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DEAN WITTER
NEW YORK TAX-FREE INCOME FUND
PROSPECTUS--FEBRUARY 23, 1995
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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 23, 1995, 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 on this page. The
Statement of Additional Information is incorporated herein by reference.
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TABLE OF CONTENTS
<S> <C>
Prospectus Summary................................ 3
Summary of Fund Expenses.......................... 4
Financial Highlights.............................. 5
The Fund and its Management....................... 6
Investment Objective and Policies................. 6
Risk Considerations............................. 7
Investment Restrictions........................... 10
Purchase of Fund Shares........................... 11
Shareholder Services.............................. 12
Redemptions and Repurchases....................... 14
Dividends, Distributions and Taxes................ 15
Performance Information........................... 16
Additional Information............................ 17
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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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(This page has been left blank intentionally.)
2
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PROSPECTUS SUMMARY
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THE FUND The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an
open-end, diversified management investment company 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 6).
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SHARES OFFERED Shares of beneficial interest with $0.01 par value (see page 17).
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OFFERING At net asset value without sales charge (see page 11). Shares redeemed within six years of
PRICE purchase are subject to a contingent deferred sales charge under most circumstances (see page 14).
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MINIMUM Minimum initial investment, $1,000; minimum subsequent investment, $100 (see page 11).
PURCHASE
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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.
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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.
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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 ninety-one investment companies and other portfolios
with assets of approximately $66.9 billion at December 31, 1994 (see page 6).
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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.
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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 15).
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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 page 11).
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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 14).
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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 page 14).
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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 page 7).
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE
IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
3
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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, 1994.
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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%
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A contingent deferred sales charge is imposed at the following declining rates:
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YEAR SINCE PURCHASE PAYMENT MADE PERCENTAGE
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First............................................. 5.0%
Second............................................ 4.0%
Third............................................. 3.0%
Fourth............................................ 2.0%
Fifth............................................. 2.0%
Sixth............................................. 1.0%
Seventh and thereafter............................ None
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Redemption Fees................................... None
Exchange Fee...................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee.................................... 0.55%
12b-1 Fees........................................ 0.74%
Other Expenses.................................... 0.11%
Total Fund Operating Expenses..................... 1.40%
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* 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 (see "Purchase of
Fund Shares").
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10
EXAMPLE 1 YEAR 3 YEARS 5 YEARS YEARS
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<S> <C> <C> <C> <C>
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........ $64 $74 $97 $168
You would pay the following expenses on the same
investment, assuming no redemption............... $14 $44 $77 $168
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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.
4
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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 LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, notes thereto and the unqualified report of
independent accountants which are contained in 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
PERIOD
APRIL
25,
1985*
THROUGH
FOR THE YEAR ENDED DECEMBER 31, DECEMBER
---------------------------------------------------------------------------------------- 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period............ $12.50 $11.98 $11.68 $11.00 $11.25 $10.94 $10.50 $11.57 $10.57 $10.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Net investment
income........... 0.57 0.65 0.65 0.68 0.68 0.68 0.68 0.70 0.72 0.51
Net realized and
unrealized gain
(loss) on
investment....... (1.51) 0.72 0.34 0.70 (0.25) 0.31 0.44 (0.93) 1.09 0.57
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total from
investment
operations....... (0.94) 1.37 0.99 1.38 0.43 0.99 1.12 (0.23) 1.81 1.08
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Less dividends and
distributions
from:
Net investment
income......... (0.57) (0.65) (0.65) (0.68) (0.68) (0.68) (0.67) (0.70) (0.72) (0.51)
Net realized
gain........... (0.16) (0.20) (0.04) (0.02) -0- -0- (0.01) (0.14) (0.09) -0-
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total dividends
and
distributions.... (0.73) (0.85) (0.69) (0.70) (0.68) (0.68) (0.68) (0.84) (0.81) (0.51)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Net asset value,
end of period.... $10.83 $12.50 $11.98 $11.68 $11.00 $11.25 $10.94 $10.50 $11.57 $10.57
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
TOTAL INVESTMENT
RETURN+........... (7.74)% 11.72% 8.70% 12.94% 4.01% 9.34% 10.91% (1.89)% 17.62% 11.04%(1)
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in
thousands)....... $207,047 $246,461 $208,516 $181,714 $158,075 $147,363 $128,600 $112,795 $113,321 $73,408
Ratios to average
net assets:
Expenses........ 1.40% 1.27% 1.40% 1.32% 1.37% 1.37% 1.41% 1.40% 1.41% 1.16%(2)(3)
Net investment
income......... 4.96% 5.20% 5.48% 6.00% 6.13% 6.09% 6.28% 6.44% 6.36% 7.02%(2)(3)
Portfolio turnover
rate............. 10% 25% 16% 17% 23% 4% 18% 40% 23% 24%(1)
<FN>
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* COMMENCEMENT OF OPERATIONS.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE.
