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DEAN WITTER
NEW YORK TAX-FREE INCOME FUND
PROSPECTUS--FEBRUARY 28, 1994
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DEAN WITTER NEW YORK TAX-FREE INCOME FUND (THE "FUND") IS AN OPEN-END
DIVERSIFIED MANAGEMENT INVESTMENT COMPANY WHOSE INVESTMENT OBJECTIVE IS TO
PROVIDE A HIGH LEVEL OF CURRENT INCOME EXEMPT FROM FEDERAL, NEW YORK STATE AND
NEW YORK CITY INCOME TAX, CONSISTENT WITH THE PRESERVATION OF CAPITAL. THE FUND
INVESTS PRINCIPALLY IN NEW YORK TAX-EXEMPT FIXED-INCOME SECURITIES WHICH ARE
RATED IN THE FOUR HIGHEST CATEGORIES BY MOODY'S INVESTORS SERVICE, INC. OR
STANDARD & POOR'S CORPORATION. (SEE "INVESTMENT OBJECTIVE AND POLICIES.")
Shares of the Fund are continuously offered at net asset value without the
imposition of a sales charge. However, redemptions and/or repurchases are
subject in most cases to a contingent deferred sales charge, scaled down from 5%
to 1% of the amount redeemed, if made within six years of purchase, which charge
will be paid to the Fund's Distributor, Dean Witter Distributors Inc. See
"Redemptions and Repurchases--Contingent Deferred Sales Charge." In addition,
the Fund pays the Distributor a distribution fee pursuant to a Plan of
Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940 at
the annual rate of 0.75% of the lesser of the (i) average daily aggregate net
sales or (ii) average daily net assets of the Fund. See "Purchases of Fund
Shares--Plan of Distribution."
This prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated February 28, 1994, 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 number listed below. The
Statement of Additional Information is incorporated herein by reference.
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TABLE OF CONTENTS
Prospectus Summary................................ 2
Summary of Fund Expenses.......................... 3
Financial Highlights.............................. 4
The Fund and its Management....................... 5
Investment Objective and Policies................. 5
Investment Restrictions........................... 11
Purchase of Fund Shares........................... 12
Shareholder Services.............................. 13
Redemptions and Repurchases....................... 16
Dividends, Distributions and Taxes................ 17
Performance Information........................... 19
Additional Information............................ 19
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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
NEW YORK TAX-FREE INCOME FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550 OR
(800) 526-3143
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DEAN WITTER DISTRIBUTORS INC., DISTRIBUTOR
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PROSPECTUS SUMMARY
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<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 investing principally in New York tax-exempt
fixed-income securities which are rated in the four highest categories by Moody's Investors
Service Inc. or Standard and Poor's Corporation (see page 5).
SHARES OFFERED Shares of beneficial interest with $0.01 par value (see page 19).
OFFERING PRICE At net asset value without sales charge (see page 12). Shares redeemed within six years of
purchase are subject to a contingent deferred sales charge under most circumstances (see page 16).
MINIMUM Minimum initial investment, $1,000; minimum subsequent investment, $100 (see page 12).
PURCHASE
INVESTMENT The investment objective of the Fund is to provide a high level of current income exempt from
OBJECTIVE federal, New York State and New York City income tax, consistent with preservation of capital.
INVESTMENT The Fund will invest principally in New York tax-exempt fixed-income securities. However, it may
POLICIES also invest in taxable money market instruments, non-New York tax-exempt securities, futures and
options.
INVESTMENT Dean Witter InterCapital Inc., the Investment Manager of the Fund, and its wholly-owned
MANAGER subsidiary, Dean Witter Services Company Inc., serve in various investment management, advisory,
management and administrative capacities to eighty-one investment companies and other portfolios
with assets of approximately $71.2 billion at December 31, 1993 (see page 5).
MANAGEMENT The Investment Manager receives a monthly fee at the annual rate of .55 of 1% of daily net assets
FEE scaled down on assets over $500 million. The fee should not be compared with fees paid by other
investment companies without also considering applicable sales loads and distribution fees,
including those noted below.
DIVIDENDS Dividends are declared daily, and either paid monthly as additional shares of the Fund or, at the
shareholder's option, paid monthly in cash (see page 17).
DISTRIBUTOR AND Dean Witter Distributors Inc. (the "Distributor"). The Distributor receives from the Fund,
DISTRIBUTION FEE pursuant to a Rule 12b-1 Plan of Distribution, a distribution fee accrued daily and payable
monthly at the rate of .75% per annum of the lesser of (i) the Fund's average daily aggregate net
sales or (ii) the Fund's average daily net assets. This fee compensates the Distributor for the
services provided in distributing shares of the Fund and for its sales-related expenses. The
Distributor also receives the proceeds of any contingent deferred sales charges (see pages 12-18).
REDEMPTION At net asset value; redeemable involuntarily if total value of the account is less than $100.
Redemptions within six years of purchase are subject to a contingent deferred sales charge under
most circumstances (see page 16).
CONTINGENT Although no commission or sales charge is imposed upon the purchase of shares, a contingent
DEFERRED SALES deferred sales charge (scaled down from 5% to 1%) is imposed on any redemption of shares if after
CHARGE such redemption the aggregate current value of an account with the Fund falls below the aggregate
amount of the investor's purchase payments made during the six years preceding the redemption.
However, there is no charge imposed on redemption of shares purchased through reinvestment of
dividends or distributions (see pages 16-17).
RISKS The value of the Fund's portfolio securities, and therefore the Fund's net asset value per share,
may increase or decrease due to various factors, principally changes in prevailing interest rates
and the ability of the issuers of the Fund's portfolio securities to pay interest and principal on
such obligations. The Fund also may invest in futures and options for portfolio hedging purposes.
Futures and options may be considered speculative in nature and may involve greater risks than
those customarily assumed by certain other investment companies which do not invest in such
instruments. Since the Fund concentrates its investments in New York tax-exempt securities, the
Fund is affected by any political, economic or regulatory developments affecting the ability of
New York issuers to pay interest or repay principal
(see pages 10-11).
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS
AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
2
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses that a shareholder of the Fund will
incur. The expenses and fees set forth in the table are for the fiscal year
ended December 31, 1993.
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<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases.................................................... None
Maximum Sales Charge Imposed on Reinvested Dividends......................................... None
Deferred Sales Charge (as a percentage of the lesser of original purchase price or redemption
proceeds).................................................................................. 5.0 %
A contingent deferred sales charge is imposed at the following declining rates:
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<CAPTION>
YEAR SINCE PURCHASE PAYMENT MADE PERCENTAGE
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First.................................................................................................... 5.0%
Second................................................................................................... 4.0%
Third.................................................................................................... 3.0%
Fourth................................................................................................... 2.0%
Fifth.................................................................................................... 2.0%
Sixth.................................................................................................... 1.0%
Seventh and thereafter................................................................................... None
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Redemption Fees............................................................................. None
Exchange Fee................................................................................ None
</TABLE>
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<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C>
Management Fee............................................................................... 0.55%
12b-1 Fees................................................................................... 0.62%
Other Expenses............................................................................... 0.10%
Total Fund Operating Expenses................................................................ 1.27%
<FN>
* A PORTION OF THE 12B-1 FEE EQUAL TO 0.20% OF THE FUND'S AVERAGE DAILY NET
ASSETS IS CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES.
