<PAGE>
Filed Pursuant to Rule 497(e)
Registration File No.: 333-01995
DEAN WITTER
INCOME BUILDER FUND
PROSPECTUS --JULY 28, 1997
- ------------------------------------------------------------------------------
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. Shares of the Fund held prior to
July 28, 1997 have been designated Class B shares. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated July 28, 1997, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
TABLE OF CONTENTS
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 4
Financial Highlights .................................................. 5
The Fund and its Management ........................................... 6
Investment Objectives and Policies .................................... 6
Risk Considerations .................................................. 8
Investment Restrictions ............................................... 11
Purchase of Fund Shares ............................................... 12
Shareholder Services .................................................. 19
Redemptions and Repurchases ........................................... 21
Dividends, Distributions and Taxes .................................... 22
Performance Information ............................................... 22
Additional Information ................................................ 23
Financial Statements--
September 30, 1996 ................................................... 24
Report of Independent Accountants ..................................... 33
Appendix .............................................................. 34
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
<PAGE>
PROSPECTUS SUMMARY
- -----------------------------------------------------------------------------
<TABLE>
<S> <C>
THE FUND The Fund is organized as a Trust, commonly known as a Massachusetts
business trust, and is an open-end, diversified management
investment company. Under normal market conditions, the Fund
will invest at least 65% of its total assets in income-producing
equity securities, including common stock, preferred stock and
convertible securities. Up to 35% of the Fund's assets may be
invested in fixed-income securities or common stocks that do
not pay a regular dividend but are expected to contribute to
the Fund's ability to meet its investment objectives.
- -------------------------------------------------------------------------------
SHARES OFFERED Shares of beneficial interest with $0.01 par value (see page
23). The Fund offers four Classes of shares, each with a different
combination of sales charges, ongoing fees and other features
(see pages 12-18).
- -------------------------------------------------------------------------------
MINIMUM The minimum initial investment for each Class is $1,000 ($100
PURCHASE 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 12).
- -------------------------------------------------------------------------------
INVESTMENT The primary investment objective of the Fund is to seek reasonable
OBJECTIVE income. Growth of capital is the secondary objective.
- -------------------------------------------------------------------------------
INVESTMENT Dean Witter InterCapital Inc., the Investment Manager of the
MANAGER 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 $96.6 billion at June 30, 1997.
- -------------------------------------------------------------------------------
MANAGEMENT The Investment Manager receives a monthly fee at the annual rate
FEE of 0.75% of the Fund's average daily net assets (see page 6).
- -------------------------------------------------------------------------------
DISTRIBUTOR AND Dean Witter Distributors Inc. (the "Distributor"). The Fund has
DISTRIBUTION adopted a distribution plan pursuant to Rule 12b-1 under the
FEE 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 12 and 18).
- -------------------------------------------------------------------------------
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 12, 14 and
18).
- -------------------------------------------------------------------------------
2
<PAGE>
- -------------------------------------------------------------------------------
o Class B shares are offered without a front-end sales charge,
but will in most cases be subject to a CDSC (scaled down from
5.0% to 1.0%) if redeemed within six years after purchase. The
CDSC will be imposed on any redemption of shares if after such
redemption the aggregate current value of a Class B account with
the Fund falls below the aggregate amount of the investor's purchase
payments made during the six years preceding the redemption.
A different CDSC schedule applies to investments by certain
qualified plans. Class B shares are also subject to a 12b-1 fee
assessed at the annual rate of 1.0% of the lesser of: (a) the
average daily net sales of the Fund's Class B shares or (b) the
average daily net assets of Class B. All shares of the Fund held
prior to July 28, 1997 have been designated Class B shares. Shares
held before May 1, 1997 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 12, 15 and
18).
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 17
and 18).
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 17 and 18).
- -------------------------------------------------------------------------------
DIVIDENDS AND The Fund pays quarterly income dividends and distributes
CAPITAL GAINS substantially all of any net short-term and net long-term capital
DISTRIBUTIONS 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 19 and 22).
- -------------------------------------------------------------------------------
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 21).
- -------------------------------------------------------------------------------
RISK The net asset value of the Fund's shares will fluctuate with
CONSIDERATIONS 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
6-11).
- -------------------------------------------------------------------------------
SHAREHOLDER Automatic Investment of Dividends and Distributions; Investment
SERVICES of Distributions Received in Cash; Systematic Withdrawal Plan;
Exchange Privilege; EasyInvest (Service Mark); Tax-Sheltered
Retirement Plans (see page 19).
- -------------------------------------------------------------------------------
</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
3
<PAGE>
SUMMARY OF FUND EXPENSES
- -----------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The 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% 1.00% 1.00% None
Other Expenses ............................................... 0.26% 0.26% 0.26% 0.26%
Total Fund Operating Expenses (7)............................. 1.26% 2.01% 2.01% 1.01%
</TABLE>
- ------------
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on
redemptions made within one year after purchase, except for certain
specific circumstances (see "Purchase of Fund Shares--Initial Sales
Charge Alternative--Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares--Level Load Alternative--Class C Shares").
(5) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1
fee payable by Class A and a portion of the 12b-1 fee payable by each
of Class B and Class C equal to 0.25% of the average daily net assets
of the Class are currently each characterized as a service fee within
the meaning of National Association of Securities Dealers, Inc.
("NASD") guidelines and are payments made for personal service and/or
maintenance of shareholder accounts. The remainder of the 12b-1 fee, if
any, is an asset-based sales charge, and is a distribution fee paid to
the Distributor to compensate it for the services provided and the
expenses borne by the Distributor and others in the distribution of the
Fund's shares (see "Purchase of Fund Shares--Plan of Distribution").
(6) Upon conversion of Class B shares to Class A shares, such shares will
be subject to the lower 12b-1 fee applicable to Class A shares. No
sales charge is imposed at the time of conversion of Class B shares to
Class A shares. Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing 1.00% distribution fee (see
"Purchase of Fund Shares--Alternative Purchase Arrangements").
(7) For the fiscal period June 26, 1996 (commencement of operations)
through September 30, 1996, the total annualized operating expenses of
the Fund's Class B shares, consisting of Management Fees (0.75%), 12b-1
Fees (1.0%) and Other Expenses (0.50%), amounted to 2.25%. There were
no outstanding shares of Class A, Class C or Class D prior to the date
of this Prospectus.
<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 ............................................................... $65 $90 $118 $197
Class B ............................................................... $70 $93 $128 $234
Class C................................................................ $30 $63 $108 $234
Class D ............................................................... $10 $32 $ 56 $124
You would pay the following expenses on the same $1,000 investment
assuming no redemption at the end of the period:
Class A ............................................................... $65 $90 $118 $197
Class B ............................................................... $20 $63 $108 $234
Class C ............................................................... $20 $63 $108 $234
Class D ............................................................... $10 $32 $ 56 $124
</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.
<PAGE>
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
- -----------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding for the period ended September 30, 1996 have been audited by
Price Waterhouse LLP, independent accountants. The information for the
six-month period ended March 31, 1997 is unaudited. 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 this Prospectus commencing on page 33 and, with respect to the
six months ended March 31, 1997, the financial statements and notes thereto
contained in the Statement of Additional Information. All shares of the Fund
held prior to July 28, 1997 have been designated Class B shares.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JUNE 26, 1996*
MONTHS ENDED THROUGH
MARCH 31, 1997 SEPTEMBER 30, 1996
-------------- ------------------
(UNAUDITED)
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $10.23 $10.00
-------------- ------------------
Net investment income................... 0.21 0.08
Net realized and unrealized gain ....... 0.60 0.23
-------------- ------------------
Total from investment operations ....... 0.81 0.31
-------------- ------------------
Less dividends and distributions from:
Net investment income.................. (0.21) (0.08)
Net realized gain ..................... (0.01) --
-------------- ------------------
Total dividends and distributions ...... (0.22) (0.08)
-------------- ------------------
Net asset value, end of period.......... $10.82 $10.23
============== ==================
TOTAL INVESTMENT RETURN+ ............... 7.89%(1) 3.10%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 1.89%(2) 2.25% (2)
Net investment income................... 4.18%(2) 3.60%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $245,758 $148,142
Portfolio turnover rate ................ 34%(1) 7%(1)
Average commission rate paid............ $0.0559 $0.0558
</TABLE>
- ------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
5
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
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
$93.1 billion at June 30, 1997. The Investment Manager also manages
portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.5 billion at such date.
