<PAGE>
Filed Pursuant to Rule 497(e)
Registration File No.: 333-01995
DEAN WITTER
INCOME BUILDER FUND
PROSPECTUS -- NOVEMBER 26, 1997
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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.
The Fund offers four classes of shares (each, a "Class"), each with a
different combination of sales charges, ongoing fees and other features. The
different distribution arrangements permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated November 26, 1997, which has been filed with
the Securities and Exchange Commission, and which is available at no charge
upon request of the Fund at the address or telephone numbers listed on this
page. The Statement of Additional Information is incorporated herein by
reference.
TABLE OF CONTENTS
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 4
Financial Highlights .................................................. 5
The Fund and its Management ........................................... 8
Investment Objectives and Policies .................................... 8
Risk Considerations .................................................. 11
Investment Restrictions ............................................... 14
Purchase of Fund Shares ............................................... 15
Shareholder Services .................................................. 23
Redemptions and Repurchases ........................................... 25
Dividends, Distributions and Taxes .................................... 26
Performance Information ............................................... 27
Additional Information ................................................ 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)
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 The Fund is organized as a Trust, commonly known as a
FUND 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 Shares of beneficial interest with $0.01 par value (see
OFFERED page 27). The Fund offers four Classes of shares, each
with a different combination of sales charges, ongoing
fees and other features (see pages 15-23).
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MINIMUM The minimum initial investment for each Class is $1,000
PURCHASE ($100 if the account is opened through EasyInvest
(Service Mark)). Class D shares are only available to
persons investing $5 million or more and to certain other
limited categories of investors. For the purpose of
meeting the minimum $5 million investment for Class D
shares, and subject to the $1,000 minimum initial
investment for each Class of the Fund, an investor's
existing holdings of Class A shares and shares of funds
for which Dean Witter InterCapital Inc. serves as
investment manager ("Dean Witter Funds") that are sold
with a front-end sales charge, and concurrent investments
in Class D shares of the Fund and other Dean Witter Funds
that are multiple class funds, will be aggregated. The
minimum subsequent investment is $100 (see page 15).
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INVESTMENT The primary investment objective of the Fund is to seek
OBJECTIVE reasonable income. Growth of capital is the secondary
objective.
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INVESTMENT Dean Witter InterCapital Inc., the Investment Manager of
MANAGER the Fund, and its wholly-owned subsidiary, Dean Witter
Services Company Inc., serve in various investment
management, advisory, management and administrative
capacities to 100 investment companies and other
portfolios with net assets under management of
approximately $100.7 billion at October 31, 1997.
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MANAGEMENT The Investment Manager receives a monthly fee at the
FEE annual rate of 0.75% of the Fund's average daily net
assets (see page 8).
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DISTRIBUTOR AND Dean Witter Distributors Inc. (the "Distributor"). The
DISTRIBUTION Fund has adopted a distribution plan pursuant to Rule
FEE 12b-1 under the Investment Company Act (the "12b-1 Plan")
with respect to the distribution fees paid by the Class
A, Class B and Class C shares of the Fund to the
Distributor. The entire 12b-1 fee payable by Class A and
a portion of the 12b-1 fee payable by each of Class B and
Class C equal to 0.25% of the average daily net assets of
the Class are currently each characterized as a service
fee within the meaning of the National Association of
Securities Dealers, Inc. guidelines. The remaining
portion of the 12b-1 fee, if any, is characterized as an
asset-based sales charge (see pages 15 and 21).
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ALTERNATIVE Four classes of shares are offered:
PURCHASE
ARRANGEMENTS o Class A shares are offered with a front-end sales
charge, starting at 5.25% and reduced for larger
purchases. Investments of $1 million or more (and
investments by certain other limited categories of
investors) are not subject to any sales charge at the
time of purchase but a contingent deferred sales charge
("CDSC") of 1.0% may be imposed on redemptions within one
year of purchase. The Fund is authorized to reimburse the
Distributor for specific expenses incurred in promoting
the distribution of the Fund's Class A shares and
servicing shareholder accounts pursuant to the Fund's
12b-1 Plan. Reimbursement may in no event exceed an
amount equal to payments at an annual rate of 0.25% of
average daily net assets of the Class (see pages 15, 17
and 21).
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2
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o Class B shares are offered without a front-end sales
charge, but will in most cases be subject to a CDSC
(scaled down from 5.0% to 1.0%) if redeemed within six
years after purchase. The CDSC will be imposed on any
redemption of shares if after such redemption the
aggregate current value of a Class B account with the
Fund falls below the aggregate amount of the investor's
purchase payments made during the six years preceding the
redemption. A different CDSC schedule applies to
investments by certain qualified plans. Class B shares
are also subject to a 12b-1 fee assessed at the annual
rate of 1.0% of the lesser of: (a) the average daily net
sales of the Fund's Class B shares or (b) the average
daily net assets of Class B. All shares of the Fund held
prior to July 28, 1997 have been designated Class B
shares. Shares held before May 1, 1997 that have been
designated Class B shares will convert to Class A shares
in May, 2007. In all other instances, Class B shares
convert to Class A shares approximately ten years after
the date of the original purchase (see pages 15, 19 and
20).
o Class C shares are offered without a front-end sales
charge, but will in most cases be subject to a CDSC of
1.0% if redeemed within one year after purchase. The Fund
is authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the
Fund's Class C shares and servicing shareholder accounts
pursuant to the Fund's 12b-1 Plan. Reimbursement may in
no event exceed an amount equal to payments at an annual
rate of 1.0% of average daily net assets of the Class
(see pages 15 and 21).
o Class D shares are offered only to investors meeting an
initial investment minimum of $5 million and to certain
other limited categories of investors. Class D shares are
offered without a front-end sales charge or CDSC and are
not subject to any 12b-1 fees (see pages 15 and 21).
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DIVIDENDS AND The Fund pays quarterly income dividends and distributes
CAPITAL GAINS substantially all of any net short-term and net long-term
DISTRIBUTIONS capital gains at least once each year. The Fund may,
however, determine to retain all or part of any net
long-term capital gains in any year for reinvestment.