(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
ABOVE EXPENSE AND NET INVESTMENT INCOME RATIOS WOULD HAVE BEEN 1.58% AND
6.60%, RESPECTIVELY.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
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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 ninety-one investment companies, thirty
of which are listed on the New York Stock Exchange, with combined total assets
including this Fund of approximately $64.9 billion as of December 31, 1994. 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, 1994, 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 1.40% 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; (c) Municipal Commercial Paper which at the time of purchase is
rated P-1 by Moody's or 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 18.) 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. How-
6
<PAGE>
ever, 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. The Fund may also purchase Municipal Obligations which had originally been
issued by the same issuer as two separate series of the same issue with
different interest rates, but which are now linked together to form one series.
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; 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.
RISK CONSIDERATIONS
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.
Included within the revenue category of bonds described above 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
7
<PAGE>
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 AND FORWARD COMMITMENTS. From time
to time, in the ordinary course of business, the Fund may purchase securities on
a when-issued or delayed delivery basis, or may purchase or sell securities on a
forward commitment basis. When such transactions are negotiated, the price is
fixed at the time of the commitment, but delivery and payment can take place a
month or more after the date of the commitment. There is no overall limit on the
percentage of the Fund's assets which may be committed to the purchase of
securities on a when-issued, delayed delivery or forward commitment basis. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued, delayed delivery or forward commitment basis may
increase the volatility of the Fund's net asset value.
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
applicable regulations and that are at least equal to 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.
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 secu-
8
<PAGE>
rities. 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 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.
RISK 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.
Over the long term, the State and City face potential economic problems. The
City accounts for a large portion of the State's population and personal income,
and the City's financial health affects the State in numerous ways. The State
has historically been one of the wealthiest states in the nation. For decades,
however, the State has grown more slowly than the nation as a whole, gradually
eroding its relative economic affluence. The causes of this relative decline are
varied and complex, in many cases involving national and international
developments beyond the State's control. Statewide, urban centers have
experienced significant changes involving migration of the more affluent to the
suburbs and an influx of generally less affluent residents. Regionally, the
older Northeast cities have suffered because of the relative success that the
South and the West have had in attracting people and business. The City has also
had to face greater competition as other major cities have developed financial
and business capabilities which make them less dependent on the specialized
services traditionally available almost exclusively in the City.
The State has for many years had a very high State and local tax burden
relative to other states. The existence of this tax burden limits the State's
ability to impose higher taxes in the event of future financial difficulties.
The State and its localities have used these taxes to develop and maintain their
transportation network, public schools and colleges, public health systems,
other social services and recreational facilities. Despite these benefits, the
burden of State and local taxation, in combination with the many other causes of
regional economic dislocation, has contributed to the decisions of some business
and individuals to relocate outside, or not to locate within, the State. Certain
manufacturing facilities have re-located to other states. This trend has been
partially offset by the location of some manufacturing facilities in the State
and by the expansion of existing facilities in the State. While no sustained
reversal of the State's relative economic position has been projected, the
actions taken to date, in combination with many other
9
<PAGE>
causes of regional economic changes, have slowed this trend. Further reduction
in Federal spending could materially and adversely affect the financial
condition and budget projections of the State's localities.
