current value of an account with the Fund falls below the
aggregate amount of the investor's purchase payments made during the six
years preceding the redemption. However, there is no charge imposed on
redemption of shares purchased through reinvestment of dividends or
distributions (see page 14).
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RISK The net asset value of the Fund's shares will fluctuate with changes in
CONSIDERATIONS market value of portfolio securities. Dividends payable by the Fund will
vary in relation to the amounts of dividends earned on common stock and
interest earned on fixed-income securities. The value of the Fund's
convertible and fixed-income portfolio securities and, therefore, the
Fund's net asset value per share, may increase or decrease due to various
factors, including changes in prevailing interest rates. Generally, a rise
in interest rates will result in a decrease in the Fund's net asset value
per share, while a drop in interest rates will result in an increase in the
Fund's net asset value per share. The high yield, high risk fixed-income
securities in which the Fund may invest are subject to greater risk of loss
of income and principal than higher rated, lower yielding fixed-income
securities. The prices of high yield, high risk securities have been found
to be less sensitive to changes in prevailing interest rates than higher
rated investments, but are likely to be more sensitive to adverse economic
changes or individual corporate developments. The Fund may enter into
repurchase agreements, may purchase foreign securities; securities on a
when-issued and delayed delivery basis and may utilize certain investment
techniques, all of which involve certain special risks (see pages 7 through 10).
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SHAREHOLDER Automatic Investment of Dividends and Distributions; Investment of
SERVICES Distributions Received in Cash; Systematic Withdrawal Plan; Exchange
Privilege; EasyInvest (Service Mark); Tax-Sheltered Retirement Plans (see
pages 12 through 14).
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The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
2
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Fund will incur.
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SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge Imposed on Purchases ........................................... None
Maximum Sales Charge Imposed on Reinvested Dividends ................................ None
Contingent Deferred Sales Charge
(as a percentage of the lesser of original purchase price or redemption proceeds) . 5.0%
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A contingent deferred sales charge is imposed at the following
declining rates:
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YEAR SINCE PURCHASE
PAYMENT MADE PERCENTAGE
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First ..................... 5.0%
Second .................... 4.0%
Third ..................... 3.0%
Fourth .................... 2.0%
Fifth ..................... 2.0%
Sixth ..................... 1.0%
Seventh and thereafter ... None
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Redemption Fees .......................................................... None
Exchange Fee ............................................................. None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Management Fees .......................................................... 0.75%
12b-1 Fees* .............................................................. 1.00%
Other Expenses ........................................................... 0.50%
Total Fund Operating Expenses ............................................ 2.25%
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Management and 12b-1 Fees are annualized for the current fiscal period of
the Fund ending September 30, 1996. "Other Expenses," as shown above, are
based upon actual amounts of expenses of the Fund for the fiscal period
ending September 30, 1996, as annualized.
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* The 12b-1 fee is 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 inception of the Fund (not including
reinvestments of dividends or distributions), less the average daily
aggregate net asset value of the Fund's shares redeemed since the Fund's
inception upon which a contingent deferred sales charge has been imposed
or waived, or (b) the Fund's average daily net assets. A portion of the
12b-1 fee equal to 0.25% of the Fund's average daily net assets is
characterized as a service fee within the meaning of National
Association of Securities Dealers, Inc. ("NASD") guidelines and is a
payment made to the selling broker for personal service and/or
maintenance of shareholder accounts. The remainder of the 12b-1 fee 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").
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EXAMPLE 1 YEAR 3 YEARS
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You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each time period: .......................... $73 $100
You would pay the following expenses on the same investment, assuming no redemption: $23 $ 70
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THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management" and "Plan of Distribution."
Long-term shareholders of the Fund may pay more in distribution fees than
the economic equivalent of the maximum front-end sales charge permitted by
the NASD.
3
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FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding for the period June 26, 1996 (commencement of operations) through
September 30, 1996 have been audited by Price Waterhouse LLP, independent
accountants. The financial highlights should be read in conjunction with the
financial statements, notes thereto and the unqualified report of independent
accountants which are contained in this Prospectus commencing on page 18.
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FOR THE PERIOD
JUNE 26, 1996*
THROUGH
SEPTEMBER 30, 1996
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PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $ 10.00
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Net investment income .................... 0.08
Net realized and unrealized gain ........ 0.23
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Total from investment operations ........ 10.31
Less dividends from net investment income (0.08)
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Net asset value, end of period ........... $ 10.23
==================
Total Investment Return+ ................. 3.10%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................. 2.25%(2)
Net investment income .................... 3.60%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $148,142
Portfolio turnover rate .................. 7%(1)
Average commission rate paid ............. $ 0.0558
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* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
THE FUND AND ITS MANAGEMENT
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Dean Witter Income Builder Fund (the "Fund") is an open-end, diversified
management investment company. The Fund is a trust of the type commonly known
as a "Massachusetts business trust" and was organized under the laws of The
Commonwealth of Massachusetts on March 21, 1996.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048,
is the Fund's Investment Manager. The Investment Manager, which was
incorporated in July, 1992, is a wholly-owned subsidiary of Dean Witter,
Discover & Co. ("DWDC"), a balanced financial services organization providing
a broad range of nationally marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 100 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined assets of approximately
$83.6 billion at September 30, 1996. The Investment Manager also manages
portfolios of pension plans, other institutions and individuals which
aggregated approximately $2.9 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of
portfolio securities. InterCapital has retained Dean Witter Services Company
Inc. to perform the aforementioned administrative services for the Fund.
The Fund's Trustees review the various services provided by 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 incurred by the Investment Manager, the Fund
pays the Investment Manager monthly compensation calculated daily by applying
the annual rate of 0.75% to the Fund's net assets.
4
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The Fund's expenses include: the fee of the Investment Manager; the fee
pursuant to the Plan of Distribution (see "Purchase of Fund Shares"); taxes;
transfer agent, custodian, auditing fees; and certain legal fees, and
printing and other expenses relating to the Fund's operations which are not
expressly assumed by the Investment Manager under its Investment Management
Agreement with the Fund.
INVESTMENT OBJECTIVES AND POLICIES
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The primary investment objective of the Fund is to seek reasonable income.
Growth of capital is the secondary objective. The objectives are fundamental
policies of the Fund and may not be changed without a vote of a majority of
the outstanding voting securities of the Fund. There is no assurance that the
objectives will be achieved.
The Fund seeks to achieve its objectives by investing, under normal market
conditions, at least 65% of its total assets in income-producing equity
securities, including common stock, preferred stock and convertible
securities. Up to 35% of the Fund's assets may be invested in fixed-income
securities or common stocks that do not pay a regular dividend but are
expected to contribute to the Fund's ability to meet its investment
objectives.
COMMON STOCKS, PREFERRED STOCKS AND SECURITIES CONVERTIBLE INTO COMMON
STOCKS. The Fund will invest, under normal market conditions, primarily in
common stocks of large-cap companies which have a record of paying dividends
and, in the opinion of the Investment Manager, have the potential for
maintaining dividends, in preferred stock and in securities convertible into
common stocks of small and mid-cap companies. The Investment Manager intends
to use a value-oriented investment style in the selection of securities for
the Fund's portfolio. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for
a prescribed amount of common stock of the same or a different issuer within
a particular period of time at a specified price or based on a specified
formula. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function
of its "investment value" (its value as if it did not have a conversion
privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).
LOWER RATED FIXED-INCOME SECURITIES. The Fund also may invest up to 20% in
fixed-income securities rated below investment grade. Securities below
investment grade are the equivalent of high yield, high risk bonds (commonly
known as "junk bonds"). Investment grade is generally considered to be debt
securities rated BBB or higher by Standard & Poor's Corporation ("S&P") or
Baa or higher by Moody's Investors Service, Inc. ("Moody's"). (Fixed-income
securities rated BBB by S&P or Baa by Moody's which generally are regarded as
having an adequate capacity to pay interest and repay principal, have
speculative characteristics.) However, the Fund will not invest in
fixed-income securities that are rated lower than B by S&P or Moody's or, if
not rated, determined to be of comparable quality by the Investment Manager.
The Fund will not invest in fixed-income securities that are in default in
payment of principal or interest. The 20% limitation on securities rated
below investment grade in which the Fund may invest does not include
securities convertible into common stock. A description of fixed-income
securities ratings is contained in the appendix to the Prospectus.
FOREIGN SECURITIES. The Fund may invest in equity securities of foreign
issuers. However, the Fund will not invest more than 25% of the value of its
total assets, at the time of purchase, in securities of foreign issuers
(other than securities of Canadian issuers registered under the Securities
Exchange Act of 1934 or American Depository Receipts, on which there is no
such limit). The Fund may invest in American Depository Receipts (ADRs),
European Depository Receipts (EDRs) or other similar securities convertible
into securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or
trust company evidencing ownership of the underlying securities. EDRs are
European receipts evidencing a similar arrangement. Generally, ADRs, in
registered form, are designed for use in the United States securities markets
and EDRs, in bearer form, are designed for use in European securities
markets. The Fund's investments in unlisted foreign securities are subject to
the Fund's overall policy limiting its investment in illiquid securities to
15% or less of its net assets.
