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PROSPECTUS
DECEMBER 21, 1993
Dean Witter Short-Term Bond Fund (the "Fund") is a no-load,
open-end diversified management investment company whose investment objective is
to provide a high level of current income consistent with the preservation of
capital. The Fund seeks to achieve its objective by investing in a diversified
portfolio of short-term fixed-income securities with a dollar-weighted average
portfolio maturity of less than three years. (See "Investment Objective and
Policies.")
Shares of the Fund are sold and redeemed at net asset value
without the imposition of a sales charge. In accordance with a Plan of
Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
with Dean Witter Distributors Inc. (the "Distributor"), the Fund authorizes the
Distributor or any of its affiliates, including Dean Witter InterCapital Inc.,
to make payments, out of their own resources, for specific expenses incurred in
promoting the distribution of the Fund's shares.
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 21, 1993, which has been filed with
the Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed below. The
Statement of Additional Information is incorporated herein by reference.
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/3
The Fund and its Management/3
Investment Objective and Policies/4
Investment Restrictions/13
Purchase of Fund Shares/13
Shareholder Services/14
Redemptions and Repurchases/17
Dividends, Distributions and Taxes/18
Performance Information/18
Additional Information/19
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.
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
Short-Term Bond Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 OR (800) 526-3143
Dean Witter Distributors Inc.,
Distributor
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PROSPECTUS SUMMARY
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The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is a
Fund no-load, open-end, diversified management investment company investing in a diversified
portfolio of short-term fixed-income securities with a dollar-weighted average portfolio
maturity of less than three years.
Shares Shares of beneficial interest with $0.01 par value (see page 19).
Offered
Offering The price of the shares offered by this Prospectus is determined once daily as of 4:00 p.m., New
Price York time, on each day that the New York Stock Exchange is open, and is equal to the net asset
value per share without a sales charge (see page 13).
Minimum Minimum initial purchase, $1,000; minimum subsequent investments, $100 (see page 13).
Purchase
Investment The investment objective of the Fund is to provide investors with a high level of current
Objective income, consistent with the preservation of capital.
Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, serves as
Manager investment manager, manager, investment adviser, sub-adviser, administrator or sub-administrator
to seventy-nine investment companies and other portfolios with assets of approximately $70.2
billion at November 30, 1993 (see page 4).
Management The Investment Manager receives a monthly fee at the annual rate of 0.70% of the average daily
Fee net assets (see page 4).
Dividends and Dividends are declared daily and are payable monthly. Capital gains distributions, if any, are
Capital Gains paid at least once a year or are retained for reinvestment by the Fund. Dividends and
Distributions distributions are automatically invested in additional shares at net asset value unless the
shareholder elects to receive cash (see page 18).
Distributor Dean Witter Distributors Inc. (the "Distributor") sells shares of the Fund through Dean Witter
and Plan of Reynolds Inc. ("DWR") and other selected broker-dealers. The Distributor has entered into a Plan
Distribution of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended,
(the "Act") with the Fund authorizing the Distributor or any of its affiliates, including the
Investment Manager, to make payments, out of their own resources, for expenses incurred in
connection with the promotion or distribution of the Fund's shares
(see page 13).
Redemption Shares are redeemable at net asset value. An account may be involuntarily redeemed if total
value of the account is less than $100 (see page 17).
Shareholder Automatic Investment of Dividends and Distributions; Investment of Distributions Received in
Services Cash; Exchange Privilege; Systematic Withdrawal Plan; EasyInvestSM; Tax-Sheltered Retirement
Plans (see page 14).
Risks The prices of interest-bearing securities are, generally, inversely affected by changes in
interest rates and, therefore, are subject to the risk of market price fluctuations. The values
of fixed-income securities also may be affected by changes in the credit rating or financial
condition of the issuing entities. Mortgage-backed securities are subject to prepayments or
refinancings of the mortgage pools underlying such securities which may have an impact upon the
yield and the net asset value of the Fund's shares. Asset-backed securities involve risks
resulting mainly from the fact that such securities do not usually contain the complete benefit
of a security interest in the related collateral. Certain of the high yield, high risk
fixed-income securities in which the Fund may invest are subject to greater risk of loss of
income and principal than the higher rated lower yielding fixed-income securities. The foreign
securities and markets in which the Fund will invest pose different and generally greater risks
than those risks customarily associated with domestic securities and markets including
fluctuations in foreign currency exchange rates, foreign tax rates and foreign exchange
controls. (see page 5).
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF
ADDITIONAL INFORMATION.
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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.
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SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge Imposed on Purchases.............................................. None
Maximum Sales Charge Imposed on Reinvested Dividends................................... None
Deferred Sales Charge.................................................................. None
Redemption Fees........................................................................ None
Exchange Fee........................................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Management Fees*....................................................................... .70%
12b-1 Fees............................................................................. None
Other Expenses*........................................................................ .10%
Total Fund Operating Expenses*......................................................... .80%
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"Management Fees" as shown above, are for the fiscal year ending May 31, 1994.