The Fund has retained the Investment Manager 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.
The Fund's expenses include: the fee of the Investment Manager; the fee
pursuant to the Plan of Distribution (see "Purchase of Fund Shares"); taxes;
transfer agent, custodian, auditing fees; and certain legal fees, and
printing and other expenses relating to the Fund's operations which are not
expressly assumed by the Investment Manager under its Investment Management
Agreement with the Fund.
INVESTMENT OBJECTIVES AND POLICIES
- -----------------------------------------------------------------------------
The primary investment objective of the Fund is to seek reasonable income.
Growth of capital is the secondary objective. The objectives are fundamental
policies of the Fund and may not be changed without a vote of a majority of
the outstanding voting securities of the Fund. There is no assurance that the
objectives will be achieved.
The Fund seeks to achieve its objectives by investing, under normal market
conditions, at least 65% of its total assets in income-producing equity
securities, including common stock, preferred stock and convertible
securities. Up to 35% of the Fund's assets may be invested in fixed-income
securities or common stocks that do not pay a regular dividend but are
expected to contribute to the Fund's ability to meet its investment
objectives.
COMMON STOCKS, PREFERRED STOCKS AND SECURITIES CONVERTIBLE INTO COMMON
STOCKS. The Fund will invest, under normal market conditions, primarily in
common stocks of large-cap companies which have a record of paying dividends
and, in the opinion of the Investment Manager, have the potential for
maintaining dividends, in preferred stock and in securities convertible into
common stocks of small and mid-cap companies. The Investment Manager intends
to use a value-oriented investment style in the selection of securities for
the Fund's portfolio. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for
a prescribed amount of common stock of the same or a different issuer within
a particular period of time at a specified price or based on a specified
formula. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function
of its "investment value" (its value as if it did not have a conversion
privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).
<PAGE>
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%
6
<PAGE>
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 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.)
<PAGE>
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
7
<PAGE>
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 marketable. (Securities eligible
for resale pursuant to Rule 144A under the Securities Act, and determined to
be liquid pursuant to the procedures discussed in the following paragraph,
are not subject to the foregoing restriction.) These securities are generally
referred to as private placements or restricted securities. Limitations on
the resale of such securities may have an adverse effect on their
marketability, and may prevent the Fund from disposing of them promptly at
reasonable prices. The Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to buy securities restricted as to
resale to qualified institutional buyers without limitation. The Investment
Manager, pursuant to procedures adopted by the Trustees of the Fund, will
make a determination as to the liquidity of each restricted security
purchased by the Fund. If a restricted security is determined to be "liquid,"
such security will not be included within the category "illiquid securities,"
which under current policy may not exceed 15% of the Fund's net assets.
However, investing in Rule 144A securities could have the effect of
increasing the level of Fund illiquidity to the extent the Fund, at a
particular point in time, may be unable to find qualified institutional
buyers interested in purchasing such securities.
<PAGE>
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.
8
<PAGE>
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.
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 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.
<PAGE>
Foreign currency exchange rates are determined by forces of supply and demand
on the foreign exchange markets. These forces are themselves affected by the
international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of
the exchanges on which the currencies trade.
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
9
<PAGE>
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-income securities rated
Baa by Moody's or BBB by Standard & Poor's have speculative characteristics
greater than those of more highly rated bonds, while fixed-income securities
rated Ba or BB or lower by Moody's and Standard & Poor's, respectively, are
considered to be speculative investments. The Fund will not invest in
convertibles and fixed-income securities that are rated lower than B by S&P
or Moody's or, if not rated, determined to be of comparable quality by the
Investment Manager. The Fund will not invest in debt securities that are in
default in payment of principal or interest. The ratings of fixed-income
securities by Moody's and Standard & Poor's are a generally accepted
barometer of credit risk. However, as the creditworthiness of issuers of
lower-rated fixed-income securities is more problematical than that of
issuers of higher-rated fixed-income securities, the achievement of the
Fund's investment objective will be more dependent upon the Investment
Manager's own credit analysis than would be the case with a mutual fund
investing primarily in higher quality bonds. The Investment Manager will
utilize a security's credit rating as simply one indication of an issuer's
creditworthiness and will principally rely upon its own analysis of any
security currently held by the Fund or potentially purchasable by the Fund
for its portfolio.
During the fiscal period ended September 30, 1996, the monthly dollar
weighted average ratings of the debt obligations held by the Fund, expressed
as a percentage of the Fund's total investments, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
- ----------- ---------------------
<S> <C>
AAA/Aaa..... 0.0%
AA/Aa....... 0.0%
A/A......... 2.1%
BBB/Baa..... 18.5%
BB/Ba....... 28.9%
B/B......... 32.9%
CCC/Caa..... 0.0%
CC/Ca....... 0.0%
C/C......... 0.0%
Unrated..... 17.6%
</TABLE>
Because of the special nature of the Fund's permitted investments in lower
rated debt securities, the Investment Manager must take account of certain
special considerations in assessing the risks associated with such
investments. Historically, the prices of lower rated securities have been
found to be less sensitive to changes in prevailing interest rates than
higher rated investments, but are likely to be more sensitive to adverse
economic changes or individual corporate developments. During an economic
downturn or substantial period of rising interest rates, highly leveraged
issuers may experience financial stress which would adversely affect their
ability to service their principal and interest payment obligations, to meet
their projected business goals or to obtain additional financing. If the
issuer of a fixed-income security owned by the Fund defaults, the Fund may
incur additional expenses to seek recovery. In addition, periods of economic
uncertainty and change can be expected to result in an increased volatility
of market prices of lower rated securities and a corresponding volatility in
the net asset value of a share of the Fund.
<PAGE>
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.
10
<PAGE>
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, the Fund follows
procedures designed to minimize such risks. These procedures include
effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions whose financial condition will be
continually monitored by the Investment Manager subject to procedures
established by the Board of Trustees of the Fund. In addition, as described
above, the value of the collateral underlying the repurchase agreement will
be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy
by a selling financial institution, the Fund will seek to liquidate such
collateral. However, the exercising of the Fund's right to liquidate such
collateral could involve certain costs or delays and, to the extent that
proceeds from any sale upon a default of the obligation to repurchase were
less than the repurchase price, the Fund could suffer a loss. It is the
current policy of the Fund not to invest in repurchase agreements that do not
mature within seven days if any such investment, together with any other
illiquid assets held by the Fund, amounts to more than 15% of its net assets.
For additional risk disclosure, please refer to the "Investment Objectives
and Policies" section of the 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 equity funds and fund portfolios with
approximately $27.4 billion in assets as of June 30, 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.
<PAGE>
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
11
<PAGE>
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.
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 Company (the "Transfer Agent") at
P.O. Box 1040, Jersey City, NJ 07303 or by contacting an account executive of
DWR or other Selected Broker-Dealer. When 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. In the
case of investments pursuant to Systematic Payroll Deduction Plans (including
Individual Retirement Plans), the Fund, at its discretion, may accept
investments without regard to any minimum amounts which would otherwise be
required if the Fund has reason to believe that additional investments will
increase the investment in all accounts under such Plans to at least $1,000.
Certificates for shares purchased will not be issued unless a request is made
by the shareholder in writing to the Transfer Agent.
<PAGE>
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since
DWR and other Selected Broker-Dealers forward investors' funds on settlement
date, they will benefit from the temporary use of the funds if payment is
made prior thereto. As noted above, orders placed directly with the Transfer
Agent must be accompanied by payment. Investors will be entitled to receive
income dividends and capital gains distributions if their order is received
by the close of business on the day prior to the record date for such
dividends and distributions. Sales personnel of a Selected Broker-Dealer are
compensated for selling shares of the Fund by the Distributor 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
12
<PAGE>
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:
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.