Dividends and capital gains distributions paid on shares
of a Class are automatically reinvested in additional
shares of the same Class at net asset value unless the
shareholder elects to receive cash. Shares acquired by
dividend and distribution reinvestment will not be
subject to any sales charge or CDSC (see pages 23 and
26).
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REDEMPTION Shares are redeemable by the shareholder at net asset
value less any applicable CDSC on Class A, Class B or
Class C shares. An account may be involuntarily redeemed
if the total value of the account is less than $100 or,
if the account was opened through EasyInvest (Service
Mark), if after twelve months the shareholder has
invested less than $1,000 in the account (see page 25).
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RISK The net asset value of the Fund's shares will fluctuate
CONSIDERATIONS with changes in 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 investement techniques, all of which
involve certain special risks (see pages 11-14).
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SHAREHOLDER Automatic Investment of Dividends and Distributions;
SERVICES Investment of Distributions Received in Cash; Systematic
Withdrawal Plan; Exchange Privilege; EasyInvest (Service
Mark); Tax-Sheltered Retirement Plans (see page 23).
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The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
3
<PAGE>
SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The estimated expenses and fees set forth in the table
are based on the expenses and fees for the fiscal year ending September 30,
1997.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) ................................................. 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments ................... None None None None
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds).................. None(2) 5.00%(3) 1.00%(4) None
Redemption Fees................................................... None None None None
Exchange Fee...................................................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees .................................................. 0.75% 0.75% 0.75% 0.75%
12b-1 Fees (5)(6)................................................. 0.25% 0.91% 1.00% None
Other Expenses ................................................... 0.19% 0.19% 0.19% 0.19%
Total Fund Operating Expenses (7)................................. 1.19% 1.85% 1.94% 0.94%
</TABLE>
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(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on
redemptions made within one year after purchase, except for certain
specific circumstances (see "Purchase of Fund Shares--Initial Sales
Charge Alternative--Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares--Level Load Alternative--Class C Shares").
(5) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1
fee payable by Class A and a portion of the 12b-1 fee payable by each
of Class B and Class C equal to 0.25% of the average daily net assets
of the Class are currently each characterized as a service fee within
the meaning of National Association of Securities Dealers, Inc.
("NASD") guidelines and are payments made for personal service and/or
maintenance of shareholder accounts. The remainder of the 12b-1 fee, if
any, is an asset-based sales charge, and is a distribution fee paid to
the Distributor to compensate it for the services provided and the
expenses borne by the Distributor and others in the distribution of the
Fund's shares (see "Purchase of Fund Shares--Plan of Distribution").
(6) Upon conversion of Class B shares to Class A shares, such shares will
be subject to the lower 12b-1 fee applicable to Class A shares. No
sales charge is imposed at the time of conversion of Class B shares to
Class A shares. Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing 1.00% distribution fee (see
"Purchase of Fund Shares--Alternative Purchase Arrangements").
(7) There were no outstanding shares of Class A, Class C or Class D prior
to July 28, 1997. Accordingly, "Total Fund Operating Expenses," as
shown above with respect to those Classes, are estimates based upon the
sum of 12b-1 Fees, Management Fees and estimated "Other Expenses."
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the
end of each time period:
Class A ................................................... $64 $88 $114 $189
Class B ................................................... $69 $88 $120 $217
Class C.................................................... $30 $61 $105 $226
Class D ................................................... $10 $30 $ 52 $115
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A ................................................... $64 $88 $114 $189
Class B ................................................... $19 $58 $100 $217
Class C ................................................... $20 $61 $105 $226
Class D ................................................... $10 $30 $ 52 $115
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER
OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares--Plan of
Distribution" and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charge permitted by the NASD.
4
<PAGE>
FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in
conjunction with the financial statements, the notes thereto and the
unqualified report of independent accountants, which are contained in the
Statement of Additional Information. Further information about the
performance of the Fund is contained in the Fund's Annual Report to
Shareholders, which may be obtained without charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JUNE 26, 1996*
ENDED THROUGH
SEPTEMBER 30, 1997**++ SEPTEMBER 30, 1996
--------------------- ------------------
<S> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $10.23 $10.00
--------------------- ------------------
Net investment income .................. 0.46 0.08
Net realized and unrealized gain ...... 2.54 0.23
--------------------- ------------------
Total from investment operations ...... 3.00 0.31
--------------------- ------------------
Less dividends and distributions from:
Net investment income ................. (0.41) (0.08)
Net realized gain ..................... (0.01) --
--------------------- ------------------
Total dividends and distributions ..... (0.42) (0.08)
--------------------- ------------------
Net asset value, end of period ........ $12.81 $10.23
===================== ==================
TOTAL INVESTMENT RETURN+ ................ 29.83% 3.10%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................... 1.85% 2.25%(2)
Net investment income .................. 4.16% 3.60%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $358,973 $148,142
Portfolio turnover rate ................ 74% 7%(1)
Average commission rate paid ........... $0.0558 $0.0558
</TABLE>
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* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
5
<PAGE>
FINANCIAL HIGHLIGHTS -- Continued
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<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30, 1997++
-------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $ 12.20
-------------------
Net investment income .................... 0.12
Net realized and unrealized gain ........ 0.61
-------------------
Total from investment operations ........ 0.73
-------------------
Less dividends from net investment income (0.12)
-------------------
Net asset value, end of period ........... $ 12.81
===================
TOTAL INVESTMENT RETURN+ .................. 5.95%(1)
RATIO TO AVERAGE NET ASSETS:
Expenses ................................. 1.28%(2)
Net investment income..................... 5.77%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $ 1,047
Portfolio turnover rate .................. 74%
Average commission rate paid ............. $0.0558
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $ 12.20
-------------------
Net investment income .................... 0.10
Net realized and unrealized gain ........ 0.61
-------------------
Total from investment operations ........ 0.71
-------------------
Less dividends from net investment income (0.11)
-------------------
Net asset value, end of period ........... $ 12.80
===================
TOTAL INVESTMENT RETURN+................... 5.79%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................. 1.98%(2)
Net investment income .................... 4.61%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $ 987
Portfolio turnover rate .................. 74%
Average commission rate paid ............. $0.0558
</TABLE>
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* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
6
<PAGE>
FINANCIAL HIGHLIGHTS -- Continued
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<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30, 1997++
-------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $ 12.20
-------------------
Net investment income .................... 0.12
Net realized and unrealized gain ........ 0.62
-------------------
Total from investment operations ........ 0.74
-------------------
Less dividends from net investment income (0.12)
-------------------
Net asset value, end of period ........... $ 12.82
===================
TOTAL INVESTMENT RETURN+ .................. 5.98%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................. 0.96%(2)
Net investment income .................... 5.41%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $ 21
Portfolio turnover rate .................. 74%
Average commission rate paid ............. $0.0558
</TABLE>
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* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
7
<PAGE>
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 Morgan Stanley,
Dean Witter, Discover & Co., a preeminent global financial services firm that
maintains leading market positions in each of its three primary
businesses--securities, asset management and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 100 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined assets of approximately
$97 billion at October 31, 1997. The Investment Manager also manages
portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.7 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. For the fiscal year ended
September 30, 1997, the Fund accrued total compensation to the Investment
Manager amounting to 0.75% of the Fund's average daily net assets and the
total expenses of Class B amounted to 1.85% of the average daily net assets
of Class B. Shares of Class A, Class C and Class D were first issued on July
28, 1997.
