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DEAN WITTER
GLOBAL SHORT-TERM INCOME FUND INC.
PROSPECTUS--DECEMBER 22, 1994
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DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC. (THE "FUND") IS AN OPEN-END,
NON-DIVERSIFIED MANAGEMENT INVESTMENT COMPANY WHOSE INVESTMENT OBJECTIVE IS TO
ACHIEVE AS HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT WITH PRUDENT
INVESTMENT RISK. THE FUND SEEKS TO ACHIEVE THIS OBJECTIVE BY INVESTING IN HIGH
QUALITY FIXED-INCOME SECURITIES ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT, ITS
AGENCIES AND INSTRUMENTALITIES, ISSUED OR GUARANTEED BY FOREIGN GOVERNMENTS, OR
ISSUED BY FOREIGN OR U.S. COMPANIES (INCLUDING BANK INSTRUMENTS AND COMMERCIAL
PAPER), WHICH HAVE REMAINING MATURITIES AT THE TIME OF PURCHASE OF NOT MORE THAN
THREE YEARS. THE FUND IS DESIGNED FOR THE INVESTOR WHO SEEKS A HIGHER YIELD THAN
A MONEY MARKET FUND AND LESS FLUCTUATION IN NET ASSET VALUE THAN A LONGER-TERM
BOND FUND.
Shares of the Fund are continuously offered at net asset value. However,
redemptions and/or repurchases are subject in most cases to a contingent
deferred sales charge, scaled down from 3% to 1% of the amount redeemed, if made
within three years of purchase, which charge will be paid to the Fund's
Distributor, Dean Witter Distributors Inc. See "Redemptions and
Repurchases--Contingent Deferred Sales Charge." In addition, the Fund pays the
Distributor a distribution fee pursuant to a Plan of Distribution at the annual
rate of 0.75% of the lesser of the (i) average daily aggregate net sales or (ii)
average daily net assets of the Fund. See "Purchase of Fund Shares--Plan of
Distribution."
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated December 22, 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 on this page. The
Statement of Additional Information is incorporated herein by reference.
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<CAPTION>
TABLE OF CONTENTS
<S> <C>
Prospectus Summary................................ 2
Summary of Fund Expenses.......................... 3
Financial Highlights.............................. 4
The Fund and its Management....................... 5
Investment Objective and Policies................. 5
Risk Considerations............................ 7
Investment Restrictions........................... 12
Purchase of Fund Shares........................... 13
Shareholder Services.............................. 14
Redemptions and Repurchases....................... 16
Dividends, Distributions and Taxes................ 17
Performance Information........................... 18
Additional Information............................ 19
</TABLE>
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
GLOBAL SHORT-TERM 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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<TABLE>
<S> <C>
THE FUND The Fund is an open-end, non-diversified management investment company investing in high quality
fixed-income securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities, issued or guaranteed by foreign governments, or issued by foreign or U.S.
companies, which have remaining maturities at the time of purchase of not more than three years.
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SHARES OFFERED Shares of common stock of $0.01 par value (see page 19).
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OFFERING At net asset value without sales charge (see page 13). Shares redeemed within three years of
PRICE purchase are subject to a contingent deferred sales charge under most circumstances (see pages
16-17).
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MINIMUM Minimum initial investment, $1,000; minimum subsequent investment, $100 (see page 13).
PURCHASE
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INVESTMENT The investment objective of the Fund is to achieve as high a level of current income as is
OBJECTIVE consistent with prudent investment risk (see page 5).
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INVESTMENT Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund and its
MANAGER wholly-owned subsidiary, Dean Witter Services Company Inc., serve in various investment
management, advisory, management and administrative capacities to ninety investment companies and
other portfolios with assets under management of approximately $67.8 billion at November 30, 1994
(see page 5).
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MANAGEMENT The Investment Manager receives a monthly fee at the annual rate of 0.55% of the Fund's daily net
FEE assets not exceeding $500 million and 0.50% of the Fund's daily net assets on the amount exceeding
$500 million (see page 5).
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DIVIDENDS AND Dividends from net investment income declared daily and paid monthly. Distributions from net
DISTRIBUTIONS short-term and long-term capital gains are paid at least once per year (may be retained for
reinvestment). Dividends and capital gains distributions are automatically reinvested in
additional shares at net asset value unless the shareholder elects to receive cash (see page 17).
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DISTRIBUTOR Dean Witter Distributors Inc. (the "Distributor"). For its services as Distributor, which include
payment of sales commissions to account executives and various other promotional and sales related
expenses, the Distributor receives from the Fund a distribution fee accrued daily and payable
monthly at the rate of 0.75% 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 it provides 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 13-17).
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REDEMPTION-- At net asset value; redeemable involuntarily if total value of the account is less than $100.
CONTINGENT Although no commission or sales load is imposed upon the purchase of shares, a contingent deferred
DEFERRED sales charge (scaled down from 3% to 1%) is imposed on any redemption of shares if after such
SALES CHARGE 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 three 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).
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RISK CONSIDERA- The net asset value of the Fund's shares will fluctuate with changes in the market value of its
TIONS portfolio securities. It should be noted, for example, that, generally, when the level of
prevailing interest rates rise, the values of the outstanding fixed-income securities fall and
when such rates fall their values rise. The Fund is a non-diversified investment company and, as
such, is not subject to the diversification requirements of the Investment Company Act of 1940, as
amended (the "Act") (see page 7). The Fund will concentrate its investments in securities issued
by companies engaged in the banking industry. This concentration will increase the Fund's exposure
to certain risks associated with the banking industry such as adverse changes in economic and
regulatory developments affecting the banking industry, sustained interest rate increases and
concentration of bank's loan portfolios in particular businesses undergoing economic hardship (see
page 7). It should be recognized that the foreign securities and markets in which the Fund will
invest pose different and greater risks than those customarily associated with domestic securities
and their markets. Furthermore, investors should consider other risks associated with a portfolio
of international securities, including fluctuations in foreign currency exchange rates (i.e., if a
substantial portion of the Fund's assets are denominated in foreign currencies which decrease in
value with respect to the U.S. dollar, the value of the investor's shares and the distributions
made on those shares will, likewise, decrease in value), foreign securities exchange controls and
foreign tax rates, as well as investments in forward foreign currency contracts, options and
futures contracts (see pages 8-11). The Fund may also invest in fixed-income securities which may
be denominated in a currency of a nation other than the nation in which its issuer is domiciled.
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</TABLE>
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS
AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
2
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of the
Fund will incur. The expenses and fees set forth in the table are for the fiscal
year ended October 31, 1994.