<PAGE>
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
13
<PAGE>
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 convert
CDSC during the first to A shares
year decreasing automatically
to 0 after six years after
approximately
ten years
- --------- ------------------------- ------------- --------------------
C 1.0% CDSC during 1.0% No
first year
- --------- ------------------------- ------------- --------------------
D None None No
- --------- ------------------------- ------------- --------------------
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees
for each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--
CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase (calculated from the last day of the month in which the
shares were purchased), except for certain specific circumstances. The CDSC
will be assessed on an amount equal to the lesser of the current market value
or the cost of the shares being redeemed. The CDSC will not be imposed (i) in
the circumstances set forth below in the section "Contingent Deferred Sales
Charge Alternative--Class B Shares--CDSC Waivers," except that the references
to six years in the first paragraph of that section shall mean one year in
the case of Class A shares, and (ii) in the circumstances identified in the
section "Additional Net Asset Value Purchase Options" below. Class A shares
are also subject to an annual 12b-1 fee of up to 0.25% of the average daily
net assets of the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE
-------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
- -------------------- --------------- ---------------
<S> <C> <C>
Less than $25,000 .. 5.25% 5.54%
$25,000 but less
than $50,000 ....... 4.75% 4.99%
$50,000 but less
than $100,000 ...... 4.00% 4.17%
$100,000 but less
than $250,000 ...... 3.00% 3.09%
$250,000 but less
than $1 million ... 2.00% 2.04%
$1 million and over 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable 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
14
<PAGE>
the purchase of redeemable securities of a registered investment company at a
discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced sales
charges in accordance with the above schedule by combining purchases of Class
A shares of the Fund in single transactions with the purchase of Class A
shares of other Dean Witter Multi-Class Funds and shares of FSC Funds. The
sales charge payable on the purchase of the Class A shares of the Fund, the
Class A shares of the other Dean Witter Multi-Class Funds and the shares of
the FSC Funds will be at their respective rates applicable to the total
amount of the combined concurrent purchases of such shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single
transaction, together with shares of the Fund and other Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Dean Witter Funds acquired in exchange for those
shares, and including in each case shares acquired through reinvestment of
dividends and distributions), which are held at the time of such transaction,
amounts to $25,000 or more. If such investor has a cumulative net asset value
of shares of FSC Funds and Class A and Class D shares equal to at least $5
million, such investor is eligible to purchase Class D shares subject to the
$1,000 minimum initial investment requirement of that Class of the Fund. See
"No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Selected Broker-Dealer or the Transfer Agent
fails to confirm the investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the
Fund from DWR or other Selected Broker-Dealers. The cost of Class A shares of
the Fund or shares of other Dean Witter Funds which were previously purchased
at a price including a front-end sales charge during the 90-day period prior
to the date of receipt by the Distributor of the Letter of Intent, or of
Class A shares of the Fund or shares of other Dean Witter Funds acquired in
exchange for shares of such funds purchased during such period at a price
including a front-end sales charge, which are still owned by the shareholder,
may also be included in determining the applicable reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of $1
million or more, Class A shares also may be purchased at net asset value by
the following:
(1) trusts for which Dean Witter Trust Company ("DWTC") or Dean Witter Trust
FSB ("DWTFSB") (each of which is an affiliate of the Investment Manager)
provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the Distributor,
pursuant to which such persons pay an asset based fee for services in the
nature of investment advisory or administrative services (such investments
are subject to all of the terms and conditions of such programs, which may
include termination fees and restrictions on transferability of Fund shares);
(3) retirement plans qualified under Section 401(k) of the Internal Revenue
Code ("401(k) plans") and other employer-sponsored plans qualified under
Section 401(a) of the Internal Revenue Code with at least 200 eligible
employees and for which DWTC or DWTFSB serves as Trustee or the 401(k)
Support Services Group of DWR serves as recordkeeper;
(4) 401(k) plans and other employer-sponsored plans qualified under Section
401(a) of the Internal Revenue Code for which DWTC or DWTFSB serves as
Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper
whose Class B shares have converted to Class A shares, regardless of the
plan's asset size or number of eligible employees;
(5) investors who are clients of a Dean Witter account executive who joined
Dean Witter from another investment firm within six months prior to the date
of purchase of Fund shares by such investors, if the shares are being
purchased with the proceeds from a redemption of shares of an open-end
proprietary mutual fund of the account executive's previous firm which
imposed either a front-end or deferred sales charge, provided such purchase
was made within sixty days after the redemption and the proceeds of the
redemption had been maintained in the interim in cash or a money market fund;
and
<PAGE>
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
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
15
<PAGE>
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>
In the case of Class B shares of the Fund held by 401(k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal
Revenue Code for which DWTC or DWTFSB serves as Trustee or the 401(k) Support
Services Group of DWR serves as recordkeeper and whose accounts are opened on
or after July 28, 1997, shares held for three years or more after purchase
(calculated as described in the paragraph above) will not be subject to any
CDSC upon redemption. However, shares redeemed earlier than three years after
purchase may be subject to a CDSC (calculated as described in the paragraph
above), the percentage of which will depend on how long the shares have been
held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First ..................... 2.0%
Second .................... 2.0%
Third ..................... 1.0%
Fourth and thereafter .... None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which represents
an increase in value of shares purchased within the six years (or, in the
case of shares held by certain employer-sponsored benefit plans, three years)
preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption; and
(iii) the current net asset value of shares purchased through reinvestment of
dividends or distributions and/or shares acquired in exchange for shares of
FSC Funds or of other Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held
in a qualified corporate or self-employed retirement plan, Individual
Retirement Account ("IRA") or Custodial Account under Section 403(b)(7) of
the Internal Revenue Code ("403(b) Custodial Account"), provided in either
case that the redemption is requested within one year of the death or initial
determination of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified
corporate or self-employed retirement plan following retirement (or, in the
case of a "key employee" of a "top heavy" plan, following attainment of age
59 1/2); (B) distributions from an IRA or 403(b) Custodial Account following
attainment of age 59 1/2; or (C) a tax-free return of an excess contribution
to an IRA; and
<PAGE>
(3) all redemptions of shares held for the benefit of a participant in a
401(k) plan or other employer-sponsored plan qualified under Section 401(a)
of the Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which DWTC or DWTFSB serves as
Trustee or the 401(k) 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.
16
<PAGE>
CONVERSION TO CLASS A SHARES. All shares of the Fund held prior to July 28,
1997 have been designated Class B shares. Shares held before May 1, 1997 will
convert to Class A shares in May, 2007. In all other instances Class B shares
will convert automatically to Class A shares, based on the relative net asset
values of the shares of the two Classes on the conversion date, which will be
approximately ten (10) years after the date of the original purchase. The ten
year period is calculated from the last day of the month in which the shares
were purchased or, in the case of Class B shares acquired through an exchange
or a series of exchanges, from the last day of the month in which the
original Class B shares were purchased, provided that shares originally
purchased before May 1, 1997 will convert to Class A shares in May, 2007. The
conversion of shares purchased on or after May 1, 1997 will take place in the
month following the tenth anniversary of the purchase. There will also be
converted at that time such proportion of Class B shares acquired through
automatic reinvestment of dividends and distributions owned by the
shareholder as the total number of his or her Class B shares converting at
the time bears to the total number of outstanding Class B shares purchased
and owned by the shareholder. In the case of Class B shares held by a 401(k)
plan or other employer-sponsored plan qualified under Section 401(a) of the
Internal Revenue Code and for which DWTC or DWTFSB serves as Trustee or the
401(k) Support Services Group of DWR serves as recordkeeper, the plan is
treated as a single investor and all Class B shares will convert to Class A
shares on the conversion date of the first shares of a Dean Witter
Multi-Class Fund purchased by that plan. In the case of Class B shares
previously exchanged for shares of an "Exchange Fund" (see "Shareholder
Services--Exchange Privilege"), the period of time the shares were held in
the Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired) is excluded from the holding period for
conversion. If those shares are subsequently re-exchanged for Class B shares
of a Dean Witter Multi-Class Fund, the holding period resumes on the last day
of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior
to the date for conversion. Class B shares evidenced by share certificates
that are not received by the Transfer Agent at least one week prior to any
conversion date will be converted into Class A shares on the next scheduled
conversion date after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion
will have a basis equal to the shareholder's basis in the converted Class B
shares immediately prior to the conversion, and (iii) Class A shares received
on conversion will have a holding period that includes the holding period of
the converted Class B shares. The conversion feature may be suspended if the
ruling or opinion is no longer available. In such event, Class B shares would
continue to be subject to Class B 12b-1 fees.