The expenses of the Fund 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; 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
- -----------------------------------------------------------------------------
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
8
<PAGE>
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.
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 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
9
<PAGE>
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.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as
income each year even though the Fund receives no interest payments in cash
on the security during the year.
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
10
<PAGE>
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 qual ified 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
The net asset value of the Fund's shares will fluctuate with changes in the
market value of its portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market or political factors which cannot be predicted. The Fund's yield will
also vary based on the yield of the Fund's portfolio securities.
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.
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 conversion privilige.) 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
11
<PAGE>
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.
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 Standard & Poor's Corporation ("S&P") or Baa or higher by
Moody's Investors Service, Inc. ("Moody's"). Fixed-
12
<PAGE>
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 year ended September 30, 1997, 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
RATINGS TOTAL INVESTMENTS
- ------------ ---------------------
<S> <C>
AAA/Aaa ..... 2.7%
AA/Aa ....... 0.0%
A/A ......... 0.6%
BBB/Baa ..... 18.7%
BB/Ba ....... 20.8%
B/B ......... 36.0%
CCC/Caa ..... 0.0%
CC/Ca ....... 0.0%
C/C ......... 0.0%
Unrated ..... 21.2%
</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.
REPURCHASE AGREEMENTS. While repurchase agreements involve certain risks not
associated with direct investments in debt securities, including the risks of
default or bankruptcy of the selling financial institution, the Fund follows
procedures designed to minimize such risks. These procedures include
effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions 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,
13
<PAGE>
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 Prospectus 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"), and other broker-dealer affiliates of
InterCapital and others regarding economic developments and interest rate
trends, and the Investment Manager's own analysis of factors 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 23 equity funds and fund portfolios
with approximately $28.4 billion in assets as of October 31, 1997. 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 DWR. In addition, the Fund may incur brokerage commissions
on transactions conducted through DWR and other brokers and dealers that are
affiliates of InterCapital.
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.)
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objectives by investing all or substantially
all of its assets in another investment company having substantially the same
investment objectives and policies as the Fund.
14
<PAGE>
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
GENERAL
The Fund offers each Class of its shares for sale to the public on a continuous
basis. Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
other dealers which have entered into selected dealer agreements with the
Distributor ("Selected Broker-Dealers"). The principal executive office of the
Distributor is located at Two World Trade Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares
are sold to investors with an initial sales charge that declines to zero for
larger purchases; however, Class A shares sold without an initial sales
charge are subject to a contingent deferred sales charge ("CDSC") of 1.0% if
redeemed within one year of purchase, except for certain specific
circumstances. Class B shares are sold without an initial sales charge but
are subject to a CDSC (scaled down from 5.0% to 1.0%) payable upon most
redemptions within six years after purchase. (Class B shares purchased by
certain qualified employer-sponsored benefit plans are subject to a CDSC
scaled down from 2.0% to 1.0% if redeemed within three years after purchase.)
Class C shares are sold without an initial sales charge but are subject to a
CDSC of 1.0% on most redemptions made within one year after purchase. Class D
shares are sold without an initial sales charge or CDSC and are available
only to investors meeting an initial investment minimum of $5 million, and to
certain other limited categories of investors. At the discretion of the Board
of Trustees of the Fund, Class A shares may be sold to categories of
investors in addition to those set forth in this prospectus at net asset
value without a front-end sales charge, and Class D shares may be sold to
certain other categories of investors, in each case as may be described in
the then current prospectus of the Fund. See "Alternative Purchase
Arrangements--Selecting a Particular Class" for a discussion of factors to
consider in selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million or more and
to certain other limited categories of investors. For the purpose of meeting
the minimum $5 million initial investment for Class D shares, and subject to
the $1,000 minimum initial investment for each Class of the Fund, an
investor's existing holdings of Class A shares of the Fund and other Dean
Witter Funds that are multiple class funds ("Dean Witter Multi-Class Funds")
and shares of Dean Witter Funds sold with a front-end sales charge ("FSC
Funds") and concurrent investments in Class D shares of the Fund and other
Dean Witter Multi-Class Funds will be aggregated. Subsequent purchases of
$100 or more may be made by sending a check, payable to Dean Witter Income
Builder Fund, directly to Dean Witter Trust FSB (the "Transfer Agent" or
"DWT") at P.O. Box 1040, Jersey City, NJ 07303 or by contacting an account
executive of DWR or other Selected Broker-Dealer. When purchasing shares of
the Fund, investors must specify whether the purchase is for Class A, Class
B, Class C or Class D shares. If no Class is specified, the Transfer Agent
will not process the transaction until the proper Class is identified. The
minimum initial purchase in the case of investments through EasyInvest
(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. The
minimum initial purchase in the case of an "Education IRA" is $500, if the
Distributor has reason to believe that additional investments will increase
the investment in the account to $1,000 within three years. In the case of
investments pursuant to (i) Systematic Payroll Deduction Plans (including
Individual Retirement Plans), (ii) the InterCapital mutual fund asset
allocation program and (iii) fee-based programs approved by the Distributor,
pursuant to which participants pay an asset based fee for services in the
nature of investment advisory or administrative services, the Fund, in its
discretion, may accept investments without regard to any minimum amounts
which would otherwise be required, provided, in the case of Systematic
Payroll Deduction Plans, that the Distributor has reason to believe that
additional investments will increase the investment in all accounts under
such Plans to at least $1,000. Certificates for shares purchased will not be
issued unless a request is made by the shareholder in writing to the Transfer
Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since
DWR and other Selected Broker-Dealers forward investors' funds on settlement
date, they will benefit from the temporary use of the funds if payment is
made prior thereto. As noted above, orders placed directly with the Transfer
Agent must be accompanied by payment. Investors will be entitled to receive
income dividends and capital gains distributions if their order is received
by the close of business on the day prior to the record date for
15
<PAGE>
such dividends and distributions. Sales personnel of a Selected Broker-Dealer
are compensated for selling shares of the Fund by the Distributor or any of
its affiliates and/or the Selected Broker-Dealer. In addition, some sales
personnel of the Selected Broker-Dealer will receive 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.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their
needs. The general public is offered three Classes of shares: Class A shares,
Class B shares and Class C shares, which differ principally in terms of sales
charges and rate of expenses to which they are subject. A fourth Class of
shares, Class D shares, is offered only to limited categories of investors.