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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)........... 3.0%
</TABLE>
A contingent deferred sales charge is imposed at the following declining rates:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT MADE PERCENTAGE
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<S> <C>
First............................................. 3.0%
Second............................................ 2.0%
Third............................................. 1.0%
Fourth and thereafter............................. None
</TABLE>
<TABLE>
<S> <C>
Redemption Fees................................... None
Exchange Fee...................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fees................................... 0.55%
12b-1 Fees*....................................... 0.75%
Other Expenses.................................... 0.33%
Total Fund Operating Expenses..................... 1.63%
<FN>
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* A portion of the 12b-1 fee equal to 0.25% of the Fund's average daily net
assets is characterized as a service fee within the meaning of National
Association of Securities Dealers ("NASD") guidelines.
</TABLE>
<TABLE>
<CAPTION>
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:....... $47 $61 $89 $193
You would pay the following expenses on the same
investment, assuming no redemption:.............. $17 $51 $89 $193
</TABLE>
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 "Redemptions and
Repurchases."
3
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FINANCIAL HIGHLIGHTS
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The following per share data and ratios for a share of capital stock outstanding
throughout each period have been audited by Price Waterhouse LLP, independent
accountants. The per share data and ratios should be read in conjunction with
the financial statements and the notes thereto and the unqualified report of
independent accountants which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31,
---------------------------------------------
1994 1993 1992 1991
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................................... $9.23 $9.41 $9.77 $10.00
--------- --------- --------- ---------
Net investment income................................................ 0.72 0.70 0.82 0.95
Net realized and unrealized loss..................................... (0.66) (0.27) (0.46) (0.23)
--------- --------- --------- ---------
Total from investment operations..................................... 0.06 0.43 0.36 0.72
--------- --------- --------- ---------
Less dividends and distributions from:
Net investment income.............................................. (0.13) (0.61) (0.72) (0.95)
Paid-in-capital.................................................... (0.43) -0- -0- -0-
--------- --------- --------- ---------
(0.56) (0.61) (0.72) (0.95)
--------- --------- --------- ---------
Net asset value, end of period..................................... $8.73 $9.23 $9.41 $9.77
--------- --------- --------- ---------
--------- --------- --------- ---------
TOTAL INVESTMENT RETURN+............................................... 0.65% 4.72% 3.76% 7.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............................. $170,117 $305,278 $441,191 $462,263
Ratios to average net assets:
Expenses........................................................... 1.63% 1.55% 1.55% 1.61%
Net investment income.............................................. 6.35% 6.97% 8.43% 9.49%
Portfolio turnover rate.............................................. 123% 221% 149% 8%
<FN>
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+ DOES NOT REFLECT THE DEDUCTION OF SALES LOAD.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
THE FUND AND ITS MANAGEMENT
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Dean Witter Global Short-Term Income Fund Inc. (the "Fund") is an open-end,
non-diversified management investment company incorporated in the state of
Maryland on August 2, 1990.
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 ninety investment companies, thirty of which are
listed on the New York Stock Exchange, with combined assets of approximately
$65.8 billion as of November 30, 1994. The Investment Manager also manages and
advises 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.
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
annual rate of 0.55% to the Fund's net assets not exceeding $500 million and
0.50% to the Fund's net assets exceeding $500 million. For the fiscal year ended
October 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 1.63% of the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to achieve as high a level of current
income as is consistent with prudent investment risk. There is no assurance that
the objective will be achieved. The investment objective is a fundamental policy
of the Fund and cannot be changed without the approval of the shareholders of
the Fund. The following policies may be changed by the Board of Directors
without shareholder approval.
The Fund seeks to achieve its investment objective by investing at least 65%
of its total assets in high quality fixed-income securities issued or guaranteed
by foreign governments, issued by foreign or U.S. companies, or issued or
guaranteed by the U.S. Government, its agencies and instrumentalities which have
remaining maturities at the time of purchase of not more than three years (i.e.,
the average weighted maturity of the Fund's portfolio will be under three
years). In addition to securities issued by the U.S. Government, its agencies
and instrumentalities, the Fund may invest in obligations issued or guaranteed
by a foreign government or any of its political subdivisions, authorities,
agencies or instrumentalities, or by supranational organizations, or
fixed-income securities issued by a corporation, all of which are rated AAA or
AA by Standard & Poor's Corporation ("S&P") or Aaa or Aa by Moody's Investors
Services, Inc. ("Moody's") or, if unrated, are determined by the Investment
Manager to be of equivalent quality; in certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, banks
(including foreign branches of U.S. banks or U.S. or foreign branches of foreign
banks) having total assets of more than $500 million and deemed by the
Investment Manager to be of high creditworthiness; and commercial paper rated
A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's or Duff 1 or Duff 2 by Duff &
Phelps Inc. or, if unrated, issued by U.S. or foreign companies having
outstanding debt securities rated A or higher by S&P or Moody's and in loan
participation interests having a remaining term not exceeding one year in loans
extended by banks to such companies. The Fund will have at least 65% of its
total assets invested in fixed-income securities, as described above, of issuers
located in at least three different countries.
Certain foreign securities purchased by the Fund will not have received
ratings by a recognized U.S. rating agency. In such cases the Investment Manager
will review the issuers of such securities with respect to the quality of their
management, balance sheet and financial ratios, cash flows and earnings to
establish that the securities purchased by the Fund are of a comparable quality
to issuers receiving high quality ratings by a recognized U.S. rating agency.
In attempting to achieve its investment objective, the Investment Manager
will actively manage the Fund's assets in accordance with a global market
strategy which seeks to exploit spreads among short-term instruments worldwide.
As such, the Fund may experience high portfolio turnover rates (see "Portfolio
Management," page 11). Consistent with such a strategy, the Investment Manager
intends to allocate the Fund's investments among securities denominated in the
currencies of a number of foreign countries and, within each such country, among
different
5
<PAGE>
types of debt securities. The Investment Manager will adjust the Fund's exposure
to different currencies based on its perception of the most favorable markets
and issuers. In allocating the Fund's assets among various markets, the
Investment Manager will assess the relative yield and anticipated direction of
interest rates in particular markets, the level of inflation, liquidity and
financial soundness of each market, and the general market and economic
conditions existing in each market as well as the relationship of currencies of
various countries to the U.S. dollar and to each other. In its evaluations, the
Investment Manager will utilize its internal financial, economic and credit
analysis resources as well as information obtained from other sources.
Under normal conditions, a significant percentage of the short-term
investments in the Fund's portfolio may be money market securities. Money market
securities include short-term obligations issued or guaranteed by the U.S.