Class B shares purchased before July 28, 1997 by trusts for which DWTC or
DWTFSB provides discretionary trustee services will convert to Class A shares
on or about August 29, 1997. The CDSC will not be applicable to such shares.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an initial
sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount
equal to the lesser of the current market value or the cost of the shares
being redeemed. The CDSC will not be imposed in the circumstances set forth
above in the section "Contingent Deferred Sales Charge Alternative--Class B
Shares--CDSC Waivers," except that the references to six years in the first
paragraph of that section shall mean one year in the case of Class C shares.
Class C shares are subject to an annual 12b-1 fee of up to 1.0% of the
average daily net assets of the Class. Unlike Class B shares, Class C shares
have no conversion feature and, accordingly, an investor that purchases Class
C shares will be subject to 12b-1 fees applicable to Class C shares for an
indefinite period subject to annual approval by the Fund's Board of Trustees
and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or redemption
and without any 12b-1 fee. Class D shares are offered only to investors
meeting an initial investment minimum of $5 million and the following
categories of investors: (i) investors participating in the InterCapital
mutual fund asset allocation program pursuant to which such persons pay an
asset based fee; (ii) persons participating in a fee-based program approved
by the Distributor, pursuant to which such persons pay an asset based fee for
services in the nature of investment advisory or administrative services
(subject to all of the terms and conditions of such programs, which may
include termination fees and restrictions on transferability of Fund shares);
(iii) 401(k) plans established by DWR and SPS Transaction Services, Inc. (an
affiliate of DWR) for their employees; (iv) certain Unit Investment Trusts
sponsored by DWR; (v) certain other open-end investment companies whose
shares are distributed by the Distributor; and (vi) other categories of
investors, at the discretion of the Board, as disclosed in the then current
prospectus of the Fund. Investors who require a $5 million minimum initial
investment to qualify to purchase Class D shares may satisfy that requirement
by investing that amount in a single transaction in Class D shares of the
Fund and other Dean Witter Multi-Class Funds, subject to the $1,000 minimum
initial investment required for that Class of the Fund. In addition, for the
17
<PAGE>
purpose of meeting the $5 million minimum investment amount, holdings of
Class A shares in all Dean Witter Multi-Class Funds, shares of FSC Funds and
shares of Dean Witter Funds for which such shares have been exchanged will be
included together with the current investment amount. If a shareholder
redeems Class A shares and purchases Class D shares, such redemption may be a
taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act with respect to the distribution of Class A, Class B and Class C shares
of the Fund. In the case of Class A and Class C shares, the Plan provides
that the Fund will reimburse the Distributor and others for the expenses of
certain activities and services incurred by them specifically on behalf of
those shares. Reimbursements for these expenses will be made in monthly
payments by the Fund to the Distributor, which will in no event exceed
amounts equal to payments at the annual rates of 0.25% and 1.0% of the
average daily net assets of Class A and Class C, respectively. In the case of
Class B shares, the Plan provides that the Fund will pay the Distributor a
fee, which is accrued daily and paid monthly, at the annual rate of 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's
Class B shares since the inception of the Fund (not including reinvestments
of dividends or capital gains distributions), less the average daily
aggregate net asset value of the Fund's Class B shares redeemed since 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 period ended June 26, 1996 (commencement of operations)
through September 30, 1996, Class B shares of the Fund accrued payments under
the Plan amounting to $323,002, which amount is equal to 1.0% of the Fund's
average daily net assets for the fiscal year. The payments accrued under the
Plan were calculated pursuant to clause (b) of the compensation formula under
the Plan. All shares held prior to July 28, 1997 have been designated Class B
shares.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i)
the payments made by the Fund pursuant to the Plan, and (ii) the proceeds of
CDSCs paid by investors upon the redemption of Class B shares. For example,
if $1 million in expenses in distributing Class B shares of the Fund had been
incurred and $750,000 had been received as described in (i) and (ii) above,
the excess expense would amount to $250,000. The Distributor has advised the
Fund that such excess amounts, including the carrying charge described above,
totalled $7,917,422 at September 30, 1996, which was equal to 5.34% of the
net assets of the Fund on such date. Because there is no requirement under
the Plan that the Distributor be reimbursed for all distribution expenses or
any requirement that the Plan be continued from year to year, such excess
amount does not constitute a liability of the Fund. Although there is no
legal obligation for the Fund to pay expenses incurred in excess of payments
made to the Distributor under the Plan, and the proceeds of CDSCs paid by
investors upon redemption of shares, if for any reason the Plan is terminated
the Trustees will consider at that time the manner in which to treat such
expenses. Any cumulative expenses incurred, but not yet recovered through
distribution fees or CDSCs, may or may not be recovered through future
distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses
representing a gross sales commission credited to account executives at the
time of sale may be reimbursed in the subsequent calendar year. No interest
or other financing charges will be incurred on any Class A or Class C
distribution expenses incurred by the Distributor under the Plan or on any
unreimbursed expenses due to the Distributor pursuant to the Plan.
<PAGE>
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 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
18
<PAGE>
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 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.
19
<PAGE>
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Dean Witter Multi-Class Fund without the imposition of any exchange
fee. Shares may also be exchanged for shares of the following funds: Dean
Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S.
Treasury Trust and five Dean Witter funds which are money market funds (the
"Exchange Funds"). Class A shares may also be exchanged for shares of Dean
Witter Multi-State Municipal Series Trust and Dean Witter Hawaii Municipal
Trust, which are Dean Witter Funds sold with a front-end sales charge ("FSC
Funds"). Class B shares may also be exchanged for shares of Dean Witter
Global Short-Term Income Fund Inc., Dean Witter High Income Securities and
Dean Witter National Municipal Trust, which are Dean Witter Funds offered
with a CDSC ("CDSC Funds"). Exchanges may be made after the shares of the
Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment.
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, any CDSC
Fund or any Exchange Fund that is not a money market fund is on the basis of
the next calculated net asset value per share of each fund after the exchange
order is received. When exchanging into a money market fund from the Fund,
shares of the Fund are redeemed out of the Fund at their next calculated net
asset value and the proceeds of the redemption are used to purchase shares of
the money market fund at their net asset value determined the following day.
Subsequent exchanges between any of the money market funds and any of the
Dean Witter Multi-Class Funds, FSC Funds or CDSC Funds or any Exchange Fund
that is not a money market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period
of time the shareholder remains in an Exchange Fund (calculated from the last
day of the month in which the Exchange Fund shares were acquired), the
holding period (for the purpose of determining the rate of the CDSC) is
frozen. If those shares are subsequently re-exchanged for shares of a Dean
Witter Multi-Class Fund or shares of a CDSC Fund, the holding period
previously frozen when the first exchange was made resumes on the last day of
the month in which shares of a Dean Witter Multi-Class Fund or shares of a
CDSC Fund are reacquired. Thus, the CDSC is based upon the time (calculated
as described above) the shareholder was invested in shares of a Dean Witter
Multi-Class Fund or in shares of a CDSC Fund (see "Purchase of Fund Shares").
In the case of exchanges of Class A shares which are subject to a CDSC, the
holding period also includes the time (calculated as described above) the
shareholder was invested in shares of a FSC Fund. However, in the case of
shares exchanged into an Exchange Fund on or after April 23, 1990, upon a
redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the
Exchange Fund 12b-1 distribution fees incurred on or after that date which
are attributable to those shares. (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.) Class B shares of the Fund
acquired in exchange for Class B shares of another Dean Witter Multi-Class
Fund or shares of a CDSC Fund having a different CDSC schedule than that of
this Fund will be subject to the higher CDSC schedule, even if such shares
are subsequently re-exchanged for shares of the fund with the lower CDSC
schedule.
ADDITIONAL INFORMATION REGARDING EXCHANGES. Purchases and exchanges should be
made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional
purchases and/or exchanges from the investor. Although the Fund does not have
any specific definition of what constitutes a pattern of frequent exchanges,
and will consider all relevant factors in determining whether a particular
situation is abusive and contrary to the best interests of the Fund and its
other shareholders, investors should be aware that the Fund and each of the
other Dean Witter Funds may in their discretion limit or otherwise restrict
the number of times this Exchange Privilege may be exercised by any investor.