See "No Load Alternative--Class D Shares."
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class
A, Class B and Class C shares bear the expenses of the ongoing shareholder
service fees, Class B and Class C shares bear the expenses of the ongoing
distribution fees and Class A, Class B and Class C shares which are redeemed
subject to a CDSC bear the expense of the additional incremental distribution
costs resulting from the CDSC applicable to shares of those Classes. The
ongoing distribution fees that are imposed on Class A, Class B and Class C
shares will be imposed directly against those Classes and not against all
assets of the Fund and, accordingly, such charges against one Class will not
affect the net asset value of any other Class or have any impact on investors
choosing another sales charge option. See "Plan of Distribution" and
"Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and
the factors an investor should consider when selecting a particular Class.
This summary is qualified in its entirety by detailed discussion of each
Class that follows this summary.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain
other limited categories of investors) are not subject to any sales charges
at the time of purchase but are subject to a CDSC of 1.0% on redemptions made
within one year after purchase, except for certain specific circumstances.
Class A shares are also subject to a 12b-1 fee of up to 0.25% of the average
daily net assets of the Class. See "Initial Sales Charge Alternative--Class A
Shares."
CLASS B SHARES. Class B shares are offered at net asset value with no initial
sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%) if
redeemed within six years of purchase. (Class B shares purchased by certain
qualified employer-sponsored benefit plans are subject to a CDSC scaled down
from 2.0% to 1.0% if redeemed within three years after purchase.) This CDSC
may be waived for certain redemptions. Class B shares are also subject to an
annual 12b-1 fee of 1.0% of the lesser of: (a) the average daily aggregate
gross sales of the Fund's Class B shares since the inception of the Fund (not
including reinvestments of dividends or capital gains distributions), less
the average daily aggregate net asset value of the Fund's Class B shares
redeemed since the Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B. The Class B shares'
distribution fee will cause that Class to have higher expenses and pay lower
dividends than Class A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition,
a certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time.
See "Contingent Deferred Sales Charge Alternative--Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They
are subject to an annual 12b-1 fee of up to 1.0% of the average daily net
assets of the Class C shares. The Class C shares' distribution fee may cause
that Class to have higher expenses and pay lower dividends than Class A or
Class D shares. See "Level Load Alternative--Class C Shares."
CLASS D SHARES. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares
are sold at net asset value with no initial sales charge or CDSC. They are
not subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
SELECTING A PARTICULAR CLASS. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any
other relevant facts and circumstances:
16
<PAGE>
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are
not available with respect to Class B or Class C shares. Moreover, Class A
shares are subject to lower ongoing expenses than are Class B or Class C
shares over the term of the investment. As an alternative, Class B and Class
C shares are sold without any initial sales charge so the entire purchase
price is immediately invested in the Fund. Any investment return on these
additional investment amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Fund's future return cannot be
predicted, however, there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly
lower CDSC upon redemptions, they do not, unlike Class B shares, convert into
Class A shares after approximately ten years, and, therefore, are subject to
an ongoing 12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A
shares) for an indefinite period of time. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks. Other investors, however, may elect to purchase Class C shares if,
for example, they determine that they do not wish to be subject to a
front-end sales charge and they are uncertain as to the length of time they
intend to hold their shares.
For the purpose of meeting the $5 million minimum investment amount for
Class D shares, holdings of Class A shares in all Dean Witter Multi-Class
Funds, shares of FSC Funds and shares of Dean Witter Funds for which such
shares have been exchanged will be included together with the current
investment amount.
Sales personnel may receive different compensation for selling each Class
of shares. Investors should understand that the purpose of a CDSC is the same
as that of the initial sales charge in that the sales charges applicable to
each Class provide for the financing of the distribution of shares of that
Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
- --------- ------------------------- ------------- -----------------
<S> <C> <C> <C>
A Maximum 5.25% 0.25% No
initial sales charge
reduced for
purchases of
$25,000 and over;
shares sold without
an initial sales
charge generally
subject to a 1.0%
CDSC during first
year.
- --------- ------------------------- ------------- -----------------
B Maximum 5.0% 1.0% B shares
CDSC during the first convert
year decreasing to A shares
to 0 after six years automatically
after
approximately
ten years
- --------- ------------------------- ------------- -----------------
C 1.0% CDSC during 1.0% No
first year
- --------- ------------------------- ------------- -----------------
D None None No
- --------- ------------------------- ------------- -----------------
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees
for each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--
CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase (calculated from the last day of the month in which the
shares were purchased), except for certain specific circumstances. The CDSC
will be assessed on an amount equal to the lesser of the current market value
or the cost of the shares being redeemed. The CDSC will not be imposed (i) in
the circumstances set forth below in the section "Contingent Deferred Sales
Charge Alternative--Class B Shares--CDSC Waivers," except that the references
to six years in the first paragraph of that section shall mean one year in
the case of Class A shares, and (ii) in the circumstances identified in the
section "Additional Net Asset Value Purchase Options" below. Class A shares
are also subject to an annual 12b-1 fee of up to 0.25% of the average daily
net assets of the Class.