CORPORATE NOTES AND BONDS AND U.S. GOVERNMENT SECURITIES. A portion of the
Fund's assets may be invested in investment grade fixed income (fixed-rate
and adjustable rate) securities such as corporate notes and bonds and
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities.
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The non-governmental debt securities in which the Fund will invest will
include: (a) corporate debt securities, including bonds, notes and commercial
paper, rated in the four highest categories by a nationally recognized
statistical rating organization ("NRSRO") including Moody's Investors
Service, Inc., Standard & Poor's Corporation, Duff and Phelps, Inc. and Fitch
Investors Service, Inc.; and (b) bank obligations, including CDs, banker's
acceptances and time deposits, issued by banks with a long-term CD rating in
one of the four highest categories by a NRSRO. Investments in securities
rated within the four highest rating categories by a NRSRO are considered
"investment grade." However, such securities
5
<PAGE>
rated within the fourth highest rating category by a NRSRO 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. Where a fixed-income security is not rated by a NRSRO
(as may be the case with a foreign security) the Investment Manager will make
a determination of its creditworthiness and may deem it to be investment
grade. A description of fixed-income security ratings is contained in the
appendix to the Prospectus.
The U.S. Government Securities in which the Fund may invest include
securities which are direct obligations of the United States Government, such
as United States treasury bills, notes and bonds, and which are backed by the
full faith and credit of the United States; securities which are backed by
the full faith and credit of the United States but which are obligations of a
United States agency or instrumentality (e.g., obligations of the Government
National Mortgage Association); securities issued by a United States agency
or instrumentality which has the right to borrow, to meet its obligations,
from an existing line of credit with the United States Treasury (e.g.,
obligations of the Federal National Mortgage Association); securities issued
by a United States agency or instrumentality which is backed by the credit of
the issuing agency or instrumentality (e.g., obligations of the Federal Farm
Credit System).
Money market instruments in which the Fund may invest include securities
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities (Treasury bills, notes and bonds, including zero coupon
securities); bank obligations; Eurodollar certificates of deposit;
obligations of savings institutions; fully insured certificates of deposit;
and commercial paper rated within the four highest grades by Moody's or
Standard & Poor's or, if not rated, issued by a company having an outstanding
debt issue rated at least AA by Standard & Poor's or Aa by Moody's. Such
securities may be used to invest uncommitted cash balances.
There may be periods during which, in the opinion of the Investment
Manager, market conditions warrant reduction of some or all of the Fund's
securities holdings. During such periods, the Fund may adopt a temporary
"defensive" posture in which up to 100% of its total assets is invested in
money market instruments or cash.
In addition to the securities noted above, the Fund may invest in the
following:
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after the date of the commitment.
An increase in the percentage of the Fund's assets committed to the purchase
of securities on a when-issued, delayed delivery or forward commitment basis
may increase the volatility of the Fund's net asset value. (See the Statement
of Additional Information for added risk disclosure.)
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when, as
and if issued" basis may increase the volatility of its net asset value. See
the Statement of Additional Information for additional risk disclosure.
INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments
primarily in commercial real estate properties. Investment in real estate
investment trusts may be the most practical available means for the Fund to
invest in the real estate industry (the Fund is prohibited from investing in
real estate directly). As a shareholder in a real estate investment trust,
the Fund would bear its ratable share of the real estate investment trust's
expenses, including its advisory and administration fees. At the same time
the Fund would continue to pay its own investment management fees and other
expenses, as a result of which the Fund and its shareholders in effect will
be absorbing duplicate levels of fees with respect to investments in real
estate investment trusts.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased by
the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. The interest earned on such securities is,
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
<PAGE>
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which
6
<PAGE>
the security was purchased as income each year even though the Fund receives
no interest payments in cash on the security during the year.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at
any time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account
pursuant to applicable regulations and that are equal to at least the market
value, determined daily, of the loaned securities. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail
financially. However, loans of portfolio securities will only be made to
firms deemed by the Investment Manager to be creditworthy and when the income
which can be earned from such loans justifies the attendant risks.
RULE 144A SECURITIES. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible
for resale pursuant to Rule 144A under the Securities Act, and determined to
be liquid pursuant to the procedures discussed in the following paragraph,
are not subject to the foregoing restriction.) These securities are generally
referred to as private placements or restricted securities. Limitations on
the resale of such securities may have an adverse effect on their
marketability, and may prevent the Fund from disposing of them promptly at
reasonable prices. The Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to buy securities restricted as to
resale to qualified institutional buyers without limitation. The Investment
Manager, pursuant to procedures adopted by the Trustees of the Fund, will
make a determination as to the liquidity of each restricted security
purchased by the Fund. If a restricted security is determined to be "liquid,"
such security will not be included within the category "illiquid securities,"
which under current policy may not exceed 15% of the Fund's net assets.
However, investing in Rule 144A securities could have the effect of
increasing the level of Fund illiquidity to the extent the Fund, at a
particular point in time, may be unable to find qualified institutional
buyers interested in purchasing such securities.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying
security at a specified price and at a fixed time in the future, usually not
more than seven days from the date of purchase. While repurchase agreements
involve certain risks not associated with direct investments in debt
securities, including the risks of default or bankruptcy of the selling
financial institution, the Fund follows procedures designed to minimize those
risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well established financial institutions and
maintaining adequate collateralization.
RISK CONSIDERATIONS
COMMON STOCKS, PREFERRED STOCKS AND SECURITIES CONVERTIBLE INTO COMMON
STOCKS. The net asset value of the Fund's shares will fluctuate with changes
in market values of portfolio securities. 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).
The Investment Manager intends to follow a "bottom-up" approach in the
selection of convertible securities. Beginning with a universe of about 500
companies, the Investment Manager will narrow the focus to small and mid-cap
companies and review the issues to determine if the convertible is trading
with the underlying equity security. The yield of the underlying equity
security will be evaluated and company fundamentals will be studied to
evaluate cash flow, risk/reward balance, valuation and the prospects for
growth. The Investment Manager intends to select convertible securities that,
in its judgment, are issued by companies with sound management practices and
that represent good value.
<PAGE>
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security
(the credit standing of the issuer and other factors may also have an effect
on the convertible security's value). If the conversion value exceeds the
investment value, the price of the convertible security will rise above its
investment value and, in addition, may 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
7
<PAGE>
conversion privilege.) At such times the price of the convertible security
will tend to fluctuate directly with the price of the underlying equity
security.
The Fund may invest up to 25% of its total assets in "enhanced"
convertible securities. Enhanced convertible securities offer holders the
opportunity to obtain higher current income than would be available from a
traditional equity security issued by the same company, in return for reduced
participation or a cap on appreciation in the underlying common stock of the
issuer which the holder can realize. In addition, in many cases, enhanced
convertible securities are convertible into the underlying common stock of
the issuer automatically at maturity, unlike traditional convertible
securities which are convertible only at the option of the security holder.
Enhanced convertible securities may be more volatile than traditional
convertible securities due to the mandatory conversion feature.
The Fund also may invest up to 10% in "synthetic" convertible securities.
Unlike traditional convertible securities whose conversion values are based
on the common stock of the issuer of the convertible security, "synthetic"
convertible securities are preferred stocks or debt obligations of an issuer
which are combined with an equity component whose conversion value is based
on the value of the common stock of a different issuer or a particular
benchmark (which may include a foreign issuer or basket of foreign stocks, or
a company whose stock is not yet publicly traded). In many cases, "synthetic"
convertible securities are not convertible prior to maturity, at which time
the value of the security is paid in cash by the issuer.
"Synthetic" convertible securities may be less liquid than traditional
convertible securities and their price changes may be more volatile. Reduced
liquidity may have an adverse impact on the Fund's ability to sell particular
synthetic securities promptly at favorable prices and may also make it more
difficult for the Fund to obtain market quotations based on actual trades,
for purposes of valuing the Fund's portfolio securities.
The Fund may invest without limitation in "exchangeable" convertible bonds
and convertible preferred stock which are issued by one company, but
convertible into the common stock of a different publicly traded company.
These securities generally have liquidity trading and risk characteristics
similar to traditional convertible securities noted above.
FOREIGN SECURITIES. Foreign securities investments may be affected by changes
in currency rates or exchange control regulations, changes in governmental
administration or economic or monetary policy (in the United States and
abroad) or changed circumstances in dealings between nations. Fluctuations in
the relative rates of exchange between the currencies of different nations
will affect the value of the Fund's investments denominated in foreign
currency. Changes in foreign currency exchange rates relative to the U.S.
dollar will affect the U.S. dollar value of the Fund's assets denominated in
that currency and thereby impact upon the Fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected
by the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of
the exchanges on which the currencies trade.
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. Foreign companies are not subject to the regulatory requirements
of U.S. companies and, as such, there may be less publicly available
information about such companies. Moreover, foreign companies are not subject
to uniform accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their
American counterparts. Brokerage commissions, dealer concessions and other
transaction costs may be higher on foreign markets than in the U.S. In
addition, differences in clearance and settlement procedures on foreign
markets may occasion delays in settlements of the Fund's trades effected in
such markets. As such, the inability to dispose of portfolio securities due
to settlement delays could result in losses to the Fund due to subsequent
declines in value of such securities and the inability of the Fund to make
intended security purchases due to settlement problems could result in a
failure of the Fund to make potentially advantageous investments. To the
extent the Fund purchases Eurodollar certificates of deposit issued by
foreign branches of domestic United States banks, consideration will be given
to their domestic marketability, the lower reserve requirements normally
mandated for overseas banking operations, the possible impact of
interruptions in the flow of international currency transactions and future
international political and economic developments which might adversely
affect the payment of principal or interest.