</TABLE>
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<CAPTION>
10
EXAMPLE 1 YEAR 3 YEARS 5 YEARS YEARS
------- ------- ------- -------
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You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at
the end of each time period........... $63 $70 $90 $154
You would pay the following expenses on
the same investment, assuming no
redemption............................ $13 $40 $70 $154
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The above example should not be considered a representation of past or future
expenses or performance. Actual expenses of the Fund may be greater or less than
those shown.
The purpose of this table is to assist the investor in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management", "Plan of Distribution" and "Redemption and
Repurchases."
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charge permitted by the NASD.
3
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FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, notes thereto and the unqualified report of
independent accountants which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request from the Fund.
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<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
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1993 1992 1991 1990 1989 1988 1987 1986
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of
period.......................... $ 11.98 $ 11.68 $ 11.00 $ 11.25 $ 10.94 $ 10.50 $ 11.57 $ 10.57
--------- --------- --------- --------- --------- --------- --------- ---------
Investment income-net.......... 0.65 0.65 0.68 0.68 0.68 0.68 0.70 0.72
Realized and unrealized gain
(loss) on investments-net..... 0.72 0.34 0.70 (0.25) 0.31 0.44 (0.93) 1.09
--------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations...................... 1.37 0.99 1.38 0.43 0.99 1.12 (0.23) 1.81
--------- --------- --------- --------- --------- --------- --------- ---------
Less dividends and
distributions:
Dividends from net investment
income........................ (0.65) (0.65) (0.68) (0.68) (0.68) (0.67) (0.70) (0.72)
Distributions from realized
gain on investments........... (0.20) (0.04) (0.02) -0- -0- (0.01) (0.14) (0.09)
--------- --------- --------- --------- --------- --------- --------- ---------
Total dividends and
distributions................... (0.85) (0.69) (0.70) (0.68) (0.68) (0.68) (0.84) (0.81)
--------- --------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period... $ 12.50 $ 11.98 $ 11.68 $ 11.00 $ 11.25 $ 10.94 $ 10.50 $ 11.57
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Total Investment Return+........... 11.72% 8.70% 12.94% 4.01% 9.34% 10.91% (1.89%) 17.62%
Ratios/Supplemental Data:
Net assets, end of period (in
thousands)...................... $246,461 $208,516 $181,714 $158,075 $147,363 $128,600 $112,795 $113,321
Ratio of expenses to average net
assets.......................... 1.27% 1.40% 1.32% 1.37% 1.37% 1.41% 1.40% 1.41%
Ratio of net investment income to
average net assets.............. 5.20% 5.48% 6.00% 6.13% 6.09% 6.28% 6.44% 6.36%
Portfolio turnover rate.......... 25% 16% 17% 23% 4% 18% 40% 23%
<CAPTION>
FOR THE PERIOD
APRIL 25, 1985*
THROUGH
DECEMBER 31, 1985
------------------
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of
period.......................... $ 10.00
-------
Investment income-net.......... 0.51
Realized and unrealized gain
(loss) on investments-net..... 0.57
Total from investment -------
operations...................... 1.08
Less dividends and -------
distributions:
Dividends from net investment
income........................ (0.51)
Distributions from realized
gain on investments........... -0-
Total dividends and -------
distributions................... (0.51)
-------
Net asset value, end of period... $ 10.57
-------
-------
Total Investment Return+........... 11.04%(1)
Ratios/Supplemental Data:
Net assets, end of period (in
thousands)...................... $73,408
Ratio of expenses to average net
assets.......................... 1.16%(2)(3)
Ratio of net investment income to
average net assets.............. 7.02%(2)(3)
Portfolio turnover rate.......... 24%
<FN>
* COMMENCEMENT OF OPERATIONS.
+ DOES NOT REFLECT THE DEDUCTION OF SALES LOAD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE FUND HAD BORNE ALL ITS EXPENSES THAT WERE ASSUMED OR WAIVED BY THE INVESTMENT MANAGER AND THE DISTRIBUTOR, THE
EXPENSE RATIO WOULD HAVE BEEN 1.58% AND THE NET INVESTMENT INCOME RATIO WOULD HAVE BEEN 6.60%.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
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THE FUND AND ITS MANAGEMENT
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Dean Witter New York Tax-Free Income 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 Massachusetts on January 17, 1985.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment Manager. The Investment Manager, which was incorporated in July,
1992, is a wholly-owned subsidiary of Dean Witter, Discover & Co. ("DWDC"), a
balanced financial services organization providing a broad range of nationally
marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to a total of eighty-one investment companies,
twenty-nine of which are listed on the New York Stock Exchange, with combined
total assets including this Fund of approximately $69.2 billion as of December
31, 1993. The Investment Manager also manages portfolios of pension plans, other
institutions and individuals which aggregated approximately $2.0 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
Board of Trustees reviews the various services provided by or under the
direction of the Investment Manager to ensure that the Fund's general investment
policies and programs are being properly carried out and that administrative
services are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.55% of the portion of the daily net assets not exceeding
$500 million and 0.525% of the portion of the daily net assets exceeding $500
million. For the fiscal year ended December 31, 1993, the Fund accrued total
compensation to the Investment Manager amounting to 0.55% of the Fund's average
daily net assets and the Fund's total expenses amounted to 1.27% of the Fund's
average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to provide a high level of current
income which is exempt from federal, New York State and New York City income
tax, consistent with the preservation of capital. There is no assurance that
this objective will be achieved. The Fund seeks to achieve its investment
objective by investing its assets in accordance with the following policies:
1. As a fundamental policy the Fund must have at least 80% of its total assets
invested in New York tax-exempt securities, except as stated in paragraph (3)
below. New York tax-exempt securities consist of obligations of New York State,
its political subdivisions, authorities and corporations, as well as any debt
obligations (certain governmental entities and territories such as Puerto Rico,
Guam and the Virgin Islands) that generate interest income which is exempt from
federal, New York State and New York City income taxes. New York tax-exempt
securities consist of Municipal Bonds and Municipal Notes ("Municipal
Obligations") and Municipal Commercial Paper. Only New York tax-exempt
securities which satisfy the following standards may be purchased by the Fund:
(a) Municipal Bonds which are rated at the time of purchase within the four
highest grades by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Corporation ("S&P"); (b) Municipal Notes of issuers which at the time of
purchase are rated in the two highest grades by Moody's or S&P, or, if not
rated, have outstanding one or more issues of Municipal Bonds rated as set forth
in clause (a) of this paragraph;
5
<PAGE>
(c) Municipal Commercial Paper which at the time of purchase is rated P-1 by
Moody's and A-1 by S&P; and (d) unrated securities which at the time of purchase
are judged by the Investment Manager to be of comparable quality to the
securities described above. For a description of Moody's and S&P's ratings, see
the Appendix to the Statement of Additional Information.