Any such restriction will be made by the Fund on a prospective basis only,
upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such Dean Witter
Funds for which shares of the Fund 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
20
<PAGE>
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 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
21
<PAGE>
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.
One of the requirements for the Fund to remain qualified as a regulated
investment company is that less than 30% of the Fund's gross income be
derived from gains from the sale or other disposition of securities held for
less than three months.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction.
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
22
<PAGE>
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.
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 objective 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.
23
<PAGE>
DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (44.7%)
Apparel (1.0%)
86,500 Kellwood Co. .................................................... $1,438,062
--------------
Auto Parts (0.9%)
45,500 Dana Corp. ...................................................... 1,376,375
--------------
Automotive (2.8%)
48,000 Chrysler Corp. .................................................. 1,374,000
44,500 Ford Motor Co. .................................................. 1,390,625
29,000 General Motors Corp. ........................................... 1,392,000
--------------
4,156,625
--------------
Banks (0.9%)
60,000 Washington Federal, Inc. ........................................ 1,402,500
--------------
Banks - Commercial (3.7%)
51,700 First Security Corp. ........................................... 1,415,287
40,000 First Tennessee National Corp. .................................. 1,320,000
30,500 KeyCorp ......................................................... 1,342,000
39,000 Wilmington Trust Corp. .......................................... 1,394,250
--------------
5,471,537
--------------
Banks - Regional (0.9%)
31,000 Corestates Financial Corp. ..................................... 1,340,750
--------------
Banks - Thrift Institutions (0.9%)
37,900 Washington Mutual, Inc. ........................................ 1,411,775
--------------
Building Materials (0.9%)
22,400 Vulcan Materials Co. ............................................ 1,344,000
--------------
Chemicals (2.8%)
16,700 Dow Chemical Co. ................................................ 1,340,175
25,400 PPG Industries, Inc. ........................................... 1,381,125
21,000 Rohm & Haas Co. ................................................. 1,375,500
--------------
4,096,800
--------------
Conglomerates (0.9%)
28,000 Tenneco, Inc. ................................................... 1,403,500
--------------
Finance (1.0%)
41,000 Federal National Mortgage Assoc. ................................ 1,429,875
--------------
Financial (0.9%)
37,000 TCF Financial Corp. ............................................. 1,392,125
--------------
Financial -Miscellaneous (1.0%)
19,000 Student Loan Marketing Assoc. ................................... 1,417,875
--------------
Food Processing (1.0%)
62,500 Hormel Foods Corp. ............................................. 1,460,937
--------------
Healthcare -Drugs (0.9%)
22,500 Schering-Plough Corp. ........................................... 1,383,750
--------------
Insurance (1.8%)
27,000 Jefferson-Pilot Corp. .......................................... 1,397,250
30,100 Lincoln National Corp. .......................................... 1,320,638
--------------
2,717,888
--------------
SEE NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
NUMBER OF
SHARES VALUE
------------------------------------------------------------------------------------------
Life Insurance (0.9%)
30,000 Torchmark Corp. ................................................ $ 1,376,250
--------------
Machinery - Diversified (0.9%)
18,000 Johnson Controls, Inc. .......................................... 1,350,000
--------------
Manufacturing - Consumer & Industrial Products (1.0%)
28,000 Whirlpool Corp. ................................................. 1,417,500
--------------
Manufacturing - Diversified (1.0%)
47,500 UST, Inc. ...................................................... 1,407,188
--------------
Metals & Mining (0.9%)
50,500 Asarco, Inc. .................................................... 1,344,563
--------------
Miscellaneous (1.0%)
50,000 American Greetings Corp. (Class A) .............................. 1,431,250
--------------
Multi-Line Insurance (0.9%)
32,000 Providian Corp. ................................................ 1,376,000
--------------
Oil & Gas (0.9%)
34,000 Ashland Inc. .................................................... 1,351,500
--------------
Real Estate Investment Trust (5.5%)
75,000 American General Hospitality Corp. .............................. 1,425,000
48,400 Cali Realty Corp. .............................................. 1,312,850
50,000 CarrAmerica Realty Corp. ....................................... 1,250,000
50,000 Excel Realty Trust, Inc. ........................................ 1,081,250
20,000 FelCor Suite Hotels, Inc. ....................................... 645,000
60,000 Liberty Property Trust .......................................... 1,305,000
35,000 Patriot American Hospitality, Inc. ............................. 1,176,875
--------------
8,195,975
--------------
Steel (0.9%)
35,000 Timken Co. ...................................................... 1,373,750
--------------
Telecommunications (1.9%)
23,400 Bell Atlantic Corp. ............................................ 1,401,075
46,500 U.S. West Communications Group, Inc. ............................ 1,383,375
--------------
2,784,450
--------------
Telephones (1.0%)
29,500 SBC Communications, Inc. ........................................ 1,419,688
--------------
Tobacco (0.9%)
15,000 Philip Morris Companies, Inc. ................................... 1,346,250
--------------
Utilities - Electric (3.7%)
50,000 Consolidated Edison Company of New York, Inc. ................... 1,387,500
44,000 New England Electric System ..................................... 1,369,500
56,000 Peco Energy Co. ................................................. 1,330,000
50,000 Public Service Enterprise Group, Inc. ........................... 1,337,500
--------------
5,424,500
--------------
Wholesale Distributor (1.0%)
51,000 Supervalu, Inc. ................................................. 1,402,500
--------------
TOTAL COMMON STOCKS
(Identified Cost $64,366,530) .................................. 66,245,738
--------------
SEE NOTES TO FINANCIAL STATEMENTS
25
<PAGE>
DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
NUMBER OF
SHARES VALUE
------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (11.7%)
Auto Parts (0.5%)
55,000 Mascotech, Inc. $1.20 ........................................... $ 783,750
--------------
Cable/Cellular (0.7%)
25,000 TCI Communications, Inc. (Series A) $2.125 ...................... 996,875
--------------
Chemicals (2.5%)
73,500 Atlantic Richfield Co. $9.01 .................................... 1,727,250
35,000 Occidental Petroleum Corp. (Series 1993) $3.875 -144A* .......... 1,986,250
--------------
3,713,500
--------------
Financial (1.4%)
50,000 Merrill Lynch & Co., Inc. (STRYPES) $2.39 ....................... 2,012,500
--------------
Metals & Mining (1.6%)
45,000 Cyprus Amax Minerals Co. (Series A) $4.00 ....................... 2,340,000
--------------
Publishing (1.1%)
13,000 Golden Books Financing Trust $4.375 -144A* ...................... 732,069
85,000 Hollinger International, Inc. $0.95 ............................. 945,625
--------------
1,677,694
--------------
Real Estate Investment Trust (1.5%)
31,700 FelCor Suite Hotels, Inc. (Series A) $1.95 ...................... 824,200
61,200 Oasis ResidentiaI, Inc. (Series A) $2.25 ........................ 1,468,800
--------------
2,293,000
--------------
Steel (0.7%)
24,000 WHX Corp. (Series A) $3.25 ...................................... 999,000
--------------
Telecommunications (1.7%)
50,000 General Datacomm Industries, Inc. $2.25 -144A* .................. 1,253,150
27,000 Globalstar Telecommunications $3.25 -144A* ...................... 1,282,500
--------------
2,535,650
--------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Identified Cost $16,988,117) .................................. 17,351,969
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (41.6%)
CONVERTIBLE BONDS (24.7%)
Biotechnology (0.5%)
$750 Nabi, Inc. - 144A* .............................................. 6.50% 02/01/03 807,637