<PAGE>
LOWER RATED CONVERTIBLE AND FIXED-INCOME SECURITIES. A portion of the
fixed-income and convertible securities in which the Fund may invest will
generally be below investment grade. Securities below investment grade are
the equivalent of high yield, high risk bonds, commonly known as "junk
bonds." Investment grade is generally considered to be debt securities rated
BBB or higher by
8
<PAGE>
Standard & Poor's Corporation ("S&P") or Baa or higher by Moody's Investors
Service, Inc. ("Moody's"). Fixed-income securities rated Baa by Moody's or
BBB by Standard & Poor's have speculative characteristics greater than those
of more highly rated bonds, while fixed-income securities rated Ba or BB or
lower by Moody's and Standard & Poor's, respectively, are considered to be
speculative investments. The Fund will not invest in convertibles and
fixed-income securities that are rated lower than B by S&P or Moody's or, if
not rated, determined to be of comparable quality by the Investment Manager.
The Fund will not invest in debt securities that are in default in payment of
principal or interest. The ratings of fixed-income securities by Moody's and
Standard & Poor's are a generally accepted barometer of credit risk. However,
as the creditworthiness of issuers of lower-rated fixed-income securities is
more problematical than that of issuers of higher-rated fixed-income
securities, the achievement of the Fund's investment objective will be more
dependent upon the Investment Manager's own credit analysis than would be the
case with a mutual fund investing primarily in higher quality bonds. The
Investment Manager will utilize a security's credit rating as simply one
indication of an issuer's creditworthiness and will principally rely upon its
own analysis of any security currently held by the Fund or potentially
purchasable by the Fund for its portfolio.
During the fiscal period ended September 30, 1996, the monthly dollar
weighted average ratings of the debt obligations held by the Fund, expressed
as a percentage of the Fund's total investments, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
RATINGS INVESTMENTS
- ----------- ---------------------
<S> <C>
AAA/Aaa .... 0.0%
AA/Aa ...... 0.0%
A/A ........ 2.1%
BBB/Baa .... 18.5%
BB/Ba ...... 28.9%
B/B ........ 32.9%
CCC/Caa .... 0.0%
CC/Ca ...... 0.0%
C/C ........ 0.0%
Unrated .... 17.6%
</TABLE>
Because of the special nature of the Fund's permitted investments in lower
rated debt securities, the Investment Manager must take account of certain
special considerations in assessing the risks associated with such
investments. Historically, the prices of lower rated securities have been
found to be less sensitive to changes in prevailing interest rates than
higher rated investments, but are likely to be more sensitive to adverse
economic changes or individual corporate developments. During an economic
downturn or substantial period of rising interest rates, highly leveraged
issuers may experience financial stress which would adversely affect their
ability to service their principal and interest payment obligations, to meet
their projected business goals or to obtain additional financing. If the
issuer of a fixed-income security owned by the Fund defaults, the Fund may
incur additional expenses to seek recovery. In addition, periods of economic
uncertainty and change can be expected to result in an increased volatility
of market prices of lower rated securities and a corresponding volatility in
the net asset value of a share of the Fund.
CORPORATE NOTES AND BONDS AND U.S. GOVERNMENT SECURITIES. Payments of
interest and principal of U.S. Government securities are guaranteed by the
U.S. Government, however, neither the value nor the yield of corporate notes
and bonds and U.S. Government securities which may be invested in by the Fund
are guaranteed by the U.S. Government. Values and yield of corporate and
government bonds will fluctuate with changes in prevailing interest rates and
other factors. Generally, as prevailing interest rates rise, the value of
corporate notes and bonds and government bonds held by the Fund will fall.
Securities with longer maturities generally tend to produce higher yields and
are subject to greater market fluctuation as a result of changes in interest
rates than debt securities with shorter maturities. The Fund is not limited
as to the maturities of the U.S. Government securities in which it may
invest.
REAL ESTATE INVESTMENT TRUSTS. Real estate investment trusts are not
diversified and are subject to the risk of financing projects. They are also
subject to heavy cash flow dependency, defaults by borrowers or tenants,
self-liquidation, and the possibility of failing to qualify for tax-free
status under the Internal Revenue Code and failing to maintain exemption from
the Act. The Fund currently intends to invest up to 10%, but may invest up to
20% of its assets in real estate investment trusts.
<PAGE>
REPURCHASE AGREEMENTS. While repurchase agreements involve certain risks not
associated with direct investments in debt securities, 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 whose financial condition will be
continually monitored by the Investment Manager subject to procedures
established by the Board of Trustees of the Fund. In addition, as described
above, the value of the collateral underlying the repurchase agreement will
be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy
by a selling financial institution, the Fund will seek to liquidate such
collateral. However, the exercising of the Fund's right to liquidate such
collateral could involve certain costs or delays and, to the extent that
proceeds from any sale upon a default of the obligation to repurchase were
less than the repurchase price, the Fund could suffer a loss. It is the
current policy of the Fund not to invest in repurchase agreements that do not
mature within seven days if any such investment, together with any other
illiquid assets held by the Fund, amounts to more than 15% of its net assets.
For additional risk disclosure, please refer to the "Investment Objectives
and Policies" section of the Pros-
9
<PAGE>
pectus and to the "Investment Practices and Policies" section of the
Statement of Additional Information.
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"), a broker-dealer affiliate of InterCapital, the
views of Trustees of the Fund and others regarding economic developments and
interest rate trends, and the Investment Manager's own analysis of factors it
deems relevant. The Investment Manager also may use quantitative screens in
the process of selecting portfolio securities.
PORTFOLIO MANAGERS. The assets of the Fund are managed within InterCapital's
Growth and Income Group, which manages equity funds and fund portfolios with
approximately $22 billion in assets as of September 30, 1996. Paul D. Vance,
Senior Vice President and Michael G. Knox, Vice President of InterCapital,
are members of InterCapital's Growth and Income Group. Mr. Vance has been a
portfolio manager at InterCapital for over five years. Mr. Knox has been
managing portfolios at InterCapital since August 1993. Prior to joining
InterCapital, Mr. Knox was with Eagle Asset Management, Inc. Mr. Vance and
Mr. Knox are portfolio managers with primary responsibility for the
day-to-day management of the Fund's portfolio.
Although the Fund does not intend to engage in short-term trading of
portfolio securities as a means of achieving its investment objective, it may
sell portfolio securities without regard to the length of time they have been
held whenever such sale will in the Investment Manager's opinion strengthen
the Fund's position and contribute to its investment objective. The portfolio
turnover rate is not expected to exceed 90%. Brokerage commissions are not
normally charged on the purchase or sale of U.S. Government obligations, but
such transactions may involve costs in the form of spreads between bid and
asked prices. Pursuant to an order of the Securities and Exchange Commission,
the Fund may effect principal transactions in certain money market
instruments with Dean Witter Reynolds Inc. ("DWR"), a broker-dealer affiliate
of InterCapital. In addition, the Fund may incur brokerage commissions on
transactions conducted through DWR.
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 more than 5% of the value of its total assets in the securities
of any one issuer (other than obligations issued, or guaranteed by, the
United States Government, its agencies or instrumentalities).
2. Purchase more than 10% of all outstanding voting securities or any
class of securities of any one issuer.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to
obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities.
4. 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 of the United States Government, its agencies or
instrumentalities. (See the Statement of Additional Information for
additional investment restrictions.)
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment
Manager, shares of the Fund are distributed by the Distributor and offered by
DWR and other dealers which have entered into selected dealer agreements with
the Distributor ("Selected Broker-Dealers"). The principal executive office
of the Distributor is located at Two World Trade Center, New York, New York
10048.
The minimum initial purchase is $1,000. Minimum subsequent purchases of
$100 or more may be made by sending a check, payable to Dean Witter Income
Builder
10
<PAGE>
Fund, 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. 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 pursuant to
Systematic Payroll Deduction Plans (including Individual Retirement Plans),
the Fund, at its discretion, may accept investments without regard to any
minimum amounts which would otherwise be required if the Fund has reason to
believe that additional investments will increase the investment in all
accounts under such Plans to at least $1,000. Certificates for shares
purchased will not be issued unless a request is made by the shareholder in
writing to the Transfer Agent. The offering price will be the net asset value
per share next determined following receipt of an order (see "Determination
of Net Asset Value").
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since
DWR and other Selected Broker-Dealers forward investors' funds on settlement
date, they will benefit from the temporary use of the funds if payment is
made prior thereto. As noted above, orders placed directly with the Transfer
Agent must be accompanied by payment.
Investors will be entitled to receive income dividends and capital gains
distributions if their order is received by the close of business on the day
prior to the record date for such dividends and distributions.