2. In accordance with the current position of the staff of the Securities and
Exchange Commission, tax-exempt securities which are subject to the federal
alternative minimum tax for individual shareholders ("AMT") will not be included
in the 80% total described in paragraph 1 above. (See "Dividends, Distributions
and Taxes," page 20.) As such, the remaining portion of the Fund's total assets
may be invested in tax-exempt securities subject to the AMT.
3. Up to 20% of the Fund's total assets may be invested in taxable money market
instruments, non-New York tax-exempt securities, futures and options and tax-
exempt securities subject to the AMT. However, the Fund may temporarily invest
more than 20% of its total assets in taxable money market instruments, non-New
York tax-exempt securities and tax-exempt securities subject to the AMT, in
order to maintain a "defensive" posture when, in the opinion of the Investment
Manager, it is advisable to do so because of market conditions. Only those
non-New York tax-exempt securities which satisfy the standards set forth in
paragraph (1) for New York tax-exempt securities may be purchased by the Fund.
The types of taxable money market instruments in which the Fund may invest are
limited to the following short-term fixed income securities (maturing in one
year or less from the time of purchase): (i) obligations of the United States
Government, its agencies, instrumentalities or authorities; (ii) commercial
paper rated P-1 or higher by Moody's or A-1 or higher by S&P; (iii) certificates
of deposit of domestic banks with assets of $1 billion or more; and (iv)
repurchase agreements with respect to portfolio securities.
Municipal Obligations are debt obligations of a state, its cities,
municipalities and municipal agencies which generally have maturities, at the
time of their issuance, of either one year or more (Bonds) or from six months to
three years (Notes). Municipal Commercial Paper is a short-term obligation of a
municipality. Any Municipal Obligation which depends directly or indirectly on
the credit of the Federal Government, its agencies or instrumentalities shall be
considered to have a rating of Aaa/AAA. An obligation shall be considered a New
York tax-exempt security only if, in the opinion of bond counsel, the interest
payable thereon is exempt from federal, New York State and New York City income
tax.
Investments in municipal bonds rated either Baa by Moody's or BBB by S&P
(investment grade bonds--the lowest rated permissible investments by the Fund)
may have speculative characteristics and, therefore, changes in economic
conditions or other circumstances are more likely to weaken their capacity to
make principal and interest payments than would be the case with investments in
securities with higher credit ratings.
The foregoing percentage and rating policies apply at the time of acquisition
of a security based upon the last previous determination of the Fund's net asset
value. Any subsequent change in any rating or change in percentages resulting
from market fluctuations or other changes in the Fund's total assets will not
require elimination of any security from the Fund's portfolio until such time as
the value of all such securities exceeds 5% of the Fund's total assets and, at
such time, only when the Investment Manager determines that it is practicable to
sell the security without undue market or tax consequences to the Fund. As such,
the Fund may hold Municipal Bonds rated below investment grade by Moody's and/or
S&P in its portfolio. Municipal Bonds rated below investment grade may not
currently be paying any interest and may have extremely poor prospects of ever
attaining any real investment standing.
The two principal classifications of Municipal Obligations and Commercial
Paper are "general obligation" and "revenue" bonds, notes or commercial paper.
General obligation bonds, notes or commercial paper are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Issuers of general obligation bonds, notes or commercial paper include
a state, its counties, cities, towns and other governmental units. Revenue
bonds, notes or commercial paper are payable from the revenues derived from a
particular facility or class of facilities or, in some cases, from specific
revenue sources. Revenue bonds, notes or commercial paper are issued for a wide
variety of purposes, including the financing of electric, gas, water and sewer
systems and other public utilities; industrial development and pollution control
facilities; single and multi-family housing units; public buildings and
facilities;
6
<PAGE>
air and marine ports; transportation facilities such as toll roads, bridges and
tunnels; and health and educational facilities such as hospitals and
dormitories. They rely primarily on user fees to pay debt service, although the
principal revenue source is often supplemented by additional security features
which are intended to enhance the creditworthiness of the issuer's obligations.
In some cases, particularly revenue bonds issued to finance housing and public
buildings, a direct or implied "moral obligation" of a governmental unit may be
pledged to the payment of debt service. In other cases, a special tax or other
charge may augment user fees.
Included within the revenue category are participations in lease obligations
or installment purchase contracts (hereinafter collectively called "lease
obligations") of municipalities. State and local governments issue lease
obligations to acquire equipment and facilities.
Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Leases and installment purchase or
conditional sale contracts (which may provide for title to the leased asset to
pass eventually to the issuer) have developed as a means for governmental
issuers to acquire property and equipment without the necessity of complying
with the constitutional and statutory requirements generally applicable for the
issuance of debt. Certain lease obligations contain "non-appropriation" clauses
that provide that the governmental issuer has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on an annual or other periodic
basis. Consequently, continued lease payments on those lease obligations
containing "non-appropriation" clauses are dependent on future legislative
actions. If such legislative actions do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including
disposition of the property.
Lease obligations represent a relatively new type of financing that has not
yet developed the depth of marketability associated with more conventional
municipal obligations, and, as a result, certain of such lease obligations may
be considered illiquid securities. To determine whether or not the Fund will
consider such securities to be illiquid (the Fund may not invest more than ten
percent of its net assets in illiquid securities), the Trustees of the Fund have
established guidelines to be utilized by the Fund in determining the liquidity
of a lease obligation. The factors to be considered in making the determination
include: 1) the frequency of trades and quoted prices for the obligation; 2) the
number of dealers willing to purchase or sell the security and the number of
other potential purchasers; 3) the willingness of dealers to undertake to make a
market in the security; and 4) the nature of the marketplace trades, including,
the time needed to dispose of the security, the method of soliciting offers, and
the mechanics of the transfer.
The value of the Fund's portfolio securities, and therefore the Fund's net
asset value per share, may increase or decrease due to various factors,
principally changes in prevailing interest rates and the ability of the issuers
of the Fund's portfolio securities to pay interest and principal on such
obligations on a timely basis. 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.
VARIABLE RATE OBLIGATIONS. The interest rates payable on certain securities in
which the Fund may invest are not fixed and may fluctuate based upon changes in
market rates. Obligations of this type are called "variable rate" obligations.