On January 6, 1992, Moody's lowered to Baa-1 from A its ratings on about
$14.2 billion of New York State appropriations backed debt. Moody's also
announced that it had put New York State general obligation debt rated A under
review for possible downgrade in the coming months. On June 27, 1994, Moody's
reconfirmed its A rating on the State's general obligation long-term
indebtedness.
On January 13, 1992, S&P lowered its rating on New York State's general
obligation bonds from A to A-. On November 12, 1992, S&P continued its January
rating and reiterated its negative rating outlook assessment on the State's
general obligation debt. On April 26, 1993, S&P raised its outlook to positive
and, on June 27, 1994, confirmed its A- rating.
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.
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 39 tax-exempt municipal funds and
fund portfolios, with approximately $10.3 billion in assets as of December 31,
1994. 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.
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 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.
10
<PAGE>
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"). Sales personnel are compensated
for selling shares of the Fund at the time of their sale by the Distributor
and/or Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive various types of non-cash compensation as special
incentives, including trips, educational and/or business seminars and
merchandise. The Fund and the Distributor reserve the right to reject any
purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution, pursuant to Rule 12b-1 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 daily
net assets is characterized as a service fee within the meaning of the NASD
guidelines. The service fee is a payment made for personal service and/or the
maintenance of shareholder accounts. 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; and preparation, printing and distribution of sales literature and
advertising materials. For the fiscal year ended December 31, 1994, the Fund
accrued payments under the Plan amounting to $1,687,792, which amount is equal
to 0.74% 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 $1 million in expenses in distributing shares of
the Fund had been incurred and $750,000 had been received as described in (i)
and (ii) above, the excess expense would amount to $250,000. The Distributor has
advised the Fund that such excess amount, including the carrying charge
described above, totalled $4,174,007 at December 31, 1994, which was equal to
2.02% 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
11
<PAGE>
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 sixty 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").
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.
INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS RECEIVED IN CASH. Any shareholder who
receives a cash payment representing a dividend or capital gains distribution
may invest such dividend or distribution at the net asset value per share next
determined after receipt by the Transfer Agent, by returning the check or the
proceeds to the Transfer Agent within thirty days after the payment date. Shares
so acquired are not subject to the imposition of a contingent deferred sales
charge upon their redemption (see "Redemptions and Repurchases.")
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
12
<PAGE>
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 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
13
<PAGE>
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.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of the Fund can be redeemed for cash at any time at the net
asset value per share next determined; however, such redemption proceeds may be
reduced by the amount of any applicable contingent deferred sales charges (see
below). If shares are held in a shareholder's account without a share
certificate, a written request for redemption to the Fund's Transfer Agent at
P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by the
shareholder(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
YEAR SINCE SALES CHARGE
PURCHASE ON A PERCENTAGE OF
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 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.
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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 thirty days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund at the net asset value next determined after a reinstatement
request, together with the proceeds, is received by the Transfer Agent and
receive a pro-rata credit for any CDSC paid in connection with such redemption
or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem, on sixty days
notice and at net asset value, the shares of any shareholder (other than shares
held in an Individual RetirementAccount 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 sixty 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
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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 calendar 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 maintaining, 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 sixty 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
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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.
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, five and ten
years. 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.).
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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, under
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 Fund
obligations include such disclaimer and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability and
the nature of the Fund's assets and operations, 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.
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 also prohibits engaging in futures and option transactions
and profiting on short-term trading (that is, a purchase within sixty days of a
sale or a sale within sixty days of a purchase) of a security. In addition,
investment personnel may not purchase or sell a security for their personal
account within thirty days before or after any transaction in any Dean Witter
Fund managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the recent report by the Investment Company Institute
Advisory Group on Personal Investing.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed to
the Fund at the telephone numbers or address set forth on the front cover of
this prospectus.
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DEAN WITTER
NEW YORK TAX-FREE INCOME FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
James F. Willison
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.