While no sales charge is imposed at the time shares are purchased, a
contingent deferred sales charge may be imposed at the time of redemption
(see "Redemptions and Repurchases"). Sales personnel are compensated for
selling shares of the Fund at the time of their sale by the Distributor
and/or Selected Broker-Dealer. In addition, some sales personnel of the
Selected Broker-Dealer will receive various types of non-cash compensation as
special sales incentives, including trips, educational and/or business
seminars and merchandise. The Fund and the Distributor reserve the right to
reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan"), under which the Fund pays the Distributor a fee, which is
accrued daily and payable monthly, at an annual rate of 1.0% of the lesser
of: (a) the average daily aggregate gross sales of the Fund's shares since
the inception of the Fund (not including reinvestments of dividends or
capital gains distributions), less the average daily aggregate net asset
value of the Fund's shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or waived; or (b) the
Fund's average daily net assets. This fee is treated by the Fund as an
expense in the year it is accrued.
Amounts paid under the Plan are paid to the Distributor for services
provided and the expenses borne by the Distributor and others in the
distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to and expenses of DWR
account executives and others who engage in or support distribution of shares
or who service shareholder accounts, including overhead and telephone
expenses; printing and distribution of prospectuses and reports used in
connection with the offering of the Fund's shares to other than current
shareholders; and preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan to compensate DWR and other Selected Broker-Dealers for
their opportunity costs in advancing such amounts, which compensation would
be in the form of a carrying charge on any unreimbursed expenses.
For the fiscal period June 26, 1996 (commencement of operations) through
September 30, 1996, the Fund accrued payments under the Plan amounting to
$323,002, which amount is equal to 1.00% of the Fund's average daily net
assets for the fiscal period. The payments accrued under the Plan were
calculated pursuant to clause (b) of the compensation formula under the Plan.
A portion of the fee payable pursuant to the Plan, equal to 0.25% of the
Fund's average daily net assets, is characterized as a service fee within the
meaning of NASD guidelines. The service fee is a payment made for personal
service and/or the maintenance of shareholder accounts.
At any given time, the expenses in distributing shares of the Fund may be
in excess of the total of (i) the payments made by the Fund pursuant to the
Plan, and (ii) the proceeds of contingent deferred sales charges paid by
investors upon the redemption of shares (see "Redemptions and
Repurchases--Contingent Deferred Sales Charge"). For example, of $1 million
in expenses in distributing 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
$7,917,422 at September 30, 1996, which was equal to 5.34% of the Fund's net
assets on such date.
<PAGE>
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, if any, 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
11
<PAGE>
proceeds of contingent deferred sales charges paid by investors upon
redemption of shares, if for any reason the Plan is terminated the Trustees
will consider at that time the manner in which to treat such expenses. Any
cumulative expenses incurred, but not yet recovered through distribution fees
or contingent deferred sales charges, may or may not be recovered through
future distribution fees or contingent deferred sales charges.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time, on each day that the New York Stock Exchange is open
(or, on days when the New York Stock Exchange closes prior to 4:00 p.m., at
such earlier time), by taking the value of all assets of the Fund,
subtracting all its liabilities, dividing by the number of shares outstanding
and adjusting to the nearest cent. The net asset value per share will not be
determined on Good Friday and on such other federal and non-federal holidays
as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange or quoted by NASDAQ is valued at its
latest sale price on that exchange prior or quotation service prior to the
time assets are valued; if there were no sales that day, the security is
valued at the latest bid price (in cases where a security is traded on more
than one exchange, the security is valued on the exchange designated as the
primary market pursuant to procedures adopted by the Trustees); (2) all other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest bid price; (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 Fund's 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) the value
of short-term debt securities which mature at a date less than sixty days
subsequent to valuation date will be determined on an amortized cost or
amortized value basis; and (5) the value of other assets will be determined
in good faith at fair value under procedures established by and under the
general supervision of the Fund's Trustees. Dividends receivable are accrued
as of the ex-dividend date. Interest income is accrued daily. Certain
securities in the Fund's portfolio may be valued by an outside pricing
service approved by the Fund's Trustees.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends and
capital gains distributions are automatically paid in full and fractional
shares of the Fund (or, if specified by the shareholder, any other open-end
investment company for which InterCapital serves as investment manager
[collectively, with the Fund, the "Dean Witter Funds"]), unless the
shareholder requests that they be paid in cash. Shares so acquired are not
subject to the imposition of a contingent deferred sales charge upon their
redemption (see "Redemptions and Repurchases").
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution at the net asset value
next determined after receipt by the Transfer Agent, by returning the check
or the proceeds to the Transfer Agent within thirty days after the payment
date. Shares so acquired are not subject to the imposition of a contingent
deferred sales charge upon their redemption (see "Redemptions and
Repurchases").
EASYINVEST (SERVICE MARK). Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for
investment in shares of the Fund (see "Purchase of Fund Shares" and
"Redemptions and Repurchases--Involuntary Redemption").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset
value. The Withdrawal Plan provides for monthly or quarterly (March, June,
September and December) checks in any amount, not less than $25, or in any
whole percentage of the account balance, on an annualized basis. Any
applicable contingent deferred sales charge will be imposed on shares
redeemed under the Withdrawal Plan (see "Redemptions and
Repurchases--Contingent Deferred Sales Charge"). Therefore, any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed
from his or her account so that the proceeds 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
12
<PAGE>
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
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.
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.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege"
allowing the exchange of shares of the Fund for shares of other Dean Witter
Funds sold with a contingent deferred sales charge ("CDSC funds"), and for
shares of Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Limited
Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter Balanced
Income Fund, Dean Witter Balanced Growth Fund, Dean Witter Intermediate Term
U.S. Treasury Trust and five Dean Witter Funds which are money market funds
(the foregoing eleven non-CDSC funds are hereinafter collectively referred to
in this section as the "Exchange Funds"). Exchanges may be made after the
shares of the Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment.
An exchange to another CDSC fund or any Exchange Fund that is not a money
market fund is on the basis of the next calculated net asset value per share
of each fund after the exchange order is received. When exchanging into a
money market fund from the Fund, shares of the Fund are redeemed out of the
Fund at their next calculated net asset value and the proceeds of the
redemption are used to purchase shares of the money market fund at their net
asset value determined the following day. Subsequent exchanges between any of
the money market funds and any of the CDSC funds can be effected on the same
basis. No contingent deferred sales charge ("CDSC") is imposed at the time of
any exchange, although any applicable CDSC will be imposed upon ultimate
redemption. Shares of the Fund acquired in exchange for shares of another
CDSC fund having a different CDSC schedule than that of this Fund will be
subject to the CDSC schedule of this Fund, even if such shares are
subsequently re-exchanged for shares of the CDSC fund originally purchased.
During the period of time the shareholder remains invested in shares of an
Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired) the holding period (for the purpose of
determining the rate of the CDSC) is frozen. If those shares are subsequently
reexchanged for shares of a CDSC fund, the holding period previously frozen
when the first exchange was made resumes on the last day of the month in
which shares of a CDSC fund are reacquired. Thus, the CDSC is based upon the
time (calculated as described above) the shareholder was invested in shares
of a CDSC fund (see "Redemptions and Repurchases--Contingent Deferred Sales
Charge"). However, in the case of shares exchanged into an Exchange Fund on
or after April 23, 1990, upon a redemption of shares which results in a CDSC
being imposed, a credit (not to exceed the amount of the CDSC) will be given
in an amount equal to the Exchange Fund 12b-1 distribution fees, if any,
incurred on or after that date which are attributable to those shares.
(Exchange Fund 12b-1 distribution fees are described in the prospectuses for
those funds.)
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds"), but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for
shares of other Dean Witter Funds for which shares of a front-end sales
charge fund have been exchanged) are not subject to any CDSC upon their
redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders
and, at the Investment Manager's discretion, may be limited by the Fund's
refusal to accept additional purchases and/or exchanges from the investor.
Although the Fund does not have any specific definition of what constitutes a
pattern of frequent exchanges, and will consider all relevant factors in
determining whether a particular situation is abusive and contrary to the
best interests of the Fund and its other shareholders, investors should be
aware that the Fund and each of the other Dean Witter Funds may in their
discretion limit or otherwise restrict the number of times this Exchange
Privilege may be exercised by any investor. Any such restriction will be made
by the Fund on a prospective basis only, upon notice to the shareholder not
later than ten days following such shareholder's most recent exchange. Also,
the Exchange Privilege may be terminated or revised at any time by the Fund
and/or any of such Dean Witter Funds for which shares of the Fund have been
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
13
<PAGE>
should obtain a copy and read it carefully before investing. Exchanges are
subject to the minimum investment requirement and any other conditions
imposed by each fund. An exchange will be treated for federal income tax
purposes the same as a repurchase or redemption of shares on which the
shareholder has realized 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 above
Dean Witter Funds (for which the Exchange Privilege is available) pursuant to
this Exchange Privilege by contacting their DWR or other Selected Dealer
account executive (no Exchange Privilege Authorization Form is required).
Other shareholders (and those who are clients of DWR or other 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 Fund, to initiate an exchange. If the Authorization Form is
used, exchanges may be made in writing or by contacting the Transfer Agent at
(800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name,
mailing address, social security or other tax identification number and DWR
or other Selected Broker-Dealer account number (if any). Telephone
instructions may also be recorded. If such procedures are not employed, the
Fund may be liable for any losses due to unauthorized or fraudulent
instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her DWR or other
Selected Broker-Dealer account executive, if appropriate, or make a written
exchange request. Shareholders are advised that during periods of drastic
economic or market changes, it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the
experience of the other Dean Witter Funds in the past.