The interest rate payable on a variable rate obligation is adjusted either at
predesignated periodic intervals or whenever there is a change in the market
rate of interest on which the interest rate payable is based.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase securities on
a when-issued or delayed delivery basis; i.e., delivery and payment can take
place a month or more after the date of the transaction. These securities are
subject to market fluctuation and no interest accrues to the purchaser prior to
settlement. At the time the Fund makes the commitment to purchase such
securities, it will record the transaction and thereafter reflect the value each
day of such security in determining its net asset value. An increase in the
percentage of the Fund's assets committed to the purchase of securities on a
when-issued or delayed delivery basis may increase the volatility of the Fund's
net asset value.
7
<PAGE>
HEDGING ACTIVITIES
The Fund may enter into financial futures contracts, options on such futures and
municipal bond index futures contracts for hedging purposes.
FINANCIAL FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may invest in
financial futures contracts and related options thereon. The Fund may sell a
financial futures contract, or purchase a put option on such futures contract,
if the Investment Manager anticipates interest rates to rise, as a hedge against
a decrease in the value of the Fund's portfolio securities. If the Investment
Manager anticipates that interest rates will decline, the Fund may purchase a
financial futures contract or a call option thereon to protect against an
increase in the price of the securities the Fund intends to purchase. These
futures contracts and related options thereon will be used only as a hedge
against anticipated interest rate changes. A futures contract sale creates an
obligation by the Fund, as seller, to deliver the specific type of instrument
called for in the contract at a specified future time for a specified price. A
futures contract purchase would create an obligation by the Fund, as purchaser,
to take delivery of the specific type of financial instrument at a specified
future time at a specified price. The specific securities delivered or taken,
respectively, at settlement date, would not be determined until or near that
date. The determination would be in accordance with the rules of the exchange on
which the futures contract sale or purchase was effected.
Although the terms of financial futures contracts specify actual delivery or
receipt of securities, in most instances the contracts are closed out before the
settlement date without the making or taking of delivery of the securities.
Closing out of a futures contract is effected by entering into an offsetting
purchase or sale transaction.
Unlike a financial futures contract, which requires the parties to buy and
sell a security on a set date, an option on such a futures contract entitles its
holder to decide on or before a future date whether to enter into such a
contract (a long position in the case of a call option and a short position in
the case of a put option). If the holder decides not to enter into the contract,
the premium paid for the option on the contract is lost. Since the value of the
option is fixed at the point of sale, there are no daily payments of cash to
reflect the change in the value of the underlying contract as there is by a
purchaser or seller of a futures contract. The value of the option does change
and is reflected in the net asset value of the Fund.
A risk in employing financial futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities subject to
futures contracts may correlate imperfectly with the behavior of the cash prices
of the Fund's portfolio securities. The risk of imperfect correlation will be
increased by the fact that financial futures contracts in which the Fund may
invest are on taxable securities rather than on tax-exempt securities, and there
is no guarantee that the prices of taxable securities will move in a similar
manner to the prices of tax-exempt securities. The correlation may be distorted
by the fact that the futures market is dominated by short-term traders seeking
to profit from the difference between a contract or security price objective and
their cost of borrowed funds. Such distortions are generally minor and would
diminish as the contract approached maturity.
Another risk is that the Fund's manager could be incorrect in his
expectations as to the direction or extent of various interest rate movements or
the time span within which the movements take place. For example, if the Fund
sold financial futures contracts for the sale of securities in anticipation of
an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the Fund would lose money on the sale.
In addition to the risks that apply to all options transactions (see the
Statement of Additional Information for a description of the characteristics of,
and the risks of investing in, options on debt securities), there are several
special risks relating to options on futures; in particular, the ability to
establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop or be maintained.
MUNICIPAL BOND INDEX FUTURES. The Fund may utilize municipal bond index futures
contracts for hedging purposes. The Fund's strategies in employing such
contracts will be similar to that discussed above with respect to financial
futures and options thereon. A municipal bond index is a method of reflecting in
a single number the market value of many different
8
<PAGE>
municipal bonds and is designed to be representative of the municipal bond
market generally. The index fluctuates in response to changes in the market
values of the bonds included within the index. Unlike futures contracts on
particular financial instruments, transactions in futures on a municipal bond
index will be settled in cash, if held until the close of trading in the
contract. However, like any other futures contract, a position in the contract
may be closed out by purchase or sale of an offsetting contract for the same
delivery month prior to expiration of the contract.
The Fund may not enter into futures contracts or related options thereon if
immediately thereafter the amount committed to margin plus the amount paid for
option premiums exceeds 5% of the value of the Fund's total assets. The Fund may
not purchase or sell futures contracts or related options if immediately
thereafter more than one-third of its net assets would be hedged.
PORTFOLIO MANAGEMENT
The Fund is managed by the Investment Manager with a view to achieving its
investment objective. In determining which securities to purchase for the Fund
or hold in the Fund's portfolio, the Investment Manager will rely on information
from various sources, including research, analysis and appraisals of brokers and
dealers, including Dean Witter Reynolds Inc. ("DWR"), a broker-dealer affiliate
of InterCapital; the views of Trustees of the Fund and others regarding economic
developments and interest rate trends; and the Investment Manager's own analysis
of factors it deems relevant. The Fund is managed within InterCapital's
Municipal Fixed Income Group, which manages 36 tax-exempt municipal funds and
fund portfolios, with approximately $12 billion in assets as of December 31,
1993. James F. Willison, Senior Vice President of InterCapital and Manager of
InterCapital's Municipal Fixed Income Group, has been the primary portfolio
manager of the Fund since its inception and has been a portfolio manager at
InterCapital for over five years.
Securities are purchased and sold principally in response to the Investment
Manager's current evaluation of an issuer's ability to meet its debt obligations
in the future, and the Investment Manager's current assessment of future changes
in the levels of interest rates on tax-exempt securities of varying maturities,
qualities and purpose. Securities purchased by the Fund are, generally, sold by
dealers acting as principal for their own accounts.
Pursuant to an order issued by the Securities and Exchange Commission, the
Fund may effect principal transactions in certain taxable money market
instruments with DWR. In addition, the Fund may incur brokerage commissions on
transactions conducted through DWR.
Except as specified, the investment policies noted above are not fundamental
policies and may be changed without shareholder approval.
SPECIAL CONSIDERATIONS RELATING TO
NEW YORK TAX-EXEMPT SECURITIES
Since the Fund concentrates its investments in New York tax-exempt securities,
the Fund is affected by any political, economic or regulatory developments
affecting the ability of New York tax-exempt issuers to pay interest or repay
principal. Investors should be aware that certain issuers of New York tax-exempt
securities have experienced serious financial difficulties in recent years. A
reoccurrence of these difficulties may impair the ability of certain New York
issuers to maintain debt service on their obligations.
The fiscal stability of New York State (the "State") is related to the fiscal
stability of the State's municipalities, its Agencies and Authorities (which
generally finance, construct and operate revenue-producing public benefit
facilities). This is due in part to the fact that Agencies, Authorities and
local governments in financial trouble often seek State financial assistance.