Government or foreign governments issued by such governments' respective
agencies and instrumentalities, bank money market instruments including
certificates of deposit, bankers' acceptances, time deposits and deposit notes
and certain other short-term obligations such as short-term commercial paper.
With respect to bank money instruments, the obligations may be issued by U.S. or
foreign depository institutions, foreign branches or subsidiaries of U.S.
depository institutions ("Eurodollar" obligations), U.S. branches or
subsidiaries of foreign depository institutions ("Yankeedollar" obligations) or
foreign branches or subsidiaries of foreign depository institutions. Eurodollar
and Yankeedollar obligations and obligations of branches or subsidiaries of
foreign depository institutions may be general obligations of the parent bank or
may be limited to the issuing branch or subsidiary by the terms of the specific
obligations or by government regulation.
The Fund will invest at least 25% of its assets in securities issued by
issuers located in the U.S. As such, the Fund will have a greater exposure than
other "global" mutual funds to economic and political events occurring in the
U.S. Changes in prevailing U.S. interest rates, federal tax rate increases, or
adverse changes in federal or state regulations or exchange rules may all have a
disproportionate impact upon the Fund as a result of its concentration policy.
Moreover, the Fund's concentration in securities of U.S. issuers will mean that
the Fund's investments are more likely to be responsive, both positively and
negatively, to declines or advances in the U.S. dollar with respect to foreign
currencies.
A substantial portion of the Fund's investments in securities of U.S.
issuers are likely to be in commercial paper, bankers acceptances and other
short-term debt instruments issued by U.S. corporations. However, at times
during which there exists large-scale political or economic uncertainty, the
Fund is likely to increase its investments in U.S. government securities. In
such cases, the securities which the Fund is most likely to purchase are U.S.
Treasury bills and U.S. Treasury notes with remaining maturities of under three
years, both of which are direct obligations of the U.S. Government. The Fund may
also purchase securities issued by various agencies and instrumentalities of the
U.S. Government. These will include obligations backed by the full faith and
credit of the United States (such as those issued by the Government National
Mortgage Association); obligations whose issuing agency or instrumentality has
the right to borrow, to meet its obligations, from an existing line of credit
with the U.S. Treasury (such as those issued by the Federal National Mortgage
Association); and obligations backed by the credit of the issuing agency or
instrumentality (such as those issued by the Federal Farm Credit System).
The securities in which the Fund will be investing may be denominated in any
currency or multinational currency. Under normal circumstances, the Fund will
invest its assets in securities denominated in at least three different
currencies, including the U.S. dollar. In addition to the U.S. dollar, such
currencies will include, among others: the Australian dollar; Deutsche mark;
Japanese yen; French franc; British pound; Canadian dollar; Swiss franc; Dutch
guilder; Austrian schilling; Spanish Peseta; Swedish Krona; Mexican peso; Thai
bhat; and European Currency Unit ("ECU"). The Fund will not invest more than 25%
of its total assets in securities denominated in a single currency or currency
unit with the exception of the U.S. dollar.
The Fund may invest without limitation in notes and commercial paper, the
principal amount of which is indexed to certain specific foreign currency
exchange rates. Indexed notes and commercial paper typically provide that their
principal amount is adjusted upwards or downwards (but not below zero) at
maturity to reflect fluctuations in the exchange rate between two currencies
during the period the obligation is outstanding, depending on the terms of the
specific security. In selecting the two currencies, the Investment Manager will
consider the correlation and relative yields of various currencies. The Fund
will purchase an indexed obligation using the currency in which it is
denominated and, at maturity, will receive interest and principal payments
thereon in that currency. The amount of principal payable by the issuer at
maturity, however, will vary (i.e., increase or decrease) in response to the
change (if any) in the exchange rates between the two specified currencies
during the period from the date the instrument is issued to its maturity date.
The potential for realizing gains as a result of changes in foreign currency
exchange rates may enable the Fund to hedge the currency in which the obligation
is denominated (or to effect cross-hedges against other currencies) against a
decline in the U.S. dollar value of investments denominated in foreign
currencies, while providing an attractive money market rate of return. The Fund
will purchase such indexed obligations to generate current income or for hedging
purposes and will not speculate in such obligations.
6
<PAGE>
Under normal circumstances, the Fund will invest at least 25% of its total
assets in debt instruments issued by U.S. and foreign companies engaged in the
banking industry, including bank holding companies. Such investments may include
certificates of deposit, time deposits, bankers' acceptances, and obligations
issued by bank holding companies, as well as repurchase agreements entered into
with banks. For temporary defensive purposes, however, the Fund may reduce its
investments in the banking industry to less than 25% of its total assets. The
Fund's policy as to concentrating its investments in the banking industry is
fundamental and may not be changed without the approval of a majority of the
Fund's voting securities.
The Fund's policy of concentrating its investments in the banking industry
will cause the Fund to have greater exposure to certain risks associated with
the banking industry. In particular, economic or regulatory developments in or
related to the banking industry will affect the value of and investment return
on the Fund's shares. Sustained increases in interest rates may adversely affect
the availability and cost of funds for a bank's lending activities;
deterioration in general economic conditions may increase a bank's exposure to
credit losses. The banking industry also is subject to the effects of the
concentration of loan portfolios in particular businesses that may be adversely
affected by economic conditions, such as real estate, energy, agriculture or
high technology-related companies. In addition, the banking industry is subject
to national and local regulation and competition among banks as well as with
other types of financial institutions. Also, the Fund's investments in
commercial banks located in several foreign countries are subject to additional
risks due to the combination in such banks of commercial banking and diversified
securities activities. As discussed above, however, the Fund will seek to
minimize its exposure to such risks by investing only in debt securities which
are determined by the Investment Manager, acting under the general supervision
of the Board of Directors, to be high quality.
As indicated above, the Fund may invest in securities denominated in a
multi-national currency unit. An illustration of a multi-national currency unit
is the ECU, which is a "basket" consisting of specified amounts of the
currencies of the member states of the European Community, a Western European
economic cooperative organization that includes France, Germany, The Netherlands
and the United Kingdom. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. The Investment Manager
does not believe that such adjustments will adversely affect holders of
ECU-denominated obligations or the marketability of such securities. European
supranational entities, in particular, issue ECU-denominated obligations. The
Fund may invest in securities denominated in the currency of one nation although
issued by a governmental entity, corporation or financial institution of another
nation. For example, the Fund may invest in a British pound-denominated
obligation issued by a United States corporation. Such investments involve
credit risks associated with the issuer and currency risks associated with the
currency in which the obligation is denominated.