Additional information on the above is available from an account executive
of DWR or another Selected Broker-Dealer or from the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
REDEMPTION. Shares of the Fund can be redeemed for cash at any time at the
net asset value per share next determined; however, such redemption proceeds
may be reduced by the amount of any applicable contingent deferred sales
charges (see below). If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption, along with any additional
documentation required by the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE. Shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any charge upon
redemption. Shares redeemed sooner than six years after purchase may,
however, be subject to a charge upon redemption. This charge is called a
"contingent deferred sales charge" ("CDSC"), which will be a percentage of
the dollar amount of shares redeemed and will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The size of this percentage will depend upon how long the shares
have been held, as set forth in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE AS A
PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE REDEEMED
- --------------------------- -----------------------
<S> <C>
First ...................... 5.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 2.0%
Fifth ...................... 2.0%
Sixth ...................... 1.0%
Seventh and thereafter .... None
</TABLE>
<PAGE>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the six years preceding the redemption;
(ii) the current net asset value of shares purchased more than six years
prior to the redemption; and (iii) the current net asset value of shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in exchange for shares of Dean Witter Funds sold with a front-end
sales charge or of other Dean Witter Funds acquired in exchange for such
shares. Moreover, in determining whether a CDSC is applicable it will be
assumed that amounts described in (i), (ii) and (iii) above (in that order)
are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares
14
<PAGE>
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
corporate or self-employed retirement plan qualified under Section 401(k) of
the Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which Dean Witter Trust
Company, an affiliate of the Investment Manager, serves as recordkeeper or
Trustee ("Eligible 401(k) Plan"), provided that either: (A) the plan
continues to be an Eligible 401(k) Plan after the redemption; or (B) the
redemption is in connection with the complete termination of theplan
involving the distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to
engage in gainful employment. With reference to (2) above, the term
"distribution" does not encompass a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or trustee. All
waivers will be granted only following receipt by the Distributor of
confirmation of the shareholder's entitlement.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to
any of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic or telegraphic request of the shareholder. The repurchase
price is the net asset value per share next determined (see "Purchase of Fund
Shares") after such purchase order is received by DWR or another Selected
Broker-Dealer.
The CDSC, if any, will be the only fee imposed upon repurchase by the
Fund, the Distributor, DWR or other Selected Broker-Dealer. The offer by DWR
and other Selected Broker-Dealers to repurchase shares may be suspended
without notice by them at any time. In that event, shareholders may redeem
their shares through the Fund's Transfer Agent as set forth above under
"Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented for
repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption
suspended under unusual circumstances, e.g., when normal trading is not
taking place on the New York Stock Exchange. If the shares to be redeemed
have recently been purchased by check, payment of the redemption proceeds may
be delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent). Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
account executive regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares redeemed
or repurchased and has not previously exercised this reinstatement privilege
may, within thirty days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase
in shares of the Fund at the 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 to redeem, upon sixty
days' notice and at 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 have a
value of less than $100 as a result of redemptions or repurchases, or such
lesser amount as may be fixed by the Board of Trustees or, in the case of an
account opened through EasyInvest (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 to make an additional investment
in an amount which will increase the value of the account to at least the
applicable amount or more before the redemption is processed. No CDSC will be
imposed on any involuntary redemption.
15
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to pay quarterly income
dividends and to distribute substantially all of the Fund's net short-term
and net long-term capital gains, if there are any, at least once each year.
The Fund may, however, determine either to distribute or to retain all or
part of any net long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in
additional Fund shares and automatically credited to the shareholder's
account without issuance of a share certificate unless the shareholder
requests in writing that all dividends be paid in cash. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions".)
Taxes. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise remain
qualified as a regulated investment company under Subchapter M of the
Internal Revenue Code, it is not expected that the Fund will be required to
pay any federal income tax. Shareholders who are required to pay taxes on
their income will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from
net investment income or short-term capital gains, are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash.
One of the requirements for the Fund to remain qualified as a regulated
investment company is that less than 30% of the Fund's gross income be
derived from gains from the sale or other disposition of securities held for
less than three months.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction.
At the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes, including information as to the portion taxable as ordinary income,
the portion taxable as long-term capital gains, and the amount of dividends
eligible for the Federal dividends received deduction available to
corporations. To avoid being subject to a 31% federal backup withholding tax
on taxable dividends, capital gains distributions and the proceeds of
redemptions and repurchases, shareholders' taxpayer identification numbers
must be furnished and certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. Both the yield and the total return
of the Fund are based on historical earnings and are not intended to indicate
future performance. The yield of the Fund is computed by dividing the net
investment income of the Fund over a 30-day period by an average value (using
the average number of shares entitled to receive dividends and the net asset
value per share at the end of the period), all in accordance with applicable
regulatory requirements. Such amount is compounded for six months and then
annualized for a twelve-month period to derive the yield of the Fund.
From time to time the Fund may quote its "total return" in advertisements
and sales literature. The total return of the Fund is based on historical
earnings and is not intended to indicate future performance. The "average
annual total return" of the Fund refers to a figure reflecting the average
annualized percentage increase (or decrease) in the value of an initial
investment in the Fund of $1,000 over periods of one, five and ten years, or
over the life of the Fund, if less than any of the foregoing. Total return
and average annual total return reflect all income earned by the Fund, any
appreciation or depreciation of the Fund's assets and all expenses incurred
by the Fund for the stated periods. It also assumes reinvestment of all
dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or
other types of total return figures. The Fund may also advertise the growth
of hypothetical investments of $10,000, $50,000 and $100,000 in shares of the
Fund. Such calculations may or may not reflect the deduction of the
contingent deferred sales charge which, if reflected, would reduce the
performance quoted. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc., the S&P 500 Index and the Lehman Brothers
Government/Corporate Bond Index).
16
<PAGE>
ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01 par
value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and, in
ordinary circumstances, the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by
the Shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain 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 notice of such 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, in
the opinion of Massachusetts counsel to the Fund, the risk to Fund
shareholders of personal liability is remote.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code
of Ethics adopted by those companies. The Code of Ethics is intended to
ensure that the interests of shareholders and other clients are placed ahead
of any personal interest, that no undue personal benefit is obtained from a
person's employment activities and that actual and potential conflicts of
interest are avoided. To achieve these goals and comply with regulatory
requirements, the Code of Ethics requires, among other things, that personal
securities transactions by employees of the companies be subject to an
advance clearance process to monitor that no Dean Witter Fund is engaged at
the same time in a purchase or sale of the same security. The Code of Ethics
bans the purchase of securities in an initial public offering and prohibits
engaging in futures and options transactions and profiting on short-term
trading (that is, a purchase within 60 days of a sale or a sale within 60
days of a purchase) of a security. In addition, investment personnel may not
purchase or sell a security for their personal account within 30 days before
or after any transaction in any Dean Witter Fund managed by them. Any
violations of the Code of Ethics are subject to sanctions, including
reprimand, demotion or suspension or termination of employment. The Code of
Ethics comports with regulatory requirements and the recommendations in the
1994 report by the Investment Company Institute Advisory Group on Personal
Investing.
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.