--------------
Cable/Cellular (2.0%)
970 Tele-Communications International Inc. .......................... 4.50 02/15/06 778,425
6,750 U.S. Cellular Corp. ............................................ 0.00 06/15/15 2,244,375
--------------
3,022,800
--------------
Healthcare (6.9%)
1,500 ARV Assisted Living, Inc. - 144A* ............................... 6.75 04/01/06 1,477,485
2,000 Beverly Enterprises, Inc. ....................................... 5.50 08/01/18 1,911,660
1,000 Grancare, Inc. .................................................. 6.50 01/15/03 1,030,000
2,000 Integrated Health Services, Inc. ................................ 6.00 01/01/03 1,979,680
2,000 Phymatrix Corp. - 144A* ......................................... 6.75 06/15/03 1,675,340
2,000 Vivra, Inc. - 144A* ............................................. 5.00 07/01/01 2,122,700
--------------
10,196,865
--------------
SEE NOTES TO FINANCIAL STATEMENTS
26
<PAGE>
DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
Healthcare - Miscellaneous (1.4%)
$2,700 Pharmaceutical Marketing Services, Inc. ........................ 6.25 % 02/01/03 $2,020,383
--------------
Leisure (2.1%)
10,750 Coleman Worldwide Corp. ......................................... 0.00 05/27/13 3,090,625
--------------
Machinery (0.7%)
1,000 Robbins & Meyers, Inc. .......................................... 6.50 09/01/03 1,016,250
--------------
Medical Products & Supplies (0.6%)
750 Ventritex, Inc. ................................................. 5.75 08/15/01 871,260
--------------
Office Equipment & Supplies (1.9%)
3,000 U.S. Office Products Co. - 144A* ................................ 5.50 05/15/03 2,820,000
--------------
Real Estate Investment Trust (1.2%)
1,750 Camden Property Trust ........................................... 7.33 04/01/01 1,767,500
--------------
Retail (3.6%)
1,000 Charming Shoppes, Inc. .......................................... 7.50 07/15/06 1,094,670
1,250 Home Depot, Inc. ................................................ 3.25 10/01/01 1,270,313
1,950 Mens Wearhouse, Inc. (The) ...................................... 5.25 03/01/03 1,872,000
1,300 Michaels Stores, Inc. ........................................... 6.75 01/15/03 1,030,900
--------------
5,267,883
--------------
Shoes (0.7%)
1,000 Nine West Group, Inc. - 144A* ................................... 5.50 07/15/03 1,073,280
--------------
Steel (1.4%)
2,250 USX Corp. ...................................................... 7.00 06/15/17 2,120,625
--------------
Telecommunications (1.7%)
1,500 Midcom Communications Inc. - 144A* .............................. 8.25 08/15/03 1,715,160
750 SA Telecommunications Inc. - 144A* .............................. 10.00 08/15/06 787,500
--------------
2,502,660
--------------
TOTAL CONVERTIBLE BONDS
(Identified Cost $35,684,418) ......................................................... 36,577,768
--------------
NON-CONVERTIBLE BONDS (16.9%)
Auto Parts (0.7%)
1,000 Lear Corp. ..................................................... 9.50 07/15/06 1,040,000
--------------
Broadcast Media (1.0%)
1,500 JCAC Inc. ....................................................... 10.125 06/15/06 1,545,000
--------------
Cable/Cellular (2.1%)
1,000 Rogers Communications, Inc. (Canada) ............................ 10.875 04/15/04 1,030,000
2,000 Tele-Communications, Inc. ....................................... 9.25 04/15/02 2,113,540
--------------
3,143,540
--------------
Entertainment (1.5%)
2,000 Time Warner, Inc. .............................................. 9.625 05/01/02 2,204,600
--------------
Entertainment/Gaming (1.5%)
2,000 Casino America, Inc. ............................................ 11.50 11/15/01 2,180,000
--------------
Fertilizers (0.7%)
1,000 Arcadian Partner (Series B) ..................................... 10.75 05/01/05 1,102,500
--------------
Healthcare (3.6%)
1,000 Healthsouth Rehabilition Corp. .................................. 9.50 04/01/01 1,045,000
2,000 Manor Care, Inc. ............................................... 9.50 11/15/02 2,120,000
2,000 OrNda Healthcorp ................................................ 12.25 05/15/02 2,160,000
--------------
5,325,000
--------------
Machinery (1.8%)
2,460 Joy Technologies Inc. .......................................... 10.25 09/01/03 2,705,114
--------------
SEE NOTES TO FINANCIAL STATEMENTS
27
<PAGE>
DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
Media Group (1.1%)
$1,500 K-III Communications Corp. ...................................... 10.625% 05/01/02 $1,567,500
--------------
Publishing (0.7%)
1,000 Hollinger International Publishing, Inc. ........................ 9.25 02/01/06 970,000
--------------
Supermarkets (2.2%)
3,000 Purity Supreme, Inc. (Series B) ................................. 11.75 08/01/99 3,218,190
--------------
TOTAL NON-CONVERTIBLE BONDS
(Identified Cost $24,946,042) ......................................................... 25,001,444
--------------
TOTAL CORPORATE BONDS
(Identified Cost $60,630,460) ......................................................... 61,579,212
--------------
SHORT-TERM INVESTMENT (1.3%)
REPURCHASE AGREEMENT
1,942 The Bank of New York (dated 09/30/96; proceeds $1,941,848;
collateralized by $1,369,637 U.S. Treasury Bond 12.75% due
11/15/10 valued at $1,980,410)(Identified Cost $1,941,578) ...... 5.00 10/01/96 1,941,578
--------------
TOTAL INVESTMENTS
(Identified Cost $143,926,685)(a) ........................................ 99.3% 147,118,497
OTHER ASSETS IN EXCESS OF LIABILITIES .................................... 0.7 1,023,417
--------------
NET ASSETS ............................................................... 100.0% $148,141,914
==============
</TABLE>
- ------------
STRYPES Structured yield product exchangeable for stock.
* Resale is restricted to qualified institutional investors.
(a) The aggregate cost for federal income tax purposes is
$143,942,769. The aggregate gross unrealized appreciation is
$5,253,724 and the aggregate gross unrealized depreciation is
$2,077,996, resulting in net unrealized appreciation of
$3,175,728.
SEE NOTES TO FINANCIAL STATEMENTS
28
<PAGE>
DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $143,926,685)............. $147,118,497
Receivable for:
Interest.................................. 1,255,482
Shares of beneficial interest sold ...... 1,187,289
Investments sold.......................... 846,101
Dividends ................................ 223,710
Deferred organizational expenses............ 154,966
Prepaid expenses ........................... 444
--------------
TOTAL ASSETS ............................. 150,786,489
--------------
LIABILITIES:
Payable for:
Investments purchased..................... 2,091,873
Plan of distribution fee.................. 118,205
Investment management fee................. 88,654
Dividends to shareholders................. 45,628
Shares of beneficial interest
repurchased............................. 13,621
Organizational expenses .................... 163,660
Accrued expenses and other payables ....... 122,934
--------------
TOTAL LIABILITIES......................... 2,644,575
--------------
NET ASSETS:
Paid-in-capital............................. 144,828,578
Net unrealized appreciation................. 3,191,812
Undistributed net investment income ........ 47,579
Net realized gain........................... 73,945
--------------
NET ASSETS................................ $148,141,914
==============
NET ASSET VALUE PER SHARE,
14,483,618 shares outstanding (unlimited
shares authorized of $.01 par value) ...... $ 10.23
==============
</TABLE>
STATEMENT OF OPERATIONS
For the period June 26, 1996* through September 30, 1996
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.......................... $1,163,801
Dividends......................... 725,075
------------
TOTAL INCOME.................... 1,888,876
------------
EXPENSES
Plan of distribution fee ......... 323,002
Investment management fee......... 242,252
Transfer agent fees and expenses . 55,551
Registration fees ................ 49,768
Professional fees................. 28,848
Organizational expenses........... 8,694
Custodian fees.................... 8,339
Shareholder reports and notices .. 7,581
Trustees' fees and expenses ...... 958
Other............................. 1,037
------------
TOTAL EXPENSES.................. 726,030
------------
NET INVESTMENT INCOME........... 1,162,846
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain............... 73,945
Net unrealized appreciation .... 3,191,812
------------
NET GAIN........................ 3,265,757
------------
NET INCREASE...................... $4,428,603
============
</TABLE>
* Commencement of operations.