The Fund also may invest in bonds and notes backed by pools of mortgage,
credit card, automobile or other types of receivables with remaining maturities
of three years or less. These structured financings will be supported by
sufficient collateral, and other credit enhancements, including letters of
credit, insurance, reserve funds and guarantees by third parties, to enable such
instruments to obtain a high quality rating by a nationally recognized
statistical rating agency or be of comparable quality as determined by the
Investment Manager. Generally, the issuers of mortgage-backed and
receivable-backed bonds, notes or pass-through certificates are special purpose
entities and do not have any significant assets other than the assets securing
such obligations. Such special-purpose entities are typically created by the
underwriters of such securities or the entity to which the receivables are
payable.
Instruments backed by pools of mortgages and receivables may be subject to
unscheduled prepayments of principal prior to maturity. When the obligations are
prepaid, the Fund must reinvest the prepaid amounts in securities the yields of
which reflect interest rates prevailing at the time. Therefore, the Fund's
ability to maintain a portfolio which includes high-yielding asset-backed
securities will be adversely affected to the extent that pre-payments of
principal must be reinvested in securities which have lower yields than the
prepaid obligations. Moreover, prepayments of securities purchased at a premium
could result in a realized loss. In addition, certain asset-backed and
receivable-backed securities may be illiquid. As such, the Fund may be limited
in its ability to invest in such securities (see Investment Restriction Number 3
on page 12).
RISK CONSIDERATIONS
All fixed-income securities are subject to two types of risks: the credit risk
and the interest rate risk. The credit risk relates to the ability of the issuer
to meet interest or principal payments or both as they come due. The interest
rate risk refers to the fluctuations in the net asset value of any portfolio of
fixed-income securities resulting from the inverse relationship between price
and yield of fixed-income securities; that is, when the general level of
interest rates rises, the prices of outstanding fixed-income securities decline,
and when interest rates fall, prices rise.
NON-DIVERSIFIED STATUS. The Fund is a non-diversified investment company and,
as such, is not subject to the diversification requirements of the Act. As a
non-diversified investment company, the Fund may invest a greater portion of its
assets in the securities of a single issuer and thus is subject to greater
exposure to risks such as a decline in the credit rating of that issuer.
However, the Fund anticipates that it will qualify as a regulated investment
company under
7
<PAGE>
the federal income tax laws and, if so qualified, will be subject to the
applicable diversification requirements of the Internal Revenue Code, as amended
(the "Code"). As a regulated investment company under the Code, the Fund may
not, as of the end of any of its fiscal quarters, have invested more than 25% of
its total assets in the securities of any one issuer (including a foreign
government), or as to 50% of its total assets, have invested more than 5% of its
total assets in the securities of a single issuer.
FOREIGN SECURITIES. Investors should carefully consider the risks of investing
in securities of foreign issuers and securities denominated in non-U.S.
currencies. Fluctuations in the relative rates of exchange between the
currencies of different nations will affect the value of the Fund's investments.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's assets denominated in that currency
and thereby impact upon the Fund's yield on such assets and the net asset value
of a share of the Fund as well as the amount of the Fund's distributions. For
example, if a substantial portion of the Fund's assets are denominated in
Japanese yen and the relative exchange rate of the yen falls with respect to the
U.S. dollar (i.e., a yen is worth a smaller fraction of a dollar than it had
been) then the Fund will be receiving a lesser amount of interest on its
fixed-income securities denominated in yen (when converted into U.S. dollars)
and when the Fund's assets are valued for purposes of determining the net asset
value per share of the Fund, the net assets of the Fund reflected by the
yen-denominated securities will have declined in U.S. dollar value and the net
asset value of the Fund (always stated in U.S. dollars) may have also declined.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The foreign currency transactions of
the Fund will be conducted on a spot basis or through forward contracts or
futures contracts (see below). The Fund may incur certain costs in connection
with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial standards and requirements comparable to
those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Fund trades effected in such markets. Inability to dispose of
portfolio securities due to settlement delays could result in losses to the Fund
due to subsequent declines in value of such securities and the inability of the
Fund to make intended security purchases due to settlement problems could result
in a failure of the Fund to make potentially advantageous investments.
------------
To hedge against adverse price movements in the securities held in its
portfolio and the currencies in which they are denominated (as well as in the
securities it might wish to purchase and their denominated currencies) the Fund
may engage in transactions in forward foreign currency contracts, options on
securities and currencies, and futures contracts and options on futures
contracts on securities, currencies and indexes. The Fund may also purchase
options on securities to facilitate its participation in the potential
appreciation of the value of the underlying securities. A discussion of these
transactions follows and is supplemented by further disclosure in the Statement
of Additional Information.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS A forward foreign currency exchange
contract ("forward contract") involves an obligation to purchase or sell a
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. The Fund may enter into forward contracts as a hedge against
fluctuations in future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar or
other currency which is being used for the security purchase and the foreign
currency in which the security is denominated during the period between the date
on which the security is purchased or sold and the date on which payment is made
or received.
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<PAGE>
At other times, when, for example, the Fund's Investment Manager believes
that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar or some other foreign currency, the Fund may
enter into a forward contract to sell, for a fixed amount of dollars or other
currency, the amount of foreign currency approximating the value of some or all
of the Fund's portfolio securities (or securities which the Fund has purchased
for its portfolio) denominated in such foreign currency. Under identical
circumstances, the Fund may enter into a forward contract to sell, for a fixed
amount of U.S. dollars or other currency, an amount of foreign currency other
than the currency in which the securities to be hedged are denominated
approximating the value of some or all of the portfolio securities to be hedged.
This method of hedging, called "cross-hedging," will be selected by the
Investment Manager when it is determined that the foreign currency in which the
portfolio securities are denominated has insufficient liquidity or is trading at
a discount as compared with some other foreign currency with which it tends to
move in tandem.
In addition, when the Fund's Investment Manager anticipates purchasing
securities at some time in the future, and wishes to lock in the current
exchange rate of the currency in which those securities are denominated against
the U.S. dollar or some other foreign currency, the Fund may enter into a
forward contract to purchase an amount of currency equal to some or all of the
value of the anticipated purchase, for a fixed amount of U.S. dollars or other
currency.
Lastly, the Fund is permitted to enter into forward contracts with respect
to currencies in which certain of its portfolio securities are denominated and
on which options have been written (see "Options and Futures Transactions").
In all of the above circumstances, if the currency in which the Fund's
portfolio securities (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Investment Manager.