The experience has been that if New York City (the "City") or any of the
Agencies or Authorities suffers serious financial difficulty, both the ability
of the State, the City, the State's political subdivisions, the Agencies and the
Authorities to obtain financing in the public credit markets and the market
price of outstanding New York tax-exempt securities are adversely affected.
NEW YORK CITY
GENERAL. More than any other municipality, the fiscal health of New York City
(the "City") has a significant effect on the fiscal health of the State. Over
the past
9
<PAGE>
three years, the rate of economic growth in the City has slowed substantially.
During the 1990 and 1991 fiscal years, the City experienced significant
shortfalls in almost all of its major tax sources and increases in services
costs. Beginning in 1992, the improvement in the national economy helped
stabilize conditions in the City. The City now projects, and its current
four-year financial plan assumes, that the City's economy will continue to
improve during calendar year 1993 and that a modest employment recovery will
begin during the second half of the 1993 calendar year.
As of August 12, 1993, Moody's rated the City's general obligation bonds Baa1
and S&P rated such bonds A-. Such ratings reflect only the views of Moody's and
S&P, from which an explanation of the significance of such ratings may be
obtained. There is no assurance that such ratings will continue for any given
period of time or that they will be revised downward or withdrawn entirely. Any
such downward revision or withdrawal could have an adverse effect on the market
prices of bonds.
As of June 30, 1993, the City and the Municipal Assistance Corporation for
the City of New York had, respectively, $19.624 billion and $4.470 billion of
outstanding net long-term debt. The City depends on the State for State aid both
to enable the City to balance its budget and to meet its cash requirements. If
the State experiences revenue shortfalls or spending increases beyond its
projections during its 1994 fiscal year or subsequent years, such developments
could result in reductions in anticipated State aid to the City. In addition,
there can be no assurance that State budgets in future fiscal years will be
adopted by the April 1 statutory deadline and that there will not be adverse
effects on the City's cash flow and additional City expenditures as a result of
such delays.
NEW YORK STATE
RECENT DEVELOPMENTS. The State has faced serious financial difficulties in
recent years. The effect of the national recession has been more severe in the
State than in other parts of the nation, and the 1993-94 New York State
Financial Plan (the "State Plan") is based on an economic projection that the
State will perform more poorly than the nation as a whole. Although real gross
domestic product grew modestly during calendar year 1992 and is expected to show
increased growth in calendar year 1993, preliminary data indicate that the
State's economy, as measured by employment, began to grow during the first part
of calendar year 1993. Many uncertainties exist in forecasts of both the
national and State economies, including consumer attitudes toward spending,
Federal financial and monetary policies, the availability of credit and the
condition of the world economy, which could have an adverse effect on the State.
There can be no assurance that the State economy will not experience
worse-than-predicted results in the 1993-94 fiscal year, with corresponding
material and adverse effects on the State's projections of receipts and
disbursements.
1993-94 FISCAL YEAR. The State completed its 1993 fiscal year with a cash-basis
positive balance of $67.1 million in the State's General Fund (the major
operating fund of the State). The State's 1994 fiscal year budget, as enacted,
projects a balanced General Fund.
The State Plan projects General Fund receipts and transfers from other funds
at $32.367 billion and disbursements and transfers to other funds at $32.300
billion. Excess receipts of $67 million will be used for a required repayment to
the State's Tax Stabilization Reserve Fund. In comparison to the recommended
1993-94 Executive Budget, released by the Governor in early 1993, the 1993-94
State budget, as enacted, reflects increases in both receipts and disbursements
in the General Fund of $811 million. The $811 million increase in projected
receipts reflects many factors and assumptions, including (i) improving economic
conditions and higher-than-expected tax collections, (ii) improved 1992-93
results, (iii) additional payments from the Federal government to reimburse the
State for the cost of providing indigent medical care, (iv) the payment of
additional personal income tax refunds in the 1992-93 fiscal year which would
otherwise have been paid in fiscal year 1993-94; offset by revenue-raising
recommendations in the Executive Budget that were not enacted and thus are not
included in the State Plan. The $811 million increase in projected disbursements
reflects (i) an increase in projected school-aid payments, (ii) an increase in
projected payments for Medicaid assistance and other social service programs,
(iii) additional spending on the judiciary and criminal justice, (iv) a net
increase in projected disbursements for all other
pro-
10
<PAGE>
grams and purposes, and (v) establishment of a new contingency reserve.
There can be no assurance that the State will not face substantial potential
budget gaps resulting from a significant disparity between tax revenues
projected from a lower recurring receipts base and the spending required to
maintain State programs at current levels. To address any potential budgetary
imbalance, the State may need to take significant actions to align recurring
receipts and disbursements in future fiscal years.
RATINGS. On June 6, 1990, Moody's changed its ratings on all the State's
outstanding general obligation bonds from A1 to A. On March 26, 1990, Standard &
Poor's changed its ratings of all of the State's outstanding general obligation
bonds from AA- to A. On January 13, 1992, Standard & Poor's changed its ratings
of all of the State's outstanding general obligation bonds from A to A-. Ratings
reflect only the respective views of such organizations, and an explanation of
the significance of such ratings must be obtained from the rating agency
furnishing the same. There is no assurance that a particular rating will
continue for any given period of time or that any such rating will not be
revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an effect on
the market price of the State Municipal Securities in which the New York Fund
invests.
GENERAL OBLIGATION DEBT. As of March 31, 1993, the State had approximately
$5.132 billion in general obligation bonds, excluding refunding bonds, and $294
million in bond anticipation notes outstanding. On May 4, 1993, the State issued
$850 million in tax and revenue anticipation notes which will mature on December
31, 1993. Principal and interest due on general obligation bonds and interest
due on bond anticipation notes and on tax and revenue anticipation notes were
$890.0 million and $818.8 million for the 1991-92 and 1992-93 fiscal years,
respectively, and are estimated to be $799.1 million for the State's 1993-94
fiscal year, not including interest on refunding bonds, issued in July 1992, to
the extent that such interest is to be paid from escrowed funds.
For a more detailed discussion of the risks of investing in New York
tax-exempt securities, see the Statement of Additional Information.
The summary information furnished above and in the Statement of Additional
Information is based on official statements prepared by the State of New York
and the City of New York and their authorities in connection with their
borrowings and contains such information as the Fund deems relevant in
considering an investment in the Fund. It does not purport to be a complete
description of the considerations contained therein.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions that 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.
The Fund may not:
1. With respect to 75% of its total assets, purchase securities of any issuer
if immediately thereafter more than 5% of the Fund's total assets would be
invested in securities of such issuer (other than obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities or
by the State of New York or its political subdivisions).
2. Purchase more than 10% of all outstanding taxable debt securities of any one
issuer (other than obligations issued, or guaranteed as to principal and
interest, by the United States Government, its agencies or instrumentalities).
3. Invest more than 25% 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, its agencies or
instrumentalities, or issued by the State of New York or its political
subdivisions (industrial development
11
<PAGE>
and pollution control bonds are grouped into industries based upon the business
in which the issuers of such obligations are engaged).