17
<PAGE>
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
--------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
- -------------------- --------------- ---------------
<S> <C> <C>
Less than $25,000 .. 5.25% 5.54%
$25,000 but less
than $50,000 ....... 4.75% 4.99%
$50,000 but less
than $100,000 ...... 4.00% 4.17%
$100,000 but less
than $250,000 ...... 3.00% 3.09%
$250,000 but less
than $1 million ... 2.00% 2.04%
$1 million and over 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the
sales charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or
her spouse and their children under the age of 21 purchasing shares for his,
her or their own accounts; (c) a trustee or other fiduciary purchasing shares
for a single trust estate or a single fiduciary account; (d) a pension,
profit-sharing or other employee benefit plan qualified or non-qualified
under Section 401 of the Internal Revenue Code; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Internal Revenue Code; (f)
employee benefit plans qualified under Section 401 of the Internal Revenue
Code of a single employer or of employers who are "affiliated persons" of
each other within the meaning of Section 2(a)(3)(c) of the Act; and for
investments in Individual Retirement Accounts of employees of a single
employer through Systematic Payroll Deduction plans; or (g) any other
organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced sales
charges in accordance with the above schedule by combining purchases of Class
A shares of the Fund in single transactions with the purchase of Class A
shares of other Dean Witter Multi-Class Funds and shares of FSC Funds. The
sales charge payable on the purchase of the Class A shares of the Fund, the
Class A shares of the other Dean Witter Multi-Class Funds and the shares of
the FSC Funds will be at their respective rates applicable to the total
amount of the combined concurrent purchases of such shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single
transaction, together with shares of the Fund and other Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Dean Witter Funds acquired in exchange for those
shares, and including in each case shares acquired through reinvestment of
dividends and distributions), which are held at the time of such transaction,
amounts to $25,000 or more. If such investor has a cumulative net asset value
of shares of FSC Funds and Class A and Class D shares equal to at least $5
million, such investor is eligible to purchase Class D shares subject to the
$1,000 minimum initial investment requirement of that Class of the Fund. See
"No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Selected Broker-Dealer or the Transfer Agent
fails to confirm the investor's represented holdings.
<PAGE>
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the
Fund from DWR or other Selected Broker-Dealers. The cost of Class A shares of
the Fund or shares of other Dean Witter Funds which were previously purchased
at a price including a front-end sales charge during the 90-day period prior
to the date of receipt by the Distributor of the Letter of Intent, or of
Class A shares of the Fund or shares of other Dean Witter Funds acquired in
exchange for shares of such funds purchased during such period at a price
including a front-end sales charge, which are still owned by the shareholder,
may also be included in determining the applicable reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of $1
million or more, Class A shares also may be purchased at net asset value by
the following:
18
<PAGE>
(1) trusts for which DWT (an affiliate of the Investment Manager) provides
discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for
services in the nature of investment advisory or administrative services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees, mandatory redemption upon
termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares);
(3) retirement plans qualified under Section 401(k) of the Internal
Revenue Code ("401(k) plans") and other employer-sponsored plans qualified
under Section 401(a) of the Internal Revenue Code with at least 200 eligible
employees and for which DWT serves as Trustee or the 401(k) Support Services
Group of DWR serves as recordkeeper;
(4) 401(k) plans and other employer-sponsored plans qualified under
Section 401(a) of the Internal Revenue Code for which DWT serves as Trustee
or the 401(k) Support Services Group of DWR serves as recordkeeper whose
Class B shares have converted to Class A shares, regardless of the plan's
asset size or number of eligible employees;
(5) investors who are clients of a Dean Witter account executive who
joined Dean Witter from another investment firm within six months prior to
the date of purchase of Fund shares by such investors, if the shares are
being purchased with the proceeds from a redemption of shares of an open-end
proprietary mutual fund of the account executive's previous firm which
imposed either a front-end or deferred sales charge, provided such purchase
was made within sixty days after the redemption and the proceeds of the
redemption had been maintained in the interim in cash or a money market fund;
and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE
ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, will be imposed on most
Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain employer-sponsored
benefit plans, three years) preceding the redemption. In addition, Class B
shares are subject to an annual 12b-1 fee of 1.0% of the lesser of: (a) the
average daily aggregate gross sales of the Fund's Class B shares since the
inception of the Fund (not including reinvestments of dividends or capital
gains distributions), less the average daily aggregate net asset value of the
Fund's Class B shares redeemed since the Fund's inception upon which a CDSC
has been imposed or waived, or (b) the average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may,
however, be subject to a CDSC which will be a percentage of the dollar amount
of shares redeemed and will be assessed on an amount equal to the lesser of
the current market value or the cost of the shares being redeemed. The size
of this percentage will depend upon how long the shares have been held, as
set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First...................... 5.0%
Second..................... 4.0%
Third...................... 3.0%
Fourth..................... 2.0%
Fifth...................... 2.0%
Sixth...................... 1.0%
Seventh and thereafter .... None
</TABLE>
<PAGE>
In the case of Class B shares of the Fund held by 401 (k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal
Revenue Code for which DWT serves as Trustee or the 401(k) Support Services
Group of DWR serves as recordkeeper and whose accounts are opened on or after
July 28, 1997, shares held for three years or more after purchase (calculated
as described in the paragraph above) will not be subject to any CDSC upon
redemption. However, shares redeemed earlier than three years after purchase
may be subject to a CDSC (calculated as described in the
19
<PAGE>
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First ..................... 2.0%
Second .................... 2.0%
Third ..................... 1.0%
Fourth and thereafter .... None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which represents
an increase in value of shares purchased within the six years (or, in the
case of shares held by certain employer-sponsored benefit plans, three years)
preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption; and
(iii) the current net asset value of shares purchased through reinvestment of
dividends or distributions and/or shares acquired in exchange for shares of
FSC Funds or of other Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held
in a qualified corporate or self-employed retirement plan, Individual
Retirement Account ("IRA") or Custodial Account under Section 403(b)(7) of
the Internal Revenue Code ("403(b) Custodial Account"), provided in either
case that the redemption is requested within one year of the death or initial
determination of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified
corporate or self-employed retirement plan following retirement (or, in the
case of a "key employee" of a "top heavy" plan, following attainment of age
59 1/2); (B) distributions from an IRA or 403(b) Custodial Account following
attainment of age 59 1/2; or (C) a tax-free return of an excess contribution
to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
401(k) plan or other employer-sponsored plan qualified under Section 401(a)
of the Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which DWT serves as Trustee or
the 401(k) Support Services Group of DWR serves as recordkeeper ("Eligible
Plan"), provided that either: (A) the plan continues to be an Eligible Plan
after the redemption; or (B) the redemption is in connection with the
complete termination of the plan involving the distribution of all plan
assets to participants.