The Fund generally will not enter into a forward contract with a term of
greater than one year, although it may enter into forward contracts for periods
of up to five years. To the extent that the Fund enters into forward foreign
currency contracts to hedge against a decline in the value of portfolio holdings
denominated in a particular foreign currency resulting from currency
fluctuations, there is a risk that the Fund may nevertheless realize a gain or
loss as a result of currency fluctuations after such portfolio holdings are sold
if the Fund is unable to enter into an "offsetting" forward foreign currency
contract with the same party or another party. The Fund may be limited in its
ability to enter into hedging transactions involving forward contracts by the
Code requirements relating to qualifications as a regulated investment company
(see "Dividends, Distributions and Taxes").
OPTIONS AND FUTURES TRANSACTIONS The Fund may purchase and sell (write) call
and put options on U.S. Treasury notes, bonds and bills and on various foreign
currencies which are listed on several U.S. and foreign securities exchanges or
are written in over-the-counter transactions ("OTC Options"). Listed options are
issued or guaranteed by the exchange on which they trade or by a clearing
corporation such as the Options Clearing Corporation ("OCC"). Ownership of a
listed call option gives the Fund the right to buy from the OCC (in the U.S.) or
other clearing corporation or exchange, the underlying security or currency
covered by the option at the stated exercise price (the price per unit of the
underlying security or currency) by filing an exercise notice prior to the
expiration date of the option. Ownership of a listed put option would give the
Fund the right to sell the underlying security or currency to the OCC (in the
U.S.) or other clearing corporation or exchange at the stated exercise price.
OTC options are purchased from or sold (written) to dealers or financial
institutions which have entered into direct agreements with the Fund. With OTC
options, such variables as expiration date, exercise price and premium will be
agreed upon between the Fund and the transacting dealer, without the
intermediation of a third party such as the OCC.
COVERED CALL WRITING. The Fund is permitted to write covered call options on
portfolio securities which are denominated in either U.S. dollars or foreign
currencies and on the U.S. dollar and foreign currencies, without limit, in
order to hedge against the decline in the value of a security or currency in
which such security is denominated and to close out long call option positions.
As a writer of a call option, the Fund has the obligation, upon notice of
exercise of the option, to deliver the security or amount of currency underlying
the option (certain listed and OTC call options written by the Fund will be
exercisable by the purchaser only on a specific date).
COVERED PUT WRITING. As a writer of covered put options, the Fund incurs an
obligation to buy the security (or currency) underlying the option from the
purchaser of the put at the option's exercise price at any time during the
option period, at the purchaser's election (certain listed and OTC put options
written by the Fund will be exercisable by the purchaser only on a specific
date). The Fund will write put options for three purposes: (1) to receive the
premiums paid by purchasers; (2) when the Investment Manager
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<PAGE>
wishes to purchase the security underlying the option (or a security denominated
in the currency underlying the option) at a price lower than its current market
price, in which case it will write the covered put at an exercise price
reflecting the lower purchase price sought; and (3) to close out a long put
option position. The aggregate value of the obligations underlying the puts
determined as of the date the options are sold will not exceed 50% of the Fund's
net assets.
PURCHASING CALL AND PUT OPTIONS. The Fund may purchase listed and OTC call and
put options in amounts equalling up to 5% of its total assets. The Fund may
purchase call options to close out a written call position (see "Covered Call
Writing" above) or to protect against an increase in the price of a security it
anticipates purchasing or, in the case of call options on a foreign currency, to
hedge against an adverse exchange rate change of the currency in which the
security it anticipates purchasing is denominated vis-a-vis the currency in
which the exercise price is denominated. The Fund may purchase put options on
securities which it holds in its portfolio only to protect itself against a
decline in the value of the security. The Fund may also purchase put options to
close out written put positions in a manner similar to call option closing
purchase transactions. There are no other limits on the Fund's ability to
purchase call and put options.
FUTURES CONTRACTS. The Fund may purchase and sell futures contracts that are
currently traded, or may in the future be traded, on U.S. and foreign commodity
exchanges on common stocks, such underlying fixed-income securities as U.S.
Treasury bonds, notes, and bills and/or any foreign government fixed-income
security ("interest rate" futures), on various currencies ("currency" futures)
and on such indexes of U.S. or foreign fixed-income securities as may exist or
come into being, such as the Moody's Investment Grade Corporate Bond Index
("index" futures). As a futures contract purchaser, the Fund incurs an
obligation to take delivery of a specified amount of the obligation underlying
the contract at a specified time in the future for a specified price. As a
seller of a futures contract, the Fund incurs an obligation to deliver the
specified amount of the underlying obligation at a specified time in return for
an agreed upon price.
The Fund will purchase or sell interest rate futures contracts for the
purpose of hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest rates.
The Fund will purchase or sell index futures contracts for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) securities
against changes in their prices.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. The Fund
will purchase and write options on futures contracts for identical purposes to
those set forth above for the purchase of a futures contract (purchase of a call
option or sale of a put option) and the sale of a futures contract (purchase of
a put option or sale of a call option), or to close out a long or short position
in futures contracts.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its position
as writer of an option, or as a buyer or seller of a futures contract, only if a
liquid secondary market exists for options or futures contracts of that series.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer.
Exchanges may limit the amount by which the price of many futures contracts
may move on any day. If the price moves equal the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Fund's Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For example,
if the Fund sold 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.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities, currencies and indexes subject to futures contracts (and thereby the
futures contract prices) may correlate imperfectly with the behavior of the U.S.
dollar cash prices of the Fund's portfolio securities and their denominated
currencies. Another such risk is that prices of interest rate futures contracts
may not move in tandem with the changes in prevailing interest rates against
which the Fund seeks a hedge. A correlation may also 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.
The Fund, by entering into transactions in foreign futures and options
markets, will also incur risks similar to those discussed above under the
section entitled "Foreign Securities."
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<PAGE>
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which may
be viewed as a type of secured lending by the Fund, and which typically involve
the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, including the risks of default or
bankruptcy of the selling financial institution, the Fund follows procedures to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
and maintaining adequate collateralization.
REVERSE REPURCHASE AGREEMENTS. The Fund may also use reverse repurchase
agreements as part of its investment strategy. Reverse repurchase agreements
involve sales by the Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities.
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.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a "when,
as and if issued" basis under which the issuance of the security depends upon
the occurrence of a subsequent event, such as approval of a merger, corporate
reorganization, leveraged buyout or debt restructuring. If the anticipated event
does not occur and the securities are not issued, the Fund will have lost an
investment opportunity. 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,
as and if issued" basis. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to certain notice provisions described in the Statement of
Additional Information), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are at least equal to the market value, determined daily,
of the loaned securities.