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis. Shares
of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager, pursuant to a
Distribution Agreement between the Fund and the Distributor and are offered by
DWR and other dealers who have entered into agreements with the Distributor
("Selected Broker-Dealers"). The principal executive office of the Distributor
is located at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000. Subsequent purchases of $100 or more
may be made by sending a check, payable to Dean Witter New York Tax-Free Income
Fund, directly to Dean Witter Trust Company ("Transfer Agent") at P.O. Box 1040,
Jersey City, New Jersey 07303 or by contacting a DWR or another Selected
Broker-Dealer account executive. Certificates for shares purchased will not be
issued unless a request is made by the shareholder in writing to the Transfer
Agent. Shares are sold through the Distributor or a Selected Broker-Dealer on a
normal five business day settlement basis; that is, payment generally is due on
or before the fifth business day (settlement date) after the order is placed
with the Distributor or a Selected Broker-Dealer. Shares of the Fund purchased
through the Distributor or a Selected Broker-Dealer are entitled to dividends
beginning on the next business day following settlement date. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds when payment is made prior
thereto. Shares purchased through the Transfer Agent are entitled to dividends
beginning on the next business day following receipt of an order. As noted
above, orders placed directly with the Transfer Agent must be accompanied by
payment. Investors will be entitled to receive capital gains distributions if
their order is received by the close of business on the day prior to the record
date for such distributions. The offering price will be the net asset value per
share next determined following receipt of an order (see "Determination of Net
Asset Value" below). While no sales charge is imposed at the time shares are
purchased, a contingent deferred sales charge may be imposed at the time of
redemption (see "Redemptions and Repurchases"). The Fund and the Distributor
reserve the right to reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution, pursuant to Rule 12b-1 of the Act
(the "Plan"), under which the Fund pays the Distributor a fee, which is accrued
daily and payable monthly, at an annual rate of 0.75% of the lesser of: (a) the
average daily aggregate gross sales of the Fund's shares since the inception of
the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived, or (b) the Fund's average daily net
assets. Of the amount accrued under the Plan, 0.20% of the Fund's average net
assets is characterized as a service fee within the meaning of the NASD
guidelines. The 12b-1 fee is treated by the Fund as an expense in the year it is
accrued. Amounts paid under the Plan are paid to the Distributor to compensate
it for the services provided and the expenses borne by the Distributor and
others in the distribution of the Fund's shares, including the payment of
commissions for sales of the Fund's shares and incentive compensation to and
expenses of DWR and its affiliates and other Selected Broker-Dealers account
executives and other employees 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;
12
<PAGE>
and preparation, printing and distribution of sales literature and advertising
materials. For the fiscal year ended December 31, 1993, the Fund accrued
payments under the Plan amounting to $1,425,215, which amount is equal to 0.62%
of the Fund's average daily net assets for the fiscal year. The payments accrued
under the Plan were calculated pursuant to clause (a) of the compensation
formula under the Plan.
At any given time, the expenses of distributing shares of the Fund may be in
excess of the total of (i) the payments made by the Fund pursuant to the Plan
and (ii) the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares (see "Redemptions and Repurchases--Contingent Deferred
Sales Charge"). For example, if the Distributor incurred $1 million in expenses
in distributing shares of the Fund and $750,000 had been received as described
in (i) and (ii) above, the excess expense would amount to $250,000. The
Distributor has advised the Fund that the excess amounts, including the carrying
charge described above, totalled $4,739,785 at December 31, 1993, which was
equal to 1.92% of the Fund's net assets on such date. Because there is no
requirement under the Plan that the Distributor be reimbursed for all its
expenses or any requirement that the Plan be continued from year to year, this
excess amount does not constitute a liability of the Fund. Although there is no
legal obligation for the Fund to pay expenses incurred in excess of payments
made under the Plan, if for any reason the Plan is terminated the Trustees will
consider at that time the manner in which to treat such expenses. Any cumulative
expenses incurred but not yet recovered through distribution fees or contingent
deferred sales charges, may or may not be recovered through future distribution
fees or contingent deferred sales charges.
DETERMINATION OF
NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00 p.m.
New York time on each day that the New York Stock Exchange is open by taking the
value of all assets of the Fund, subtracting its liabilities, dividing by the
number of shares outstanding and adjusting to the nearest cent. The net asset
value per share will not be determined on Good Friday and on such other federal
and non-federal holidays as are observed by the New York Stock Exchange.
Certain of the Fund's portfolio securities may be valued for the Fund by an
outside independent pricing service approved by the Fund's Trustees. The service
utilizes a computerized grid matrix of tax-exempt securities and evaluations by
its staff in determining what it believes is the fair value of the Fund's
portfolio securities. The Board believes that timely and reliable market
quotations are generally not readily available to the Fund for purposes of
valuing tax-exempt securities and that the valuations supplied by the pricing
service are more likely to approximate the fair value of such securities.
Short-term taxable debt securities with remaining maturities of 60 days or
less to maturity at time of purchase are valued at amortized cost, unless the
Board determines such does not reflect the securities' fair value, in which case
these securities will be valued at their fair market value as determined by the
Board of Trustees. The value of other assets will be determined in good faith
under procedures established by and under the supervision of the Trustees.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends and
capital gains distributions are automatically paid in full and fractional shares
of the Fund, (or, if specified by the shareholder, any other open-end investment
company for which InterCapital serves as investment manager (collectively, with
the Fund, the "Dean Witter Funds")), unless the shareholder requests they be
paid in cash. Shares so acquired are not subject to the imposition of a
contingent deferred sales charge upon their redemption (see "Redemptions and
Repurchases"). Such dividends and distributions will be paid in shares of the
Fund at net asset value per share (or in cash if the shareholder so requests) on
the monthly payment date, which will be no later than the last business day of
the month for which the dividend or distribution is payable. Processing of
dividend checks begins immediately following the monthly payment date.
Shareholders who have requested to receive dividends in
13
<PAGE>
cash will normally receive their monthly dividend check during the first ten
days of the following month.
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic purchase
plan which provides for any amount from $100 to $5,000 to be transferred
automatically from a checking or savings account, on a semi-monthly, monthly or
quarterly basis, to the Transfer Agent for investment in shares of the Fund.
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 dollar amount, not less than $25 or in any whole
percentage of the account balances on an annualized basis. Any applicable
contingent deferred sales charge will be imposed on shares redeemed under the
Withdrawal Plan (See "Redemptions and Repurchases--Contingent Deferred Sales
Charge"). Therefore, any shareholder participating in the Withdrawal Plan will
have sufficient shares redeemed from his or her account so that the proceeds
(net of any applicable contingent deferred sales charge) to the shareholder will
be the designated monthly or quarterly dollar amount.
Shareholders should contact their DWR or Selected Broker-Dealer Account
Executive or the Transfer Agent for further information about any of the above
services.