"Other Expenses," as shown above, is based upon estimated amounts of expenses of
the Fund expected to be incurred during its current fiscal period ending May 31,
1994.
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EXAMPLE 1 YEAR 3 YEARS
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You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at
the end of each time period:......... $ 8 $ 26
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* THE INVESTMENT MANAGER HAS UNDERTAKEN TO ASSUME ALL OPERATING EXPENSES (EXCEPT
FOR ANY BROKERAGE FEES) AND TO WAIVE THE COMPENSATION PROVIDED FOR IN ITS
MANAGEMENT AGREEMENT UNTIL SUCH TIME AS THE FUND HAS $50 MILLION OF NET ASSETS
OR UNTIL SIX MONTHS FROM THE DATE OF COMMENCEMENT OF THE FUND'S OPERATIONS,
WHICHEVER OCCURS FIRST. THE FEES AND EXPENSES DISCLOSED ABOVE DO NOT REFLECT
THE ASSUMPTION OF ANY EXPENSES OR THE WAIVER OF ANY COMPENSATION BY THE
INVESTMENT MANAGER.
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THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE MORE 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."
THE FUND AND ITS MANAGEMENT
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Dean Witter Short-Term Bond Fund (the "Fund") is a no-load, open-end
diversified management investment company. The Fund is a trust of the type
commonly known as a "Massachusetts business trust" and was organized under the
laws of The Commonwealth of Massachusetts on October 22, 1993.
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 Reynolds Inc. ("DWR"). DWR 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.
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In addition to serving as the Investment Manager of the Fund, the Investment
Manager acts as investment manager, manager, investment adviser, sub-adviser,
administrator or sub-administrator to seventy-nine investment companies,
twenty-seven of which are listed on the New York Stock Exchange, with combined
assets of approximately $68.3 billion at November 30, 1993. The Investment
Manager also manages portfolios of pension plans, other institutions and
individuals which aggregated approximately $1.9 billion at such date.
The Fund has retained the Investment Manager, pursuant to an Investment
Management Agreement, 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. The Fund's Board of
Trustees reviews the various services provided by the Investment Manager to
ensure that the Fund's general investment policies and programs are being
properly carried out and that administrative services are being provided to the
Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
following annual rate of 0.70% to the Fund's net assets determined as of the
close of each business day.
The Fund's expenses include: the fee of the Investment Manager; taxes;
certain legal, transfer agent, custodian and auditing fees; and printing and
other expenses relating to the Fund's operations which are not expressly assumed
by the Investment Manager under its Investment Management Agreement with the
Fund. The Investment Manager has undertaken to assume all operating expenses
(except for any brokerage fees) and waive the compensation provided for in its
Investment Management Agreement until such time as the Fund has $50 million of
net assets or until six months from the date of commencement of the Fund's
operations, whichever occurs first.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to provide investors with a high
level of current income, consistent with the preservation of capital. This
investment objective is a fundamental policy of the Fund and, as such, may not
be altered without the approval of the shareholders of the Fund. There is no
assurance that the Fund will achieve its investment objective.
The Fund seeks to achieve its investment objective by investing in
short-term, fixed-income securities with a dollar-weighted average portfolio
maturity of less than three years. The Fund may invest in nominally longer-term
securities that have many of the characteristics of shorter-term securities
which will be deemed to have maturities earlier than their ultimate maturity
dates (E.G., securities with demand features). A substantial portion of the
Fund's portfolio will consist of fixed-income securities issued by U.S.
corporate issuers and by the U.S. Government, its agencies and
instrumentalities.
Under normal market conditions, at least 65% of the Fund's total assets will
be invested in bonds (for purposes of this provision, debt securities, which had
at time of issuance a maturity of greater than one year, are defined as
"bonds"). Furthermore, a portion of the Fund's portfolio (up to 25% of the
Fund's total assets) may be invested in fixed-income securities issued by
foreign corporate and government issuers.
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. In addition, while an investment in the Fund is not federally insured and
there is no guarantee of price stability (the Fund is not a money market fund
with a virtually constant net asset value per share), an investment in the Fund
- -- unlike a certificate of deposit ("CD") -- is not frozen for any specific
period of time, may be redeemed at any time
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without incurring early withdrawal penalties, and may also provide a higher
yield.