17
<PAGE>
DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (44.7%)
Apparel (1.0%)
86,500 Kellwood Co. ................................................... $1,438,062
--------------
Auto Parts (0.9%)
45,500 Dana Corp. ..................................................... 1,376,375
--------------
Automotive (2.8%)
48,000 Chrysler Corp. ................................................. 1,374,000
44,500 Ford Motor Co. ................................................. 1,390,625
29,000 General Motors Corp. ........................................... 1,392,000
--------------
4,156,625
--------------
Banks (0.9%)
60,000 Washington Federal, Inc. ....................................... 1,402,500
--------------
Banks -Commercial (3.7%)
51,700 First Security Corp. ........................................... 1,415,287
40,000 First Tennessee National Corp. ................................. 1,320,000
30,500 KeyCorp ........................................................ 1,342,000
39,000 Wilmington Trust Corp. ......................................... 1,394,250
--------------
5,471,537
--------------
Banks -Regional (0.9%)
31,000 Corestates Financial Corp. ..................................... 1,340,750
--------------
Banks -Thrift Institutions (0.9%)
37,900 Washington Mutual, Inc. ........................................ 1,411,775
--------------
Building Materials (0.9%)
22,400 Vulcan Materials Co. ........................................... 1,344,000
--------------
Chemicals (2.8%)
16,700 Dow Chemical Co. ............................................... 1,340,175
25,400 PPG Industries, Inc. ........................................... 1,381,125
21,000 Rohm & Haas Co. ................................................ 1,375,500
--------------
4,096,800
--------------
Conglomerates (0.9%)
28,000 Tenneco, Inc. .................................................. 1,403,500
--------------
Finance (1.0%)
41,000 Federal National Mortgage Assoc. ............................... 1,429,875
--------------
Financial (0.9%)
37,000 TCF Financial Corp. ............................................ 1,392,125
--------------
Financial -Miscellaneous (1.0%)
19,000 Student Loan Marketing Assoc. .................................. 1,417,875
--------------
Food Processing (1.0%)
62,500 Hormel Foods Corp. ............................................. 1,460,937
--------------
Healthcare -Drugs (0.9%)
22,500 Schering-Plough Corp. .......................................... 1,383,750
--------------
Insurance (1.8%)
27,000 Jefferson-Pilot Corp. .......................................... 1,397,250
30,100 Lincoln National Corp. ......................................... 1,320,638
--------------
2,717,888
--------------
Life Insurance (0.9%)
30,000 Torchmark Corp. ................................................ 1,376,250
--------------
Machinery -Diversified (0.9%)
18,000 Johnson Controls, Inc. ......................................... 1,350,000
--------------
Manufacturing -Consumer & Industrial Products (1.0%)
28,000 Whirlpool Corp. ................................................ 1,417,500
--------------
Manufacturing -Diversified (1.0%)
47,500 UST, Inc. ...................................................... 1,407,188
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Metals & Mining (0.9%)
50,500 Asarco, Inc. ................................................... $ 1,344,563
--------------
Miscellaneous (1.0%)
50,000 American Greetings Corp. (Class A) ............................. 1,431,250
--------------
Multi-Line Insurance (0.9%)
32,000 Providian Corp. ................................................ 1,376,000
--------------
Oil & Gas (0.9%)
34,000 Ashland Inc. ................................................... 1,351,500
--------------
Real Estate Investment Trust (5.5%)
75,000 American General Hospitality Corp. ............................. 1,425,000
48,400 Cali Realty Corp. .............................................. 1,312,850
50,000 CarrAmerica Realty Corp. ....................................... 1,250,000
50,000 Excel Realty Trust, Inc. ....................................... 1,081,250
20,000 FelCor Suite Hotels, Inc. ...................................... 645,000
60,000 Liberty Property Trust ......................................... 1,305,000
35,000 Patriot American Hospitality, Inc. ............................. 1,176,875
--------------
8,195,975
--------------
Steel (0.9%)
35,000 Timken Co. ..................................................... 1,373,750
--------------
Telecommunications (1.9%)
23,400 Bell Atlantic Corp. ............................................ 1,401,075
46,500 U.S. West Communications Group, Inc. ........................... 1,383,375
--------------
2,784,450
--------------
Telephones (1.0%)
29,500 SBC Communications, Inc. ....................................... 1,419,688
--------------
Tobacco (0.9%)
15,000 Philip Morris Companies, Inc. .................................. 1,346,250
--------------
Utilities -Electric (3.7%)
50,000 Consolidated Edison Company of New York, Inc. .................. 1,387,500
44,000 New England Electric System .................................... 1,369,500
56,000 Peco Energy Co. ................................................ 1,330,000
50,000 Public Service Enterprise Group, Inc. .......................... 1,337,500
--------------
5,424,500
--------------
Wholesale Distributor (1.0%)
51,000 Supervalu, Inc. ................................................ 1,402,500
--------------
TOTAL COMMON STOCKS (Identified Cost $64,366,530) .............. 66,245,738
--------------
CONVERTIBLE PREFERRED STOCKS (11.7%)
Auto Parts (0.5%)
55,000 Mascotech, Inc. $1.20 .......................................... 783,750
--------------
Cable/Cellular (0.7%)
25,000 TCI Communications, Inc. (Series A) $2.125 ..................... 996,875
--------------
Chemicals (2.5%)
73,500 Atlantic Richfield Co. $9.01 ................................... 1,727,250
35,000 Occidental Petroleum Corp. (Series 1993) $3.875 -144A* ......... 1,986,250
--------------
3,713,500
--------------
Financial (1.4%)
50,000 Merrill Lynch & Co., Inc. (STRYPES) $2.39 ...................... 2,012,500
--------------
Metals & Mining (1.6%)
45,000 Cyprus Amax Minerals Co. (Series A) $4.00 ...................... 2,340,000
--------------
Publishing (1.1%)
13,000 Golden Books Financing Trust $4.375 -144A* ..................... 732,069
85,000 Hollinger International, Inc. $0.95 ............................ 945,625
--------------
1,677,694
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate Investment Trust (1.5%)
31,700 FelCor Suite Hotels, Inc. (Series A) $1.95 ..................... $ 824,200
61,200 Oasis ResidentiaI, Inc. (Series A) $2.25 ....................... 1,468,800
--------------
2,293,000
--------------
Steel (0.7%)
24,000 WHX Corp. (Series A) $3.25 ..................................... 999,000
--------------
Telecommunications (1.7%)
50,000 General Datacomm Industries, Inc. $2.25 -144A* ................. 1,253,150
27,000 Globalstar Telecommunications $3.25 -144A* ..................... 1,282,500
--------------
2,535,650
--------------
TOTAL CONVERTIBLE PREFERRED STOCKS (Identified Cost $16,988,117) 17,351,969
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (41.6%) CONVERTIBLE BONDS (24.7%)
Biotechnology (0.5%)
$ 750 Nabi, Inc. -144A* .............................................. 6.50% 02/01/03 807,637
--------------
Cable/Cellular (2.0%)
970 Tele-Communications International Inc. ......................... 4.50 02/15/06 778,425
6,750 U.S. Cellular Corp. ............................................ 0.00 06/15/15 2,244,375
--------------
3,022,800
--------------
Healthcare (6.9%)
1,500 ARV Assisted Living, Inc. -144A* ............................... 6.75 04/01/06 1,477,485
2,000 Beverly Enterprises, Inc. ...................................... 5.50 08/01/18 1,911,660
1,000 Grancare, Inc. ................................................. 6.50 01/15/03 1,030,000
2,000 Integrated Health Services, Inc. ............................... 6.00 01/01/03 1,979,680
2,000 Phymatrix Corp. -144A* ......................................... 6.75 06/15/03 1,675,340
2,000 Vivra, Inc. -144A* ............................................. 5.00 07/01/01 2,122,700
--------------
10,196,865
--------------
Healthcare -Miscellaneous (1.4%)
2,700 Pharmaceutical Marketing Services, Inc. ........................ 6.25 02/01/03 2,020,383
--------------
Leisure (2.1%)
10,750 Coleman Worldwide Corp. ........................................ 0.00 05/27/13 3,090,625
--------------
Machinery (0.7%)
1,000 Robbins & Meyers, Inc. ......................................... 6.50 09/01/03 1,016,250
--------------
Medical Products & Supplies (0.6%)
750 Ventritex, Inc. ................................................ 5.75 08/15/01 871,260
--------------
Office Equipment & Supplies (1.9%)
3,000 U.S. Office Products Co. -144A* ................................ 5.50 05/15/03 2,820,000
--------------
Real Estate Investment Trust (1.2%)
1,750 Camden Property Trust .......................................... 7.33 04/01/01 1,767,500
--------------
Retail (3.6%)
1,000 Charming Shoppes, Inc. ......................................... 7.50 07/15/06 1,094,670
1,250 Home Depot, Inc. ............................................... 3.25 10/01/01 1,270,313
1,950 Mens Wearhouse, Inc. (The) ..................................... 5.25 03/01/03 1,872,000
1,300 Michaels Stores, Inc. .......................................... 6.75 01/15/03 1,030,900
--------------
5,267,883
--------------
Shoes (0.7%)
1,000 Nine West Group, Inc. -144A* ................................... 5.50 07/15/03 1,073,280
--------------
Steel (1.4%)
2,250 USX Corp. ...................................................... 7.00 06/15/17 2,120,625
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Telecommunications (1.7%)
$1,500 Midcom Communications Inc. -144A* .............................. 8.25 % 08/15/03 $ 1,715,160
750 SA Telecommunications Inc. -144A* .............................. 10.00 08/15/06 787,500
--------------
2,502,660
--------------
TOTAL CONVERTIBLE BONDS
(Identified Cost $35,684,418) ....................................................... 36,577,768
--------------
NON-CONVERTIBLE BONDS (16.9%)
Auto Parts (0.7%)
1,000 Lear Corp. ..................................................... 9.50 07/15/06 1,040,000
--------------
Broadcast Media (1.0%)
1,500 JCAC Inc. ...................................................... 10.125 06/15/06 1,545,000
--------------
Cable/Cellular (2.1%)
1,000 Rogers Communications, Inc. (Canada) ........................... 10.875 04/15/04 1,030,000
2,000 Tele-Communications, Inc. ...................................... 9.25 04/15/02 2,113,540
--------------
3,143,540
--------------
Entertainment (1.5%)
2,000 Time Warner, Inc. .............................................. 9.625 05/01/02 2,204,600
--------------
Entertainment/Gaming (1.5%)
2,000 Casino America, Inc. ........................................... 11.50 11/15/01 2,180,000
--------------
Fertilizers (0.7%)
1,000 Arcadian Partner (Series B) .................................... 10.75 05/01/05 1,102,500
--------------
Healthcare (3.6%)
1,000 Healthsouth Rehabilition Corp. ................................. 9.50 04/01/01 1,045,000
2,000 Manor Care, Inc. ............................................... 9.50 11/15/02 2,120,000
2,000 OrNda Healthcorp ............................................... 12.25 05/15/02 2,160,000
--------------
5,325,000
--------------
Machinery (1.8%)
2,460 Joy Technologies Inc. .......................................... 10.25 09/01/03 2,705,114
--------------
Media Group (1.1%)
1,500 K-III Communications Corp. ..................................... 10.625 05/01/02 1,567,500
--------------
Publishing (0.7%)
1,000 Hollinger International Publishing, Inc. ....................... 9.25 02/01/06 970,000
--------------
Supermarkets (2.2%)
3,000 Purity Supreme, Inc. (Series B) ................................ 11.75 08/01/99 3,218,190
--------------
TOTAL NON-CONVERTIBLE BONDS
(Identified Cost $24,946,042) ....................................................... 25,001,444
--------------
TOTAL CORPORATE BONDS
(Identified Cost $60,630,460) ....................................................... 61,579,212
--------------
SHORT-TERM INVESTMENT (1.3%) REPURCHASE AGREEMENT
1,942 The Bank of New York (dated 09/30/96; proceeds $1,941,848;
collateralized by $1,369,637 U.S. Treasury Bond 12.75% due
11/15/10 valued at $1,980,410) (Identified Cost $1,941,578) .... 5.00 10/01/96 1,941,578
--------------
TOTAL INVESTMENTS
(Identified Cost $143,926,685) (a) ...................................... 99.3% 147,118,497
OTHER ASSETS IN EXCESS OF LIABILITIES ................................... 0.7 1,023,417
----- --------------
NET ASSETS .............................................................. 100.0% $148,141,914
===== ==============
</TABLE>
- ------------
STRYPES Structured yield product exchangeable for stock.