EXCHANGE PRIVILEGE. The Fund makes available to its shareholders an "Exchange
Privilege" allowing the exchange of shares of the Fund for shares of other Dean
Witter Funds sold with a contingent deferred sales charge ("CDSC funds"), and
for shares of Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Limited
Term Municipal Trust and Dean Witter Short-Term Bond Fund and for five Dean
Witter Funds which are money market funds (the foregoing eight non-CDSC or FESC
funds are hereinafter collectively referred to in this section as the "Exchange
Funds"). Exchanges may be made after the shares of the Fund acquired by purchase
(not by exchange or dividend reinvestment) have been held for thirty days. There
is no waiting period for exchanges of shares acquired by exchange or dividend
reinvestment.
An exchange to another CDSC fund or any Exchange Fund that is not a money
market fund is on the basis of the next calculated net asset value per share of
each fund after the exchange order is received. When exchanging into a money
market fund from the Fund, shares of the Fund are redeemed out of the Fund at
their next calculated net asset value and the proceeds of the redemption are
used to purchase shares of the money market fund at their net asset value
determined the following business day. Subsequent exchanges between any of the
money market funds and any of the CDSC funds can be effected on the same basis.
No contingent deferred sales charge ("CDSC") is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate redemption.
Shares of the Fund acquired in exchange for shares of another CDSC fund having a
different CDSC schedule than that of this Fund will be subject to the CDSC
schedule of this Fund, even if such shares are subsequently re-exchanged for
shares of the CDSC fund originally purchased. During the period of time the
shareholder remains in the Exchange Funds (calculated from the last day of the
month in which the shares were acquired), the holding period (for the purpose of
determining the rate of the CDSC) is frozen. If those shares are subsequently
reexchanged for shares of a CDSC fund, the holding period previously frozen when
the first exchange was made resumes on the last day of the month in which shares
of the CDSC fund are reacquired. Thus, the CDSC is based upon the time
(calculated as described above) the shareholder was invested in a CDSC fund (see
"Redemptions and Repurchases--Contingent Deferred Sales Charge"). However, in
the case of shares of the Fund exchanged into the Exchange Funds on or after
April 23, 1990, upon a redemption of shares which results in a CDSC being
imposed, a credit (not to exceed the amount of the CDSC) will be given in an
amount equal to the Exchange Funds 12b-1 distribution fees incurred on or after
that date which are attributable to those shares. (Exchange Funds' 12b-1
distribution fees are described in the prospectus for those funds).
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("FESC funds"), but shares
of the Fund, however acquired, may not be exchanged for shares of FESC funds.
Shares of a CDSC fund acquired in exchange for shares of a FESC Fund (or in
exchange
14
<PAGE>
for shares of other Dean Witter Funds for which shares of a FESC fund have been
exchanged) are not subject to any CDSC upon their redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders and,
at the Investment Manager's discretion, may be limited by the Fund's refusal to
accept additional purchases and/or exchanges from the investor. Although the
Fund does not have any specific definition of what constitutes a pattern of
frequent exchanges, and will consider all relevant factors in determining
whether a particular situation is abusive and contrary to the best interests of
the Fund and its other shareholders, investors should be aware that the Fund and
each of the other Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange.
Also, the Exchange Privilege may be terminated or revised at any time by the
Fund and/or any of such Dean Witter Funds for which shares of the Fund may be
exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
exchange of shares of the Fund pledged in their margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain one and read it carefully before
investing. Exchanges are subject to the minimum investment requirement and any
other conditions imposed by each fund. An exchange will be treated for federal
income tax purposes the same as a repurchase or redemption of shares on which
the shareholder has realized a capital gain or loss. However, the ability to
deduct capital losses on an exchange may be limited in situations where there is
an exchange of shares within ninety days after the shares are purchased. The
Exchange Privilege is only available in states where an exchange may legally be
made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their DWR or other Selected Broker-Dealer account
executive (no Exchange Privilege Authorization Form is required). Other
shareholders (and those shareholders who are clients of DWR or another Selected
Broker-Dealer but who wish to make exchanges directly by writing or telephoning
the Transfer Agent) must complete and forward to the Transfer Agent an Exchange
Privilege Authorization Form, copies of which may be obtained from the Transfer
Agent, to initiate an exchange. If the Authorization Form is used, exchanges may
be made in writing or by contacting the Transfer Agent at (800) 526-3143 (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 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 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 case
with the Dean Witter Funds in the past.
Additional information concerning the Exchange Privilege is available from a
DWR or other Selected Dealer account executive or the Transfer Agent.
15
<PAGE>
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of the Fund can be redeemed for cash at any time at the net
asset value per share next determined; however, such redemption proceeds may be
reduced by the amount of any applicable contingent deferred sales charges (see
below). If shares are held in a shareholder's account without a share
certificate, a written request for redemption to the Fund's Transfer Agent at
P.O. Box 983, Jersey City, N.J. 07303 is required. If certificates are held by
the shareholder(s), the shares may be redeemed by surrendering the
certificate(s) with a written request of redemption, along with any additional
information required by the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE. Shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any charge upon redemption.
Shares redeemed sooner than six years after purchase may, however, be subject to
a charge upon redemption. This charge is called a "contingent deferred sales
charge" ("CDSC"), which will be a percentage of the dollar amount of shares
redeemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, and is set forth
in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
ON A PERCENTAGE OF
YEAR SINCE PURCHASE PAYMENT MADE 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>
A CDSC will not be imposed on: (i) any amount which represents an increase in
value of shares purchased within the six years preceding the redemption; (ii)
the current net asset value of shares purchased more than six years prior to the
redemption; and (iii) the current net asset value of shares purchased through
reinvestment of dividends or distributions and/or shares acquired in exchange
for shares of Dean Witter Funds sold with a front-end sales charge or of other
Dean Witter Funds acquired in exchange for such shares. Moreover, in determining
whether a CDSC is applicable it will be assumed that amounts described in (i),
(ii), and (iii) above (in that order) are redeemed first. In addition, no CDSC
will be imposed on redemptions which were purchased by certain Unit Investment
Trusts (on which a sales charge has been paid) or which are attributable to
reinvestment of dividends or distributions from, or the proceeds of, such Unit
Investment Trusts.
In addition, the CDSC, if otherwise applicable, will be waived in the case of
(i) 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 or Custodial Account under Section 403(b)(7) of the Internal Revenue
Code, provided in either case that the redemption is requested within one year
of the death or initial determination of disability, and (ii) 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 Individual
Retirement Account or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code following attainment of age 59 1/2; and (c) a tax-free return of an
excess contribution to an IRA. 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. All waivers will be granted subject to receipt by the
Distributor of confirmation of the investor's entitlement.