PRIVATE PLACEMENTS. The Fund may invest up to 10% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A of the Securities Act, and determined to be liquid
pursuant to the procedures discussed in the following paragraph, are not subject
to the foregoing restriction.) These securities are generally referred to as
private placements or restricted securities. Limitations on the resale of such
securities may have an adverse effect on their marketability, and may prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may have
to bear the expense of registering such securities for resale and the risk of
substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Directors of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid", such security will
not be included within the category "illiquid securities", which is limited by
the Fund's investment restrictions to 10% of the Fund's total assets.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a view
to achieving the Fund's investment objective. The Fund is managed within
InterCapital's Taxable Fixed-Income Group, which managed approximately $2.9
billion in assets at November 30, 1994. Vinh Q. Tran, Vice President of
InterCapital and Anne Pickrell, Assistant Vice President of InterCapital, each a
member of InterCapital's Corporate Bond Group, have been the Fund's primary
portfolio managers since its inception and December, 1994, respectively. Mr.
Tran has been managing portfolios comprised of global fixed-income securities at
InterCapital
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<PAGE>
since February, 1989. Ms. Pickrell has been a portfolio manager at InterCapital
since July, 1991, prior to which time she was a portfolio manager with Harvard
Management Co. Inc. 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, the views of Directors of the Fund and others regarding economic
developments and interest rate trends, and the Investment Manager's own analysis
of factors they deem relevant.
Personnel of the Investment Manager have substantial experience in the use
of the investment techniques described above under the heading "Options and
Futures Transactions," which techniques require skills different from those
needed to select the portfolio securities underlying various options and futures
contracts.
Securities purchased by the Fund are generally sold by dealers acting as
principal for their own accounts. Orders for transactions in other portfolio
securities and commodities are placed for the Fund with a number of brokers and
dealers, including Dean Witter Reynolds Inc. ("DWR"), a broker-dealer affiliate
of InterCapital. Pursuant to an order of the Securities and Exchange Commission,
the Fund may effect principal transactions in certain money market instruments
with DWR. In addition, the Fund may incur brokerage commissions on transactions
conducted through DWR.
The Fund may sell portfolio securities without regard to the length of time
that they have been held, in order to take advantage of new investment
opportunities or yield differentials, or because the Fund desires to preserve
gains or limit losses due to changing economic conditions, interest rate trends,
or the financial condition of the issuer. It is not anticipated that the Fund's
portfolio turnover rate will exceed 200% in any one year. The Fund will incur
underwriting discount costs (on underwritten securities) and brokerage costs
commensurate with its portfolio turnover rate. Short term gains and losses may
result from such portfolio transactions. See "Dividends, Distributions and
Taxes" for a discussion of the tax implications of the Fund's transactions.
The expenses of the Fund relating to its portfolio management are likely to
be greater than those incurred by other investment companies investing primarily
in securities issued by domestic issuers, as custodial costs, brokerage
commissions and other transaction charges related to investing on foreign
markets are generally higher than in the United States.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which have
been adopted by the Fund as fundamental policies. Under the Act, a fundamental
policy may not be changed without the vote of a majority of the outstanding
voting securities of the Fund, as defined in the Act. For purposes of the
following limitations: (i) all percentage limitations apply immediately after a
purchase or initial investment, and (ii) any subsequent change in any applicable
percentage resulting from market fluctuations or other changes in total or net
assets does not require elimination of any security from the portfolio.
The Fund may not:
1. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry, except that the Fund will concentrate in the
banking industry.
2. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction shall not apply to any
obligation issued or guaranteed by the United States Government, its
agencies or instrumentalities.
3. Invest more than 10% of its total assets in "illiquid securities"
(securities for which no active and substantial secondary market exists) and
repurchase agreements which have a maturity of longer than seven days.
Generally, OTC options and the assets used as "cover" for written OTC
options are "illiquid securities" (securities for which no active and
substantial secondary market exists). However, the Fund is permitted to treat
the securities it uses as cover for written OTC options as liquid provided it
follows a procedure whereby it will sell OTC options only to qualified dealers
who agree that the Fund may repurchase such options at a maximum price to be
calculated pursuant to a predetermined formula set forth in the option
agreement. The formula may vary from agreement to agreement, but is generally
based on a multiple of the premium received by the Fund for writing the option
plus the amount, if any, of the option's intrinsic value. An OTC option is
considered an illiquid asset only to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
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<PAGE>
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
other dealers which have entered into selected dealer agreements with the
Distributor ("Selected 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 Global Short-Term Income
Fund Inc., directly to Dean Witter Trust Company (the "Transfer Agent") at P.O.
Box 1040, Jersey City, NJ 07303 or by contacting an account executive of DWR or
other Selected Broker-Dealer. In the case of investments pursuant to Systematic
Payroll Deduction Plans (including Individual Retirement Plans), the Fund, in
its discretion, may accept investments without regard to any minimum amounts
which would otherwise be required, if the Fund has reason to believe that
additional investments will increase the investment in all accounts under such
Plans to at least $1,000. Certificates for shares purchased will not be issued
unless a request is made by the shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor 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. Shares purchased through the Distributor are entitled to dividends
beginning on the next business day following settlement date. Since the
Distributor forwards investors' funds on settlement date, it will benefit from
the temporary use of the funds if 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 sales incentives,
including trips, educational and/or business seminars and merchandise. The Fund
and the Distributor reserve the right to reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the Act
(the "Plan"), under which the Fund pays the Distributor a fee, which is accrued
daily and payable monthly, at an annual rate of 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. This fee is treated by the Fund as an expense in the year it is accrued.
A portion of the fee payable pursuant to the Plan, equal to 0.25% of the Fund's
average daily net assets, is characterized as a service fee within the meaning
of NASD guidelines.
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
account executives and others who engage in or support distribution of shares,
including overhead and telephone expenses; printing and distribution of
prospectuses and reports used in connection with the offering of the Fund's
shares to other than current shareholders; and preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan to compensate DWR and
other Selected Dealers for their opportunity costs in advancing such amounts,
which compensation would be in the form of a carrying charge on any unreimbursed
distribution expenses incurred. For the fiscal year ended October 31, 1994, the
Fund accrued payments under the Plan amounting to $1,748,966, which amount is
equal to 0.75% of the Fund's average daily net assets for the fiscal period. The
payments accrued under the Plan were calculated pursuant to clause (b) of the
compensation formula under the Plan.