* Resale is restricted to qualified institutional investors.
(a) The aggregate cost for federal income tax purposes is
$143,942,769. The aggregate gross unrealized appreciation is
$5,253,724 and the aggregate gross unrealized depreciation is
$2,077,996, resulting in net unrealized appreciation of
$3,175,728.
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $143,926,685) ............ $147,118,497
Receivable for:
Interest ................................. 1,255,482
Shares of beneficial interest sold ...... 1,187,289
Investments sold ......................... 846,101
Dividends ................................ 223,710
Deferred organizational expenses ........... 154,966
Prepaid expenses ........................... 444
---------------
TOTAL ASSETS ............................. 150,786,489
---------------
LIABILITIES:
Payable for:
Investments purchased .................... 2,091,873
Plan of distribution fee ................. 118,205
Investment management fee ................ 88,654
Dividends to shareholders ................ 45,628
Shares of beneficial interest repurchased 13,621
Organizational expenses .................... 163,660
Accrued expenses and other payables ....... 122,934
---------------
TOTAL LIABILITIES ........................ 2,644,575
---------------
NET ASSETS:
Paid-in-capital ............................ 144,828,578
Net unrealized appreciation ................ 3,191,812
Undistributed net investment income ....... 47,579
Net realized gain .......................... 73,945
---------------
NET ASSETS ............................... $148,141,914
===============
NET ASSET VALUE PER SHARE,
14,483,618 shares outstanding (unlimited
shares authorized of $.01 par value) ..... $ 10.23
===============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE PERIOD JUNE 26, 1996* THROUGH SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest ......................... $1,163,801
Dividends ........................ 725,075
------------
TOTAL INCOME ................... 1,888,876
------------
EXPENSES
Plan of distribution fee ......... 323,002
Investment management fee ........ 242,252
Transfer agent fees and expenses 55,551
Registration fees ................ 49,768
Professional fees ................ 28,848
Organizational expenses .......... 8,694
Custodian fees ................... 8,339
Shareholder reports and notices . 7,581
Trustees' fees and expenses ..... 958
Other ............................ 1,037
------------
TOTAL EXPENSES ................. 726,030
------------
NET INVESTMENT INCOME .......... 1,162,846
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain .............. 73,945
Net unrealized appreciation ... 3,191,812
------------
NET GAIN ....................... 3,265,757
------------
NET INCREASE ..................... $4,428,603
============
</TABLE>
* Commencement of operations.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD JUNE
26, 1996* THROUGH
SEPTEMBER 30, 1996
- -------------------------------------------------------------- ------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ......................................... $ 1,162,846
Net realized gain ............................................. 73,945
Net unrealized appreciation ................................... 3,191,812
------------------
NET INCREASE ................................................ 4,428,603
Dividends from net investment income .......................... (1,123,961)
Net increase from transactions in shares of beneficial
interest ..................................................... 144,737,272
------------------
TOTAL INCREASE .............................................. 148,041,914
NET ASSETS:
Beginning of period ........................................... 100,000
------------------
END OF PERIOD
(Including undistributed net investment income of $47,579) . $148,141,914
==================
</TABLE>
- ---------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Income Builder Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's primary investment
objective is to seek reasonable income and, as a secondary objective, growth
of capital. The Fund seeks to achieve its objective by investing primarily in
income-producing equity securities, including common and preferred stocks as
well as convertible securities. The Fund was organized as a Massachusetts
business trust on March 21, 1996 and had no operations other than those
relating to organizational matters and the issuance of 10,000 shares of
beneficial interest for $100,000 to Dean Witter InterCapital Inc. (the
"Investment Manager") to effect the Fund's initial capitalization. The Fund
commenced operations on June 26, 1996.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where securities are traded on more than one exchange,
the security is valued on the exchange designated as the primary market by
the Trustees); (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest available
bid price prior to the time of valuation; (3) when market quotations are not
readily available, including circumstances under which it is determined by
the Investment Manager that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Trustees (valuation of debt securities for which
market quotations are not readily available may be based upon current market
prices of securities which are comparable in coupon, rating and maturity or
an appropriate matrix utilizing similar factors); and (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
securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date except for certain dividends on foreign securities which are
recorded as soon as the Fund is informed after the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations
23
<PAGE>
DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1996 continued
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 $163,660 which will be reimbursed for
the full amount thereof. Such expenses have been deferred and are being
amortized on the straight-line method over a period not to exceed five years
from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.75% to the net assets of the Fund determined as of the close
of each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted
a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act
pursuant to which the Fund pays the Distributor compensation, accrued daily
and payable monthly, at an annual rate of 1.0% of the 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.
24
<PAGE>
DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1996 continued
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, included carrying charges, totaled
$7,917,422 at September 30, 1996.
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.
The Distributor has informed the Fund that for the period ended September 30,
1996, it received approximately $26,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the period ended September 30, 1996
aggregated $149,132,161 and $7,295,003, respectively.
For the period ended September 30, 1996, the Fund incurred $24,548 in
brokerage commissions with DWR for portfolio transactions executed on behalf
of the Fund. At September 30, 1996, the Fund's payable for investments
purchased included unsettled trades with DWR of $841,873.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At September 30, 1996, the Fund
had transfer agent fees and expenses payable of approximately $32,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 26, 1996*
THROUGH
SEPTEMBER 30, 1996
------------------------------
SHARES AMOUNT
-------------- --------------
<S> <C> <C>
Sold...................... 14,654,263 $146,538,451
Reinvestment of dividends. 83,927 855,216
------------ ---------------
14,738,190 147,393,667
Repurchased............... (264,572) (2,656,395)
------------ ---------------
Net increase.............. 14,473,618 $144,737,272
============ ===============
</TABLE>
- ------------
* Commencement of operations.
6. SELECTED PER SHARE DATA AND RATIOS
See the "Financial Highlights" table on page 4 of this Prospectus.
25
<PAGE>
DEAN WITTER INCOME BUILDER FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER INCOME BUILDER FUND
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
(appearing on page 4 of this Prospectus) present fairly, in all material
respects, the financial position of Dean Witter Income Builder Fund (the
"Fund") at September 30, 1996, and the results of its operations, the changes
in its net assets and the financial highlights for the period June 26, 1996
(commencement of operations) through September 30, 1996, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of securities at September 30, 1996 by
correspondence with the custodian and brokers, provides a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
October 17, 1996
1996 FEDERAL TAX NOTICE (unaudited)
During the period ended September 30, 1996, 57.47% of the income paid
qualified for the dividends received deduction available to
corporations.
26
<PAGE>
APPENDIX
- -----------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS INVESTMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
<TABLE>
<CAPTION>
<S> <C>
Aaa Fixed-income securities which are rated Aaa are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Fixed-income securities which are rated Aa are judged to be of high quality by all standards. Together with
the Aaa group they comprise what are generally known as high grade fixed-income securities. They are rated
lower than the best fixed-income securities because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Fixed-income securities which are rated A possess many favorable investment attributes and are to be considered
as upper medium grade obligations. Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa Fixed-income securities which are rated Baa are considered as medium grade obligations; i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically unreliable over any great length
of time. Such fixed-income securities lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Fixed-income securities rated Aaa, Aa, A and Baa are considered investment grade.
Ba Fixed-income securities which are rated Ba are judged to have speculative elements; their future cannot be
considered as well assured. Often the protection of interest and principal payments may be very moderate,
and therefore not well safeguarded during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
B Fixed-income securities which are rated B generally lack characteristics of a desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the contract over any long period
of time may be small.
Caa Fixed-income securities which are rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
Ca Fixed-income securities which are rated Ca present obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C Fixed-income securities which are rated C are the lowest rated class of fixed-income securities, and issues
so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
</TABLE>
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal
fixed-income security rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and a modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess
of nine months. The ratings apply to Municipal Commercial Paper as well as
taxable Commercial Paper. Moody's employs the following three designations,
all judged to be investment grade, to indicate the relative repayment
capacity of rated issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and issuers rated Prime-3
have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated Not Prime do not fall within any of the Prime
rating categories.