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to
engage in gainful employment. With reference to (2) above, the term
"distribution" does not encompass a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or trustee. All
waivers will be granted only following receipt by the Distributor of
confirmation of the shareholder's entitlement.
CONVERSION TO CLASS A SHARES. All shares of the Fund held prior to July 28,
1997 have been designated Class B shares. Shares held before May 1, 1997 will
convert to Class A shares in May, 2007. In all other instances Class B shares
will convert automatically to Class A shares, based on the relative net asset
values of the shares of the two Classes on the conversion date, which will be
approximately ten (10) years after the date of the original purchase. The ten
year period is calculated from the last day of the month in which the shares
were purchased or, in the case of Class B shares acquired through an exchange
or a series of exchanges, from the last day of the month in which the
original Class B shares were purchased, provided that shares originally
purchased before May 1, 1997 will convert to Class A shares in May, 2007. The
conversion of shares purchased on or after May 1, 1997 will take place in the
month following the tenth anniversary of the purchase. There will also be
converted at that time such proportion of Class B shares acquired through
automatic reinvestment of dividends and distributions owned by the
shareholder as the total number of his or her Class B shares converting at
the time bears to the total number of outstanding Class B shares purchased
and owned by the shareholder. In the case of Class B shares held by a 401(k)
plan or other employer-sponsored plan qualified under Section 401(a) of the
Internal Revenue Code and for which DWT serves as Trustee or the 401(k)
Support Services Group of DWR serves as recordkeeper, the plan is treated as
a single investor and all Class B shares will convert to Class A shares on
the conversion date of the first shares of a Dean Witter Multi-Class Fund
purchased by that plan. In the case of Class B shares previously exchanged
for
20
<PAGE>
shares of an "Exchange Fund" (see "Shareholder Services--Exchange
Privilege"), the period of time the shares were held in the Exchange Fund
(calculated from the last day of the month in which the Exchange Fund shares
were acquired) is excluded from the holding period for conversion. If those
shares are subsequently re-exchanged for Class B shares of a Dean Witter
Multi-Class Fund, the holding period resumes on the last day of the month in
which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior
to the date for conversion. Class B shares evidenced by share certificates
that are not received by the Transfer Agent at least one week prior to any
conversion date will be converted into Class A shares on the next scheduled
conversion date after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion
will have a basis equal to the shareholder's basis in the converted Class B
shares immediately prior to the conversion, and (iii) Class A shares received
on conversion will have a holding period that includes the holding period of
the converted Class B shares. The conversion feature may be suspended if the
ruling or opinion is no longer available. In such event, Class B shares would
continue to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an initial
sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount
equal to the lesser of the current market value or the cost of the shares
being redeemed. The CDSC will not be imposed in the circumstances set forth
above in the section "Contingent Deferred Sales Charge Alternative--Class B
Shares--CDSC Waivers," except that the references to six years in the first
paragraph of that section shall mean one year in the case of Class C shares.
Class C shares are subject to an annual 12b-1 fee of up to 1.0% of the
average daily net assets of the Class. Unlike Class B shares, Class C shares
have no conversion feature and, accordingly, an investor that purchases Class
C shares will be subject to 12b-1 fees applicable to Class C shares for an
indefinite period subject to annual approval by the Fund's Board of Trustees
and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or redemption
and without any 12b-1 fee. Class D shares are offered only to investors
meeting an initial investment minimum of $5 million and the following
categories of investors: (i) investors participating in the InterCapital
mutual fund asset allocation program pursuant to which such persons pay an
asset based fee; (ii) persons participating in a fee-based program approved
by the Distributor, pursuant to which such persons pay an asset based fee for
services in the nature of investment advisory or administrative services
(subject to all of the terms and conditions of such programs, referred to in
(i) and (ii) above, which may include termination fees, mandatory redemption
upon termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares); (iii) 401(k)
plans established by DWR and SPS Transaction Services, Inc. (an affiliate of
DWR) for their employees; (iv) certain Unit Investment Trusts sponsored by
DWR; (v) certain other open-end investment companies whose shares are
distributed by the Distributor; and (vi) other categories of investors, at
the discretion of the Board, as disclosed in the then current prospectus of
the Fund. Investors who require a $5 million minimum initial investment to
qualify to purchase Class D shares may satisfy that requirement by investing
that amount in a single transaction in Class D shares of the Fund and other
Dean Witter Multi-Class Funds, subject to the $1,000 minimum initial
investment required for that Class of the Fund. In addition, for the purpose
of meeting the $5 million minimum investment amount, holdings of Class A
shares in all Dean Witter Multi-Class Funds, shares of FSC Funds and shares
of Dean Witter Funds for which such shares have been exchanged will be
included together with the current investment amount. If a shareholder
redeems Class A shares and purchases Class D shares, such redemption may be a
taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act with respect to the distribution of Class A, Class B and Class C shares
of the Fund. In the case of Class A and Class C shares, the Plan provides
that the Fund will reimburse the Distributor and others for the expenses of
certain activities and services incurred by them specifically on behalf of
those shares. Reimburse-
21
<PAGE>
ments for these expenses will be made in monthly payments by the Fund to the
Distributor, which will in no event exceed amounts equal to payments at the
annual rates of 0.25% and 1.0% of the average daily net assets of Class A and
Class C, respectively. In the case of Class B shares, the Plan provides that
the Fund will pay the Distributor a fee, which is accrued daily and paid
monthly, at the annual rate of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's Class B shares since the inception of the
Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the
Fund's Class B shares redeemed since the Fund's inception upon which a CDSC
has been imposed or waived, or (b) the average daily net assets of Class B.