At any given time, the Distributor may incur expenses in distributing shares
of the Fund which may be in excess of the total of (i) the payments made by the
Fund pursuant to the Plan, and (ii) the proceeds of contingent deferred sales
charges paid by investors upon the redemption of shares (see "Redemptions and
Repurchases--Contingent Deferred Sales Charge"). For example, if the Distributor
incurred $1 million in expenses in distributing shares of the Fund and $750,000
had been received by the Distributor as described in (i) and (ii) above, the
excess expense would amount to $250,000. DWR has advised the Fund that such
excess amounts, including the carrying charge described above, totalled
$7,077,662 at October 31, 1994, which equalled 4.16% of the Fund's net assets at
such date.
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<PAGE>
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 by the Distributor in excess of payments made to the Distributor under
the Plan, if for any reason the Plan is terminated, the Directors will consider
at that time the manner in which to treat such expenses. Any cumulative expenses
incurred by the Distributor, 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 all its liabilities, dividing by
the number of shares outstanding and adjusting to the nearest cent. The net
asset value per share will not be determined on Good Friday and on such other
federal and non-federal holidays as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange prior to the time when assets are valued (if there were no sales that
day, the security is valued at the latest bid price; in cases where securities
are traded on more than one exchange, the securities are valued on the exchange
designated as the primary market by the Directors); and (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation.
When market quotations are not readily available, including circumstances under
which it is determined by the Investment Manager that sale and bid prices are
not reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Fund's Directors. For valuation purposes,
quotations of foreign portfolio securities, other assets and liabilities and
forward contracts stated in foreign currency are translated into U.S. dollar
equivalents at the prevailing market rates prior to the close of the New York
Stock Exchange. Dividends receivable are accrued as of the ex-dividend date or
as of the time that the relevant ex-dividend date and amounts become known.
Short-term debt securities with remaining maturities of 60 days or less at
the time of purchase are valued at amortized cost, unless the Directors
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Directors.
Certain securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Directors. The pricing service utilizes a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to 4:00 p.m., New York time. The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are also
generally determined prior to 4:00 p.m., New York time. Occasionally, events
which affect the values of such securities and such exchange rates may occur
between the times at which they are determined and 4:00 p.m., New York time and
will therefore not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities will be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Directors.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends and
capital gains distributions are automatically paid in full and fractional shares
of the Fund (or, if specified by the shareholder, any other open-end investment
company for which InterCapital serves as investment manager (collectively, with
the Fund, the "Dean Witter Funds")), unless the shareholder requests that they
be paid in cash. Shares so acquired are not subject to the imposition of a
contingent deferred sales charge upon their redemption (see "Redemptions and
Repurchases").
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
14
<PAGE>
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 balance, on an annualized basis. Any applicable contingent deferred
sales charge will be imposed on shares redeemed under the Withdrawal Plan (See
"Redemptions and Repurchases--Contingent Deferred Sales Charge"). Therefore, any
shareholder participating in the Withdrawal Plan will have sufficient shares
redeemed from his or her account so that the proceeds (net of any applicable
contingent deferred sales charge) to the shareholder will be the designated
monthly or quarterly amount.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX-SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the Transfer
Agent.
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"), for shares of Dean
Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust,
Dean Witter Short-Term Bond Fund and five Dean Witter Funds which are money
market funds (the foregoing eight non-CDSC funds are hereinafter referred to as
the "Exchange Funds"). Exchanges may be made after the shares of the Fund
acquired by purchase (not by exchange or dividend reinvestment) have been held
for thirty days. There is no waiting period for exchanges of shares acquired by
exchange or dividend reinvestment.
An exchange to another CDSC fund or any Exchange Fund that is not a money
market fund is on the basis of the next calculated net asset value per share of
each fund after the exchange order is received. When exchanging into a money
market fund from the Fund, shares of the Fund are redeemed out of the Fund at
their next calculated net asset value and the proceeds of the redemption are
used to purchase shares of the money market fund at their net asset value
determined the following day. Subsequent exchanges between any of the money
market funds and any of the CDSC funds can be effected on the same basis. No
contingent deferred sales charge ("CDSC") is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate redemption.
Shares of the Fund which are exchanged for shares of another CDSC fund having a
higher CDSC schedule than the Fund will be subject to the CDSC schedule of the
other CDSC fund, even if shares are subsequently re-exchanged for shares of the
Fund prior to redemption. Concomitantly, shares of the Fund acquired in exchange
for shares of another CDSC fund having a lower CDSC schedule than that of this
Fund will be subject to the CDSC schedule of this Fund, even if such shares are
subsequently re-exchanged for shares of the CDSC fund originally purchased.
During the period of time the shareholder remains invested in the Exchange Fund
(calculated from the last day of the month in which the Exchange Fund shares
were acquired), the holding period (for the purpose of determining the rate of
the CDSC) is frozen. If those shares are subsequently reexchanged for shares of
a CDSC fund, the holding period previously frozen when the first exchange was
made resumes on the last day of the month in which shares of a CDSC fund are
reacquired. Thus, the CDSC is based upon the time (calculated as described
above) the shareholder was invested in shares of a CDSC fund (see "Redemptions
and Repurchases--Contingent Deferred Sales Charge"). However, in the case of
shares of the Fund exchanged into an Exchange Fund upon a redemption of shares
which results in a CDSC being imposed, a credit (not to exceed the amount of the
CDSC) will be given in an amount equal to the Exchange Fund 12b-1 distribution
fees incurred on or after that date which are attributable to those shares.
(Exchange Fund 12b-1 distribution fees are described in the prospectuses for
those funds.)
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds"), but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for shares
of other Dean Witter Funds for which shares of a front-end sales charge fund
have been exchanged) are not subject to any CDSC upon their redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders and,
at the Investment Manager's discretion, may be limited by the Fund's refusal to
accept additional purchases and/or exchanges from the investor. Although the
Fund does not have any specific definition of what constitutes a pattern of
frequent exchanges, and will consider all relevant factors in determining
whether a particular situation is abusive and contrary to the best interests of
the Fund and its other shareholders, investors should be aware that the Fund and
each of the other Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice to the
share-
15
<PAGE>
holder not later than ten days following such shareholder's most recent
exchange.
The Exchange Privilege may be terminated or revised at any time by the Fund
and/or any of such Dean Witter Funds for which shares of the Fund have been
exchanged, upon such notice as may be required by applicable regulatory
agencies.