REPURCHASE. DWR or 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 or other Selected Broker-Dealers upon the telephonic
request of the shareholder. The repurchase price is the net asset value next
computed (see "Purchase of Fund Shares") after such repurchase order is received
by DWR or
16
<PAGE>
other Selected Broker-Dealers are, reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed upon repurchase by either the
Fund, the Distributor or DWR. The offer by DWR or 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. 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 other Selected
Broker-Dealers 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 30 days after the date of the redemption or repurchase, reinstate any
portion or all of the proceeds of such redemption or repurchase in shares of the
Fund at 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, on 60 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. 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 $100 and allow him or her 60 days to make an
additional investment in an amount which will increase the value of his or her
account to $100 or more 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 from net investment
income on each day the New York Stock Exchange is open for business (see
"Purchase of Fund Shares"). Such dividends are payable monthly. The Fund intends
to distribute substantially all of the Fund's net investment income on an annual
basis.
The Fund will distribute at least once each year all net short-term capital
gains, if there are any. 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 capital gains distributions will be paid in
additional Fund shares (without sales charge) and automatically credited to the
shareholder's account without issuance of a share certificate unless the
shareholder requests in writing that they be paid in cash. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions".) Taxable capital
gains may be generated by transactions in options and futures contracts engaged
in by the Fund. Any dividends or distributions declared in the last quarter of
any calendar year which are paid in the following year prior to February 1, will
be deemed received by shareholders of record in the prior year.
TAXES. Because the Fund currently intends to distribute substantially all of its
net investment income and capital gains to shareholders and intends to otherwise
comply with all the provisions of Subchapter M of the Internal Revenue Code (the
"Code") to qualify as a regulated investment company, it is not expected that
the Fund will be required to pay any federal income tax.
The Fund intends to continue to qualify to pay "exempt-interest dividends" to
its shareholders by
main-
17
<PAGE>
taining, as of the close of each quarter of its taxable year, at least 50% of
the value of its total assets in tax-exempt securities. If the Fund satisfies
such requirement, distributions from net investment income to shareholders,
whether taken in cash or reinvested in additional shares, will be excludable
from gross income for federal income tax purposes to the extent net investment
income is represented by interest on tax-exempt securities.
Individual shareholders who are New York residents will not incur any
federal, New York State or New York City income tax on the amount of
exempt-interest dividends received by them from the Fund which represents a
distribution of income from New York tax-exempt securities whether taken in cash
or reinvested in additional shares. Exempt-interest dividends are included,
however, in determining what portion, if any, of a person's Social Security
benefits are subject to federal income tax. Within 60 days after the end of its
taxable year, the Fund will mail to shareholders a statement indicating the
percentage of the dividend distributions for such taxable year which constitutes
exempt-interest dividends and the percentage, if any, that is taxable.
The Code may subject interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. This alternative minimum tax may be
incurred due to interest received on "private activity bonds" (in general, bonds
that benefit non-government entities) issued after August 7, 1986 which,
although tax-exempt, are used for purposes other than those generally performed
by governmental units (e.g., bonds used for commercial or housing purposes).
Income received on such bonds is classified as a "tax preference item", under
the alternative minimum tax, for both individual and corporate investors. A
portion of the Fund's investments may be made in such "private activity bonds,"
with the result that a portion of the exempt-interest dividends paid by the Fund
will be an item of tax preference to shareholders subject to the alternative
minimum tax. In addition, certain corporations which are subject to the
alternative minimum tax may have to include a portion of exempt-interest
dividends in calculating their alternative minimum taxable income in situations
where the "adjusted current earnings" of the corporation exceeds its alternative
minimum taxable income.
Under the Revenue Reconciliation Act of 1993, all or a portion of the Fund's
gain from the sale or redemption of tax-exempt obligations purchased at a market
discount after April 30, 1993 will be treated as ordinary income rather than
capital gain. This rule may increase the amount of ordinary income dividends
received by shareholders.
Shareholders will normally be subject to federal, New York State or New York
City income tax on dividends paid from interest income derived from taxable
securities and on distributions of net capital gains. For federal and New York
State or New York City income tax purposes, distributions of net long-term
capital gains, if any, are taxable to shareholders as long-term capital gains,
regardless of how long the shareholder has held the Fund shares and regardless
of whether the distribution is received in additional shares or in cash.
Distributions from investment income and capital gains, including
exempt-interest dividends, may be subject to New York franchise taxes if
received by a corporation doing business in New York, to state taxes in states
other than New York and to local taxes. To avoid being subject to a 31% backup
withholding tax on taxable dividends and capital gains distributions and the
proceeds of redemptions and repurchases, shareholders' taxpayer identification
numbers must be furnished and certified as to accuracy.
Any loss on the sale or exchange of shares of the Fund which are held for six
months or less is disallowed to the extent of the amount of any exempt-interest
dividend paid with respect to such shares. Treasury Regulations may provide for
a reduction in such required holding periods. If a shareholder receives a
distribution that is taxed as a long-term capital gain on shares held for six
moths or less and sells those shares at a loss, the loss will be treated as a
long-term capital loss.
Interest on indebtedness incurred by shareholders or related parties to
purchase or carry shares of an investment company paying exempt-interest
dividends, such as the Fund, will not be deductible by the investor for federal
or state or city personal income tax purposes.
The foregoing relates to federal income taxation and to New York State and
New York City personal income taxation as in effect as of the date of this
prospectus. Shareholders should consult their tax advisors as to the
applicability of the above to their own tax situation.
18
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/ or its "total return" in
advertisements and sales literature. Both the yield and the total return of the
Fund are based on historical earnings and are not intended to indicate future
performance. The yield of the Fund will be computed by dividing the Fund'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 Fund's yield. The Fund may also quote its
tax-equivalent yield, which is calculated by determining the pre-tax yield
which, after being taxed at a stated rate, would be equivalent to the yield
determined as described above.
The "average annual total return" of the Fund refers to a figure reflecting
the average annualized percentage increase (or decrease) in the value of an
initial investment in the Fund of $1,000 over a period of one and five years, as
well as over the life of the Fund. Average annual total return reflects all
income earned by the Fund, any appreciation or depreciation of the Fund's
assets, all expenses incurred by the Fund and all sales charges which would be
incurred by redeeming shareholders, for the stated periods. It also assumes
reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. Such calculations may or may not reflect the
deduction of the contingent deferred sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of the Fund.
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.).
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01 par
value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
Shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
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 disclaimer be given in each instrument entered into or executed by the
Fund and provides for indemnification and reimbursement of expenses out of the
Fund's property for any shareholder held personally liable for the obligations
of the Fund. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which the Fund itself
would be unable to meet its obligations. Given the above limitations on
shareholder personal liability and the nature of the Fund's assets and
operations, the possibility of the Fund's being unable to meet its obligations
is remote and, in the opinion of Massachusetts counsel to the Fund, the risk to
Fund shareholders of personal liability is remote.
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.
19
<PAGE>
DEAN WITTER
NEW YORK TAX-FREE INCOME FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TRUSTEES
Jack F. Bennett
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
110 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
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