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 26, 1996*
THROUGH
STATEMENT OF CHANGES IN NET ASSETS SEPTEMBER 30, 1996
- -------------------------------------------------------------- ------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ......................................... $ 1,162,846
Net realized gain.............................................. 73,945
Net unrealized appreciation.................................... 3,191,812
------------------
NET INCREASE................................................. 4,428,603
Dividends from net investment income........................... (1,123,961)
Net increase from transactions in shares of beneficial
interest...................................................... 144,737,272
------------------
TOTAL INCREASE............................................... 148,041,914
NET ASSETS:
Beginning of period............................................ 100,000
------------------
END OF PERIOD
(Including undistributed net investment income of $47,579) .. $148,141,914
==================
</TABLE>
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Income Builder Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's primary investment
objective is to seek reasonable income and, as a secondary objective, growth
of capital. The Fund seeks to achieve its objective by investing primarily in
income-producing equity securities, including common and preferred stocks as
well as convertible securities. The Fund was organized as a Massachusetts
business trust on March 21, 1996 and had no operations other than those
relating to organizational matters and the issuance of 10,000 shares of
beneficial interest for $100,000 to Dean Witter InterCapital Inc. (the
"Investment Manager") to effect the Fund's initial capitalization. The Fund
commenced operations on June 26, 1996.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where securities are traded on more than one exchange,
the security is valued on the exchange designated as the primary market by
the Trustees); (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest available
bid price prior to the time of valuation; (3) when market quotations are not
readily available, including circumstances under which it is determined by
the Investment Manager that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Trustees (valuation of debt securities for which
market quotations are not readily available may be based upon current market
prices of securities which are comparable in coupon, rating and maturity or
an appropriate matrix utilizing similar factors); and (4) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date except for certain dividends on foreign securities which are
recorded as soon as the Fund is informed after the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations
30
<PAGE>
DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1996 continued
which may differ from generally accepted accounting principles. These
"book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of $163,660 which will be reimbursed for
the full amount thereof. Such expenses have been deferred and are being
amortized on the straight-line method over a period not to exceed five years
from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.75% to the net assets of the Fund determined as of the close
of each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted
a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act
pursuant to which the Fund pays the Distributor compensation, accrued daily
and payable monthly, at an annual rate of 1.0% of the lesser of: (a) the
average daily aggregate gross sales of the Fund's shares since the Fund's
inception (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived; or
(b) the Fund's average daily net assets. Amounts paid under the Plan are paid
to the Distributor to compensate it for the services provided and the
expenses borne by it and others in the distribution of the Fund's shares,
including the payment of commissions for sales of the Fund's shares and
incentive compensation to, and expenses of, the account executives of Dean
Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and other employees or selected broker-dealers who engage in or
support distribution of the Fund's shares or who service shareholder
accounts, including overhead and telephone expenses, printing and
distribution of prospectuses and reports used in connection with the offering
of the Fund's shares to other than current shareholders and preparation,
printing and distribution of sales literature and advertising materials. In
addition, the Distributor may be compensated under the Plan for its
opportunity costs in advancing such amounts, which compensation would be in
the form of a carrying charge on any unreimbursed expenses incurred by the
Distributor.
31
<PAGE>
DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1996 continued
Although there is no legal obligation for the Fund to pay expenses incurred
in excess of payments made to the Distributor under the Plan and the proceeds
of contingent deferred sales charges paid by investors upon redemption of
shares, if for any reason the Plan is terminated, the Trustees will consider
at that time the manner in which to treat such expenses. The Distributor has
advised the Fund that such excess amounts, included carrying charges, totaled
$7,917,422 at September 30, 1996.
Provided that the Plan continues in effect, any cumulative expenses incurred
but not yet recovered, may be recovered through future distribution fees from
the Fund and contingent deferred sales charges from the Fund's shareholders.
The Distributor has informed the Fund that for the period ended September 30,
1996, it received approximately $26,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the period ended September 30, 1996
aggregated $149,132,161 and $7,295,003, respectively.
For the period ended September 30, 1996, the Fund incurred $24,548 in
brokerage commissions with DWR for portfolio transactions executed on behalf
of the Fund. At September 30, 1996, the Fund's payable for investments
purchased included unsettled trades with DWR of $841,873.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At September 30, 1996, the Fund
had transfer agent fees and expenses payable of approximately $32,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD JUNE 26,
1996* THROUGH SEPTEMBER 30, 1996
---------------------------------
SHARES AMOUNT
------------ ------------
<S> <C> <C>
Sold .................... 14,654,263 $146,538,451
Reinvestment of dividends 83,927 855,216
------------ ---------------
14,738,190 147,393,667
Repurchased.............. (264,572) (2,656,395)
------------ ---------------
Net increase............. 14,473,618 $144,737,272
============ ===============
</TABLE>
- ------------
* Commencement of operations.
6. SELECTED PER SHARE DATA AND RATIOS
See the "Financial Highlights" table on page 4 of this Prospectus.
32
<PAGE>
DEAN WITTER INCOME BUILDER FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER INCOME BUILDER FUND
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights
(appearing on page 6 of this Prospectus) present fairly, in all material
respects, the financial position of Dean Witter Income Builder Fund (the
"Fund") at September 30, 1996, and the results of its operations, the changes
in its net assets and the financial highlights for the period June 26, 1996
(commencement of operations) through September 30, 1996, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of securities at September 30, 1996 by
correspondence with the custodian and brokers, provides a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
October 17, 1996
1996 FEDERAL TAX NOTICE (unaudited)
During the period ended September 30, 1996, 57.47% of the income paid
qualified for the dividends received deduction available to
corporations.
<PAGE>
APPENDIX
- -----------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS INVESTMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
<TABLE>
<S> <C>
Aaa Fixed-income securities which are rated Aaa are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Fixed-income securities which are rated Aa are judged to be of high quality by all standards. Together with
the Aaa group they comprise what are generally known as high grade fixed-income securities. They are rated
lower than the best fixed-income securities because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Fixed-income securities which are rated A possess many favorable investment attributes and are to be considered
as upper medium grade obligations. Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa Fixed-income securities which are rated Baa are considered as medium grade obligations; i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically unreliable over any great length
of time. Such fixed-income securities lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Fixed-income securities rated Aaa, Aa, A and Baa are considered investment grade.
Ba Fixed-income securities which are rated Ba are judged to have speculative elements; their future cannot be
considered as well assured. Often the protection of interest and principal payments may be very moderate,
and therefore not well safeguarded during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
B Fixed-income securities which are rated B generally lack characteristics of a desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the contract over any long period
of time may be small.
Caa Fixed-income securities which are rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
Ca Fixed-income securities which are rated Ca present obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C Fixed-income securities which are rated C are the lowest rated class of fixed-income securities, and issues
so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
</TABLE>
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal
fixed-income security rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and a modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
34
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess
of nine months. The ratings apply to Municipal Commercial Paper as well as
taxable Commercial Paper. Moody's employs the following three designations,
all judged to be investment grade, to indicate the relative repayment
capacity of rated issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and issuers rated Prime-3
have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and
(3) protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings
may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
<TABLE>
<CAPTION>
<S> <C>
AAA Fixed-income securities rated "AAA" have the highest rating assigned by Standard & Poor's. Capacity to pay interest
and repay principal is extremely strong.
AA Fixed-income securities rated "AA" have a very strong capacity to pay interest and repay principal and differs
from the highest-rate issues only in small degree.
A Fixed-income securities rated "A" have a strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than fixed-income
securities in higher-rated categories.
BBB Fixed-income securities rated "BBB" are regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay principal for fixed-income securities
in this category than for fixed-income securities in higher-rated categories.
Fixed-income securities rated AAA, AA, A and BBB are considered investment grade.
BB Fixed-income securities rated "BB" have less near-term vulnerability to default than other speculative grade
fixed-income securities. However, it faces major ongoing uncertainties or exposures to adverse business, financial
or economic conditions which could lead to inadequate capacity or willingness to pay interest and repay principal.
B Fixed-income securities rated "B" have a greater vulnerability to default but presently have the capacity to
meet interest payments and principal repayments. Adverse business, financial or economic conditions would likely
impair capacity or willingness to pay interest and repay principal.
CCC Fixed-income securities rated "CCC" have a current identifiable vulnerability to default, and are dependent upon
favorable business, financial and economic conditions to meet timely payments of interest and repayments of principal.