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. In the case of any shareholder
holding a share certificate or certificates, no exchanges may be made until all
applicable share certificates have been received by the Transfer Agent and
deposited in the shareholders account. An exchange will be treated for federal
income tax purposes the same as a repurchase or redemption of shares, on which
the shareholder may realize 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 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 Distributor, 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 Broker-Dealer
account number (if any). Telephone instructions may also be recorded. If such
procedures are not employed, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Dean Witter
Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
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 sent to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by
the shareholder, the shares may be redeemed by surrendering the certificates
with a written request for redemption along with any additional information
required by the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE. Shares of the Fund which are held three 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 three years after purchase may, however, be subject to a
charge upon redemption. This charge is called a "contingent deferred sales
charge" ("CDSC"), which will be a percentage of the dollar amount of shares
redeemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, as set forth in
the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE
PURCHASE AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ----------------------------------------- -----------------------
<S> <C>
First.................................... 3.0%
Second................................... 2.0%
Third.................................... 1.0%
Fourth and thereafter.................... None
</TABLE>
16
<PAGE>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the three years preceding the redemption;
(ii) the current net asset value of shares purchased more than three years prior
to the redemption; and (iii) the current net asset value of shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
exchange for shares of Dean Witter Funds sold with a front-end sales charge or
of other Dean Witter Funds acquired in exchange for such shares. Moreover, in
determining whether a CDSC is applicable it will be assumed that amounts
described in (i), (ii) and (iii) above (in that order) are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of: (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 only following receipt by the
Distributor of confirmation of the investor's entitlement.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to repurchase
shares, as agent for the Fund, represented by a share certificate which is
delivered to any of their offices. Shares held in a shareholder's account
without a share certificate may also be repurchased by DWR and other Selected
Broker-Dealers upon the telephonic 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,
reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed upon repurchase by the Fund,
the Distributor or DWR or other Selected Broker-Dealers. The offers by DWR and
other Selected Broker-Dealers to repurchase shares may be suspended without
notice by them at any time. In that event, shareholders may redeem their shares
through the Fund's Transfer Agent as set forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented for
repurchase or redemption will be made by check within seven days after receipt
by the Transfer Agent of the certificate and/or written request in good order.
Such payment may be postponed or the right of redemption suspended under unusual
circumstances. If the shares to be redeemed have recently been purchased by
check (including a government, certified or bank cashier's check), payment of
the redemption proceeds may be delayed for the minimum time needed to verify
that the check used for investment has been honored (not more than fifteen days
from the time of receipt of the check by the Transfer Agent). Shareholders
maintaining margin accounts with DWR or another Selected Broker-Dealer are
referred to their account executive regarding restrictions on redemption of
shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares redeemed
or repurchased and has not previously exercised this reinstatement privilege
may, within thirty days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund at 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 Retirement Account or custodial account under Section
403(b)(7) of the Code) whose shares due to redemptions by the shareholder have a
value of less than $100 or such lesser amount as may be fixed by the Directors.
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 the shareholder 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
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to declare dividends from net
investment income on each day the New York Stock Exchange is open for business
(see "Purchase of Fund Shares"). The amount of the dividend declared may
fluctuate from day to day. Dividends are declared daily and paid monthly in
additional shares of the Fund. The Fund will
17
<PAGE>
distribute, at least annually, net realized short-term and long-term capital
gains, if any.
The Fund may, at times, make payments from sources other than income or net
capital gains. Payments from such sources would, in effect, represent a return
of a portion of each shareholder's investment. All, or a portion, of such
payments would not be taxable to shareholders.
All dividends and any capital gains distributions will be paid in additional
Fund shares and automatically credited to the shareholder's account without
issuance of a share certificate unless the shareholder requests in writing that
all dividends and/or distributions be paid in cash. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions".)
TAXES. Because the Fund intends to distribute all of its net investment income
and net short-term capital gains to shareholders and otherwise qualify as a
regulated investment company under Subchapter M of the Code, it is not expected
that the Fund will be required to pay any federal income tax on such income and
capital gains.
Gains or losses on the Fund's transactions in certain listed options on
securities and on futures and options on futures traded on U.S. exchanges
generally are treated as 60% long-term gain or loss and 40% short-term gain or
loss. When the Fund engages in options and futures transactions, various tax
regulations applicable to the Fund may have the effect of causing the Fund to
recognize a gain or loss for tax purposes before that gain or loss is realized,
or to defer recognition of a realized loss for tax purposes. Recognition, for
tax purposes, of an unrealized loss may result in a lesser amount of the Fund's
realized net gains being available for distribution.
As a regulated investment company, the Fund is subject to the requirement
that less than 30% of its gross income be derived from the sale of certain
investments held for less than three months. This requirement may limit the
Fund's ability to engage in options and futures transactions and to engage in a
large number of short-term transactions.
Shareholders will normally have to pay federal income taxes, and any
applicable state and/or local income taxes, on the dividends and distributions
they receive from the Fund. Such dividends and distributions, to the extent that
they are derived from net investment income and net short-term capital gains,
are taxable to the shareholder as ordinary dividend income regardless of whether
the shareholder receives such distributions in additional shares or in cash. Any
dividends declared in the last quarter of any calendar year which are paid in
the following year prior to February 1, will be deemed, for tax purposes, to
have been received by the shareholder in the prior year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. It is not anticipated that any portion of the
Fund's distributions will be eligible for the dividends received deduction to
corporate shareholders.
After the end of the year, shareholders will receive full information on
their dividends and capital gains distributions for tax purposes, including
information as to the portion taxable as ordinary income and the portion taxable
as long-term capital gains.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy. Shareholders who are not citizens or residents
of, or entities organized in, the United States may be subject to withholding
taxes of up to 30% on certain payments received from the Fund.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. If it qualifies for
and has made the appropriate election with the Internal Revenue Service, the
Fund will report annually to its shareholders the amount per share of such
taxes, to enable shareholders to claim United States foreign tax credits or
deductions with respect to such taxes. In the absence of such an election, the
Fund would deduct foreign tax in computing the amount of its distributable
income.
The foregoing discussion relates solely to the federal income tax
consequences of an investment in the Fund. Distributions may also be subject to
state and local taxes; therefore, each shareholder is advised to consult his or
her own tax adviser.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return" in
advertisements and sales literature. Both the yield and the total return of the
Fund are based on historical earnings and are not intended to indicate future
performance. The yield of the Fund is computed by dividing the 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 "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
18
<PAGE>
in the Fund of $1,000 over a period of one year and five years, as well as 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, and 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 the Fund are of common stock of $0.01 par value
and are equal as to earnings, assets and voting privileges. There are no
conversion, pre-emptive or other subscription rights. In the event of
liquidation, each share of common stock of the Fund is entitled to its portion
of all of the Fund's assets after all debts and expenses have been paid. The
shares do not have cumulative voting rights.
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
Directors may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Fund's By-Laws.
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
GLOBAL SHORT-TERM INCOME FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
DIRECTORS
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
Vinh Q. Tran
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Chase Manhattan Bank, N.A.
One Chase Plaza
New York, NY 10005
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.