27
<PAGE>
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and
(3) protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings
may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
<TABLE>
<CAPTION>
<S> <C>
AAA Fixed-income securities rated "AAA" have the highest rating assigned by Standard & Poor's. Capacity to pay interest
and repay principal is extremely strong.
AA Fixed-income securities rated "AA" have a very strong capacity to pay interest and repay principal and differs
from the highest-rate issues only in small degree.
A Fixed-income securities rated "A" have a strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than fixed-income
securities in higher-rated categories.
BBB Fixed-income securities rated "BBB" are regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay principal for fixed-income securities
in this category than for fixed-income securities in higher-rated categories.
Fixed-income securities rated AAA, AA, A and BBB are considered investment grade.
BB Fixed-income securities rated "BB" have less near-term vulnerability to default than other speculative grade
fixed-income securities. However, it faces major ongoing uncertainties or exposures to adverse business, financial or
economic conditions which could lead to inadequate capacity or willingness to pay interest and repay principal.
B Fixed-income securities rated "B" have a greater vulnerability to default but presently have the capacity to meet
interest payments and principal repayments. Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.
CCC Fixed-income securities rated "CCC" have a current identifiable vulnerability to default, and are dependent upon
favorable business, financial and economic conditions to meet timely payments of interest and repayments of principal.
In the event of adverse business, financial or economic conditions, they are not likely to have the capacity to
pay interest and repay principal.
CC The rating "CC" is typically applied to fixed-income securities subordinated to senior debt which is assigned an
actual or implied "CCC" rating.
C The rating "C" is typically applied to fixed-income securities subordinated to senior debt which is assigned an
actual or implied "CCC-" rating.
CI The rating "CI" is reserved for fixed-income securities on which no interest is being paid.
NR Indicates that no rating has been requested, that there is insufficient information on which to base a rating or
that Standard & Poor's does not rate a particular type of obligation as a matter of policy.
Fixed-income securities rated "BB," "B," "CCC," "CC" and "C" are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest degree of speculation. While such fixed-income securities will likely have some
quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
Plus (+) or minus (-): The rating from "AA" to "CCC" may be modified by the addition of a plus or minus sign to
show relative standing within the major ratings categories.
</TABLE>
28
<PAGE>
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to
purchase or sell a security. The ratings are based upon current information
furnished by the issuer or obtained by Standard & Poor's from other sources
it considers reliable. The ratings may be changed, suspended, or withdrawn as
a result of changes in or unavailability of such information. Ratings are
graded into group categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Ratings are applicable to both taxable and
tax-exempt commercial paper. The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the
designation 1, 2, and 3 to indicate the relative degree of safety.
<TABLE>
<CAPTION>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is strong. However, the relative degree
of safety is not as overwhelming as for issues designated "A-1."
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying this designation are, however, somewhat
more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
</TABLE>
BOND RATINGS
FITCH INVESTORS SERVICE, INC. ("FITCH")
The Fitch Bond Ratings provides a guide to investors in determining the
investment risk associated with a particular security. The rating represents
its assessment of the issuer's ability to meet the obligations of a specific
debt issue or class of debt in a timely manner. Fitch bond ratings are not
recommendations to buy, sell or hold securities since they incorporate no
information on market price or yield relative to other debt instruments.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the record of the issuer and
of any guarantor, as well as the political and economic environment that
might affect the future financial strength and credit quality of the issuer.
Bonds which have the same rating are of similar but not necessarily
identical investment quality since the limited number of rating categories
cannot fully reflect small differences in the degree of risk. Moreover, the
character of the risk factor varies from industry to industry and between
corporate, health care and municipal.
In assessing credit risk, Fitch Investors Service relies on current
information furnished by the issuer and/or guarantor and other sources which
it considers reliable. Fitch does not perform an audit of the financial
statements used in assigning a rating.
Ratings may be changed, withdrawn or suspended at any time to reflect
changes in the financial condition of the issuer, the status of the issue
relative to other debt of the issuer, or any other circumstances that Fitch
considers to have a material effect on the credit of the obligor.
<TABLE>
<CAPTION>
<S> <C>
AAA rated bonds are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally
strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA rated bonds are considered to be investment grade and of very high credit quality. The obligor's ability to pay
interest and repay principal, while very strong, is somewhat less than for AAA rated securities or more subject
to possible change over the term of the issue.
A rated bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest
and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB rated bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability to
pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to weaken this ability than bonds with higher ratings.
BB rated bonds are considered speculative and of low investment grade. The obligor's ability to pay interest and
repay principal is not strong and is considered likely to be affected over time by adverse economic changes.
B rated bonds are considered highly speculative. Bonds in this class are lightly protected as to the obligor's
ability to pay interest over the life of the issue and repay principal when due.
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<PAGE>
CCC rated bonds may have certain identifiable characteristics which, if not remedied, could lead to the possibility
of default in either principal or interest payments.
CC rated bonds are minimally protected. Default in payment of interest and/or principal seems probable.
C rated bonds are in imminent default in payment of interest and/or principal.
</TABLE>
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes. Although the credit analysis is similar to Fitch's bond
rating analysis, the short-term rating places greater emphasis on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner. Fitch's short-term ratings are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fitch-1+ (Exceptionally Strong Credit Quality) Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
Fitch-1 (Very Strong Credit Quality) Issues assigned this rating reflect an assurance of timely payment only slightly
less in degree than issues rated Fitch-1+.
Fitch-2 (Good Credit Quality) Issues assigned this rating have a satisfactory degree of assurance for timely payment
but the margin of safety is not as great as the two higher categories.
Fitch-3 (Fair Credit Quality) Issues assigned this rating have characteristics suggesting that the degree of assurance
for timely payment is adequate, however, near-term adverse change is likely to cause these securities
to be rated below investment grade.
Fitch-S (Weak Credit Quality) Issues assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near term adverse changes in financial and economic
conditions.
D (Default) Issues assigned this rating are in actual or imminent payment default.
LOC This symbol LOC indicates that the rating is based on a letter of credit issued by a commercial bank.
</TABLE>
LONG-TERM RATINGS
DUFF & PHELPS, INC.
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related
to such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and
expertise. The projected viability of the obligor at the trough of the cycle
is a critical determination.
Each rating also takes into account the legal form of the security, (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent
of rating dispersion among the various classes of securities is determined by
several factors including relative weightings of the different security
classes in the capital structure, the overall credit strength of the issuer,
and the nature of covenant protection. Review of indenture restrictions is
important to the analysis of a company's operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once per quarter
(more frequently, if necessary).
<TABLE>
<CAPTION>
RATING SCALE DEFINITION
<S> <C>
AAA Highest credit quality. The risk factors are negligible, being only slightly more than risk-free U.S.
treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest, but may vary slightly from time to
AA time because of economic conditions.
AA-
A+ Protection factors are average but adequate. However, risk factors are more variable and greater in periods
A of economic stress.
A-
BBB+ Below average protection factors but still considered sufficient for prudent investment. Considerable
BBB variability in risk during economic cycles.
BBB-
BB+ Below investment grade but deemed likely to meet obligations when due. Present or prospective financial
BB protection factors fluctuate according to industry conditions or company fortunes. Overall quality may
BB- move up or down frequently within this category.
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<PAGE>
RATING SCALE DEFINITION
B+ Below investment grade and possessing risk that obligations will not be met when due. Financial protection
B factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes.
B- Potential exists for frequent changes in the quality rating within this category or into a higher or
lower quality rating grade.
CCC Well below investment grade securities. May be in default or considerable uncertainty exists as to timely
payment of principal, interest or preferred dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/ industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
</TABLE>
SHORT-TERM RATINGS
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations
with maturities of under one year, including commercial paper, the uninsured
portion of certificates of deposit, unsecured bank loans, master notes,
bankers acceptances, irrevocable letters of credit, and current maturities of
long-term debt. Asset-backed commercial paper is also rated according to this
scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds, including trade
credit, bank lines, and the capital markets. An important consideration is
the level of an obligor's reliance on short-term funds on an ongoing basis.
<TABLE>
<CAPTION>
<S> <C>
A. CATEGORY 1: HIGH GRADE
Duff 1+ Highest certainty of timely payment. Short-term liquidity, including internal operating
factors and/or access to alternative sources of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are minor.
Duff- High certainty of timely payment. Liquidity factors are strong and supported by good
fundamental protection factors. Risk factors are very small.
B. CATEGORY 2: GOOD GRADE
Duff 2 Good certainty of timely payment. Liquidity factors and company fundamentals are sound.
Although ongoing funding needs may enlarge total financing requirements, access to capital markets
is good. Risk factors are small.
C. CATEGORY 3: SATISFACTORY GRADE
Duff 3 Satisfactory liquidity and other protection factors qualify issue as to investment grade.
Risk factors are larger and subject to more variation. Nevertheless, timely payment is expected.
D. CATEGORY 4: NON-INVESTMENT GRADE
Duff 4 Speculative investment characteristics. Liquidity is not sufficient to insure against disruption
in debt service. Operating factors and market access may be subject to a high degree of variation.
E. CATEGORY 5: DEFAULT
Duff 5 Issuer failed to meet scheduled principal and/or interest payments.
</TABLE>
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<PAGE>
DEAN WITTER
INCOME BUILDER FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Paul D. Vance
Vice President
Michael G. Knox
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.