The fee is treated by the Fund as an expense in the year it is accrued. In
the case of Class A shares, the entire amount of the fee currently represents
a service fee within the meaning of the NASD guidelines. In the case of Class
B and Class C shares, a portion of the fee payable pursuant to the Plan,
equal to 0.25% of the average daily net assets of each of these Classes, is
currently characterized as a service fee. A service fee is a payment made for
personal service and/or the maintenance of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses
borne by the Distributor and others in the distribution of the shares of
those Classes, including the payment of commissions for sales of the shares
of those Classes and incentive compensation to and expenses of DWR's account
executives and others who engage in or support distribution of shares or who
service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Fund's shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan in the case of Class B shares to compensate DWR and other Selected
Broker-Dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
For the fiscal year ended September 30, 1997, Class B shares of the Fund
accrued payments under the Plan amounting to $2,268,574, which amount is
equal to 0.91% of the average daily net assets of Class B for the fiscal
year. These payments were calculated pursuant to clause (a) of the
compensation formula under the Plan. All shares held prior to July 28, 1997
have been designated Class B shares. For the period July 28 through September
30, 1997, Class A and Class C shares of the Fund accrued payments under the
Plan amounting to $175 and $869, respectively, which amounts on an annualized
basis are equal to 0.25% and 1.00% of the average daily net assets of Class A
and Class C, respectively, for such period.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i)
the payments made by the Fund pursuant to the Plan, and (ii) the proceeds of
CDSCs paid by investors upon the redemption of Class B shares. For example,
if $1 million in expenses in distributing Class B shares of the Fund had been
incurred and $750,000 had been received as described in (i) and (ii) above,
the excess expense would amount to $250,000. The Distributor has advised the
Fund that such excess amounts, including the carrying charge described above,
totalled $13,633,538 at September 30, 1997, which was equal to 3.80% of the
net assets of Class B on such date. Because there is no requirement under the
Plan that the Distributor be reimbursed for all distribution expenses or any
requirement that the Plan be continued from year to year, such excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made
to the Distributor under the Plan, and the proceeds of CDSCs paid by
investors upon redemption of shares, if for any reason the Plan is terminated
the Trustees will consider at that time the manner in which to treat such
expenses. Any cumulative expenses incurred, but not yet recovered through
distribution fees or CDSCs, may or may not be recovered through future
distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses
representing a gross sales commission credited to account executives at the
time of sale may be reimbursed in the subsequent calendar year. No interest
or other financing charges will be incurred on any Class A or Class C
distribution expenses incurred by the Distributor under the Plan or on any
unreimbursed expenses due to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New York
time, on each day that the New York Stock Exchange is open (or, on days when
the New York Stock Exchange closes prior to 4:00 p.m., at such earlier time),
by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the
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<PAGE>
nearest cent. The assets belonging to the Class A, Class B, Class C and Class
D shares will be invested together in a single portfolio. The net asset value
of each Class, however, will be determined separately by subtracting each
Class's accrued expenses and liabilities. The net asset value per share will
not be determined on Good Friday and on such other federal and non-federal
holidays as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange prior to the time assets are valued; if there were no sales that
day, the security is valued at the latest bid price (in cases where a
security is traded on more than one exchange, the security is valued on the
exchange designated as the primary market pursuant to procedures adopted by
the Trustees); (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 applicable Class of the Fund (or, if specified by the
shareholder, in shares of any other open-end Dean Witter Fund), unless the
shareholder requests that they be paid in cash. Shares so acquired are
acquired at net asset value and are not subject to the imposition of a
front-end sales charge or a CDSC (see "Redemptions and Repurchases").
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value next determined after receipt by the
Transfer Agent, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. Shares so acquired are acquired at
net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
EASYINVEST (SERVICE MARK). Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset
value. The Withdrawal Plan provides for monthly or quarterly (March, June,
September and December) checks in any amount, not less than $25, or in any
whole percentage of the account balance, on an annualized basis. Any
applicable CDSC will be imposed on shares redeemed under the Withdrawal Plan
(see "Purchase of Fund Shares"). Therefore, any shareholder participating in
the Withdrawal Plan will have sufficient shares redeemed from his or her
account so that the proceeds to the shareholder will be the designated
monthly or quarterly amount. Withdrawal plan payments should not be
considered as dividends, yields or income. If periodic withdrawal plan
payments continuously exceed net investment income and net capital gains, the
shareholder's original investment will be correspondingly reduced and
ultimately exhausted. Each withdrawal constitutes a redemption of shares and
any gain or loss realized must be recognized for federal income tax purposes.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net
investment
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<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
Shares of each Class may be exchanged for shares of the same Class of any
other Dean Witter Multi-Class Fund without the imposition of any exchange
fee. Shares may also be exchanged for shares of the following funds: Dean
Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S.
Treasury Trust and five Dean Witter funds which are money market funds (the
"Exchange Funds"). Class A shares may also be exchanged for shares of Dean
Witter Multi-State Municipal Series Trust and Dean Witter Hawaii Municipal
Trust, which are Dean Witter Funds sold with a front-end sales charge ("FSC
Funds"). Class B shares may also be exchanged for shares of Dean Witter
Global Short-Term Income Fund Inc. ("Global Short-Term"), which is a Dean
Witter Fund offered with a CDSC. Exchanges may be made after the shares of
the Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment.