In the event of adverse business, financial or economic conditions, they are not likely to have the capacity
to pay interest and repay principal.
35
<PAGE>
CC The rating "CC" is typically applied to fixed-income securities subordinated to senior debt which is assigned
an actual or implied "CCC" rating.
C The rating "C" is typically applied to fixed-income securities subordinated to senior debt which is assigned
an actual or implied "CCC-" rating.
CI The rating "CI" is reserved for fixed-income securities on which no interest is being paid.
NR Indicates that no rating has been requested, that there is insufficient information on which to base a rating
or that Standard & Poor's does not rate a particular type of obligation as a matter of policy.
Fixed-income securities rated "BB," "B," "CCC," "CC" and "C" are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. "BB" indicates the least degree
of speculation and "C" the highest degree of speculation. While such fixed-income securities will likely have
some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures
to adverse conditions.
Plus (+) or minus (-): The rating from "AA" to "CCC" may be modified by the addition of a plus or minus sign
to show relative standing within the major ratings categories.
</TABLE>
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to
purchase or sell a security. The ratings are based upon current information
furnished by the issuer or obtained by Standard & Poor's from other sources
it considers reliable. The ratings may be changed, suspended, or withdrawn as
a result of changes in or unavailability of such information. Ratings are
graded into group categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Ratings are applicable to both taxable and
tax-exempt commercial paper. The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the
designation 1, 2, and 3 to indicate the relative degree of safety.
<TABLE>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is strong. However, the relative
degree of safety is not as overwhelming as for issues designated "A-1."
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying this designation are, however,
somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying
the higher designations.
</TABLE>
BOND RATINGS
FITCH INVESTORS SERVICE, INC. ("FITCH")
The Fitch Bond Ratings provides a guide to investors in determining the
investment risk associated with a particular security. The rating represents
its assessment of the issuer's ability to meet the obligations of a specific
debt issue or class of debt in a timely manner. Fitch bond ratings are not
recommendations to buy, sell or hold securities since they incorporate no
information on market price or yield relative to other debt instruments.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the record of the issuer and
of any guarantor, as well as the political and economic environment that
might affect the future financial strength and credit quality of the issuer.
Bonds which have the same rating are of similar but not necessarily
identical investment quality since the limited number of rating categories
cannot fully reflect small differences in the degree of risk. Moreover, the
character of the risk factor varies from industry to industry and between
corporate, health care and municipal.
In assessing credit risk, Fitch Investors Service relies on current
information furnished by the issuer and/or guarantor and other sources which
it considers reliable. Fitch does not perform an audit of the financial
statements used in assigning a rating.
36
<PAGE>
Ratings may be changed, withdrawn or suspended at any time to reflect
changes in the financial condition of the issuer, the status of the issue
relative to other debt of the issuer, or any other circumstances that Fitch
considers to have a material effect on the credit of the obligor.
<TABLE>
<S> <C>
AAA rated bonds are considered to be investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA rated bonds are considered to be investment grade and of very high credit quality. The obligor's ability
to pay interest and repay principal, while very strong, is somewhat less than for AAA rated securities or
more subject to possible change over the term of the issue.
A rated bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB rated bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability
to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to weaken this ability than bonds with higher ratings.
BB rated bonds are considered speculative and of low investment grade. The obligor's ability to pay interest
and repay principal is not strong and is considered likely to be affected over time by adverse economic
changes.
B rated bonds are considered highly speculative. Bonds in this class are lightly protected as to the obligor's
ability to pay interest over the life of the issue and repay principal when due.
CCC rated bonds may have certain identifiable characteristics which, if not remedied, could lead to the possibility
of default in either principal or interest payments.
CC rated bonds are minimally protected. Default in payment of interest and/or principal seems probable.
C rated bonds are in imminent default in payment of interest and/or principal.
</TABLE>
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes. Although the credit analysis is similar to Fitch's bond
rating analysis, the short-term rating places greater emphasis on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner. Fitch's short-term ratings are as follows:
<TABLE>
<S> <C>
Fitch-1+ (Exceptionally Strong Credit Quality) Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
Fitch-1 (Very Strong Credit Quality) Issues assigned this rating reflect an assurance of timely payment only slightly
less in degree than issues rated Fitch-1+.
Fitch-2 (Good Credit Quality) Issues assigned this rating have a satisfactory degree of assurance for timely payment
but the margin of safety is not as great as the two higher categories.
Fitch-3 (Fair Credit Quality) Issues assigned this rating have characteristics suggesting that the degree of assurance
for timely payment is adequate, however, near-term adverse change is likely to cause these securities
to be rated below investment grade.
Fitch-S (Weak Credit Quality) Issues assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near term adverse changes in financial and economic
conditions.
D (Default) Issues assigned this rating are in actual or imminent payment default.
LOC This symbol LOC indicates that the rating is based on a letter of credit issued by a commercial bank.
</TABLE>
37
<PAGE>
LONG-TERM RATINGS
DUFF & PHELPS, INC.
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related
to such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and
expertise. The projected viability of the obligor at the trough of the cycle
is a critical determination.
Each rating also takes into account the legal form of the security, (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent
of rating dispersion among the various classes of securities is determined by
several factors including relative weightings of the different security
classes in the capital structure, the overall credit strength of the issuer,
and the nature of covenant protection. Review of indenture restrictions is
important to the analysis of a company's operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once per quarter
(more frequently, if necessary).
<TABLE>
<CAPTION>
RATING SCALE DEFINITION
<S> <C>
AAA Highest credit quality. The risk factors are negligible, being only slightly more than risk-free U.S. Treasury
debt.
AA+ High credit quality. Protection factors are strong. Risk is modest, but may vary slightly from time to time
AA because of economic conditions.
AA-
A+ Protection factors are average but adequate. However, risk factors are more variable and greater in periods
A of economic stress.
A-
BBB+ Below average protection factors but still considered sufficient for prudent investment. Considerable variability
BBB in risk during economic cycles.
BBB-
BB+ Below investment grade but deemed likely to meet obligations when due. Present or prospective financial protection
BB factors fluctuate according to industry conditions or company fortunes. Overall quality may move up or down
BB- frequently within this category.
B+ Below investment grade and possessing risk that obligations will not be met when due. Financial protection
B factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes. Potential
B- exists for frequent changes in the quality rating within this category or into a higher or lower quality rating
grade.
CCC Well below investment grade securities. May be in default or considerable uncertainty exists as to timely
payment of principal, interest or preferred dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/ industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
</TABLE>
38
<PAGE>
SHORT-TERM RATINGS
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations
with maturities of under one year, including commercial paper, the uninsured
portion of certificates of deposit, unsecured bank loans, master notes,
bankers acceptances, irrevocable letters of credit, and current maturities of
long-term debt. Asset-backed commercial paper is also rated according to this
scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds, including trade
credit, bank lines, and the capital markets. An important consideration is
the level of an obligor's reliance on short-term funds on an ongoing basis.
<TABLE>
<CAPTION>
<S> <C>
A. CATEGORY 1: HIGH GRADE
Duff 1+ Highest certainty of timely payment. Short-term liquidity, including internal operating
factors and/or access to alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are minor.
Duff- High certainty of timely payment. Liquidity factors are strong and supported by good
fundamental protection factors. Risk factors are very small.
B. CATEGORY 2: GOOD GRADE
Duff 2 Good certainty of timely payment. Liquidity factors and company fundamentals are sound.
Although ongoing funding needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
C. CATEGORY 3: SATISFACTORY GRADE
Duff 3 Satisfactory liquidity and other protection factors qualify issue as to investment grade.
Risk factors are larger and subject to more variation. Nevertheless, timely payment is
expected.
D. CATEGORY 4: NON-INVESTMENT GRADE
Duff 4 Speculative investment characteristics. Liquidity is not sufficient to insure against
disruption in debt service. Operating factors and market access may be subject to a
high degree of variation.
E. CATEGORY 5: DEFAULT
Duff 5 Issuer failed to meet scheduled principal and/or interest payments.
</TABLE>
39
<PAGE>
DEAN WITTER
INCOME BUILDER FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
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 Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