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, Global
Short-Term 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 Dean Witter Multi-Class Funds, FSC Funds, Global Short-Term or
any Exchange Fund that is not a money market fund can be effected on the same
basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period
of time the shareholder remains in an Exchange Fund (calculated from the last
day of the month in which the Exchange Fund shares were acquired), the
holding period (for the purpose of determining the rate of the CDSC) is
frozen. If those shares are subsequently re-exchanged for shares of a Dean
Witter Multi-Class Fund or shares of Global Short-Term, the holding period
previously frozen when the first exchange was made resumes on the last day of
the month in which shares of a Dean Witter Multi-Class Fund or shares of
Global Short-Term are reacquired. Thus, the CDSC is based upon the time
(calculated as described above) the shareholder was invested in shares of a
Dean Witter Multi-Class Fund or in shares of Global Short-Term (see "Purchase
of Fund Shares"). In the case of exchanges of Class A shares which are
subject to a CDSC, the holding period also includes the time (calculated as
described above) the shareholder was invested in shares of a FSC Fund. In the
case of shares exchanged into an Exchange Fund on or after April 23, 1990,
upon a redemption of shares which results in a CDSC being imposed, a credit
(not to exceed the amount of the CDSC) will be given in an amount equal to
the Exchange Fund 12b-1 distribution fees incurred on or after that date
which are attributable to those shares. (Exchange Fund 12b-1 distribution
fees are described in the prospectuses for those funds.) Class B shares of
the Fund acquired in exchange for shares of Global Short-Term or Class B
shares of another Dean Witter Multi-Class Fund having a different CDSC
schedule than that of this Fund will be subject to the higher CDSC schedule,
even if such shares are subsequently re-exchanged for shares of the fund with
the lower CDSC schedule.
ADDITIONAL INFORMATION REGARDING EXCHANGES. Purchases and exchanges should be
made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional
purchases and/or exchanges from the investor. Although the Fund does not have
any specific definition of what constitutes a pattern of frequent exchanges,
and will consider all relevant factors in determining whether a particular
situation is abusive and contrary to the best interests of the Fund and its
other shareholders, investors should be aware that the Fund and each of the
other Dean Witter Funds may in their discretion limit or otherwise restrict
the number of times this Exchange Privilege may be exercised by any investor.
Any such restriction will be made by the Fund on a prospective basis only,
upon notice to the shareholder not later than ten days following
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<PAGE>
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 should obtain a copy and read it carefully
before investing. Exchanges are subject to the minimum investment requirement
of each Class of shares and any other conditions imposed by each fund. In the
case of a shareholder holding a share certificate or certificates, no
exchanges may be made until all applicable share certificates have been
received by the Transfer Agent and deposited in the shareholder's account. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares on which the shareholder 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 each Class of the Fund can be redeemed for cash at any
time at the net asset value per share next determined less the amount of any
applicable CDSC in the case of Class A, Class B or Class C shares (see
"Purchase of Fund Shares"). If shares are held in a shareholder's account
without a share certificate, a written request for redemption to the Fund's
Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption, along
with any additional documentation required by the Transfer Agent.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to
any of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic or telegraphic request of the shareholder. The repurchase
price is the net asset value per share next determined (see "Purchase of Fund
Shares") after such purchase order is received by DWR or another Selected
Broker-Dealer.
The CDSC, if any, will be the only fee imposed by the Fund or the
Distributor. The offer by DWR and other
25
<PAGE>
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 35 days after the date of the redemption or repurchase, reinstate
any portion or all of the proceeds of such redemption or repurchase in shares
of the Fund in the same Class from which such shares were redeemed or
repurchased, at 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 before the redemption is processed. No CDSC will be imposed
on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends separately for
each Class of shares and intends to pay quarterly income dividends and to
distribute 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 shares of the same Class and automatically credited to the
shareholder's account without issuance of a share certificate unless the
shareholder requests in writing that all dividends be paid in cash. Shares
acquired by dividend and distribution reinvestments will not be subject to
any front-end sales charge or CDSC. Class B shares acquired through dividend
and distribution reinvestments will become eligible for conversion to Class A
shares on a pro rata basis. Distributions paid on Class A and Class D shares
will be higher than for Class B and Class C shares because distribution fees
paid by Class B and Class C shares are higher (see "Shareholder
Services--Automatic Investment of Dividends and Distributions").
TAXES. Because the Fund intends to distribute all of its net investment
income and 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. Any dividends
declared in the last quarter of any calendar year which are paid in the
following year prior to February 1 will be deemed, for tax purposes, to have
been received by the shareholder in the prior year.
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
26
<PAGE>
shares and regardless of whether the distribution is received in additional
shares or in cash. Capital gains distributions are not eligible for the
dividends received deduction.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources would, in effect, represent a
return of a portion of each shareholder's investment. All, or a portion, of
such payments would not be taxable to shareholders.
After the end of the calendar year, shareholders will 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. These figures are computed separately
for Class A, Class B, Class C and Class D shares. 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 each Class of the Fund
is computed by dividing the Class's net investment income 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 for each Class.
From time to time the Fund may quote its "total return" in advertisements
and sales literature. These figures are computed separately for Class A,
Class B, Class C and Class D shares. The total return of the Fund is based on
historical earnings and is not intended to indicate future performance. The
"average annual total return" of the Fund refers to a figure reflecting the
average annualized percentage increase (or decrease) in the value of an
initial investment in a Class of the Fund of $1,000 over 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,
all expenses incurred by the applicable Class and all sales charges which
will be incurred by shareholders, for the stated periods. It also assumes
reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
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 each Class of shares of the Fund. Such calculations may or may
not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund from time to time may also advertise
its performance relative to certain performance rankings and 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).
ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01 par
value and are equal as to earnings, assets and voting privileges except that
each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other
matter in which the interests of one Class differ from the interests of any
other Class. In addition, Class B shareholders will have the right to vote on
any proposed material increase in Class A's expenses, if such proposal is
submitted separately to Class A shareholders. Also, as discussed herein, Class
A, Class B and Class C bear the expenses related to the distribution of their
respective shares.
The Fund is not required to hold Annual Meetings of Shareholders and, in
ordinary circumstances, the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by
the Shareholders.
27
<PAGE>
Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Fund, requires that 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.
MASTER/FEEDER CONVERSION. The Fund reserves the right to seek to achieve its
investment objectives by investing all of its investable assets in a
diversified, open-end management investment company having the same
investment objectives and policies and substantially the same investment
restrictions as those applicable to the Fund.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed to
the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
28
<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
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
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 FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