The non-governmental debt securities in which the Fund will invest will
include: (a) corporate debt securities, including bonds, notes and commercial
paper, rated in the four highest categories by a nationally recognized
statistical rating organization ("NRSRO") including Moody's Investors Service,
Inc., Standard & Poor's Corporation, Duff and Phelps, Inc. and Fitch Investors
Service, Inc.; (b) bank obligations, including CDs, banker's acceptances and
time deposits, issued by banks with a long-term CD rating in one of the four
highest categories by a NRSRO; and (c) investment grade fixed-rate and
adjustable rate Mortgage-Backed and Asset-Backed securities (see below) of
corporate issuers. Investments in securities rated within the four highest
rating categories by a NRSRO are considered "investment grade." However, such
securities rated within the fourth highest rating category by a NRSRO may have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make principal
and interest payments than would be the case with investments in securities with
higher credit ratings. Where a fixed-income security is not rated by a NRSRO (as
may be the case with a foreign security) the Investment Manager will make a
determination of its creditworthiness and may deem it to be investment grade.
The Fund may also invest in preferred stocks rated in one of the four
highest categories by a NRSRO.
Up to 5% of the Fund's net assets may be invested in fixed-income securities
rated below investment grade. Such lower-rated securities are considered to be
speculative investments and, while producing higher yields than investment grade
securities, are subject to greater credit risks. The Fund does not have any
minimum quality rating standards with respect to this portion of its portfolio.
If an investment grade fixed-income security held by the Fund is downgraded by a
rating agency to a grade below investment grade, the Fund may retain such
security in its portfolio unless such downgraded security, together with all
other non-investment grade fixed-income securities held by the Fund constitute,
in the aggregate, more than 5% of the Fund's net assets. In such event, the
Investment Manager will seek to sell such securities from its portfolio, as soon
as is reasonably practicable, in sufficient amounts to reduce this total to
below 5% of its net assets. A description of fixed-income security ratings is
contained in the Appendix to the Statement of Additional Information.
The United States Government securities in which the Fund will invest
include securities which are direct obligations of the United States Government,
such as United States treasury bills, and which are backed by the full faith and
credit of the United States; securities which are backed by the full faith and
credit of the United States but which are obligations of a United States agency
or instrumentality (E.G., obligations of the Government National Mortgage
Association); securities issued by a United States agency or instrumentality
which has the right to borrow, to meet its obligations, from an existing line of
credit with the United States Treasury (E.G., obligations of the Federal
National Mortgage Association); securities issued by a United States agency or
instrumentality which is backed by the credit of the issuing agency or
instrumentality (E.G., obligations of the Federal Farm Credit System); and
governmentally issued mortgage-backed securities.
In addition, as stated above, up to 25% of the Fund's total assets may be
invested in securities issued by foreign corporations and governments and their
agencies and instrumentalities. Such securities may be denominated in foreign
currencies. The principal foreign currencies in which such securities will be
denominated are: the Australian dollar; Deutsche mark; Japanese yen; French
franc; British pound; Canadian dollar; Mexican peso; Swiss franc; Dutch guilder;
Austrian schilling; Spanish Peseta; Swedish Krona; and European Currency Unit.
The Fund will only invest in foreign securities which are rated by a NRSRO as
investment grade or which, if unrated, are deemed by the Investment
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Manager to be of investment grade creditworthiness.
PORTFOLIO CHARACTERISTICS AND RISKS
MORTGAGE-BACKED SECURITIES
As stated above, a portion of the Fund's investments may be in
Mortgage-Backed securities. Mortgage-Backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans secured by real property. The term Mortgage-Backed
securities as used herein includes adjustable rate mortgage securities and
derivative mortgage products such as collateralized mortgage obligations,
stripped Mortgage-Backed securities and other products described below.
There are currently three basic types of Mortgage-Backed securities: (i)
those issued or guaranteed by the United States Government or one of its
agencies or instrumentalities, such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC") (securities issued by GNMA, but
not those issued by FNMA or FHLMC, are backed by the "full faith and credit" of
the United States); (ii) those issued by private issuers that represent an
interest in or are collateralized by Mortgage-Backed securities issued or
guaranteed by the United States Government or one of its agencies or
instrumentalities; and (iii) those issued by private issuers that represent an
interest in or are collateralized by whole mortgage loans or Mortgage-Backed
securities without a government guarantee but usually having some form of
private credit enhancement (described below).
The Fund will invest in mortgage pass-through securities representing
participation interests in pools of residential mortgage loans originated by
United States governmental or private lenders and guaranteed, to the extent
provided in such securities, by the United States Government or one of its
agencies or instrumentalities. Such securities, which are ownership interests in
the underlying mortgage loans, differ from conventional debt securities, which
provide for periodic payment of interest in fixed amounts (usually semiannually)
and principal payments at maturity or on specified call dates. Mortgage
pass-through securities provide for monthly payments that are a "pass-through"
of the monthly interest and principal payments (including any prepayments) made
by the individual borrowers on the pooled mortgage loans, net of any fees paid
to the guarantor of such securities and the servicer of the underlying mortgage
loans.
The guaranteed mortgage pass-through securities in which the Fund invests
include those issued or guaranteed by GNMA, FNMA and FHLMC. GNMA certificates
are direct obligations of the U.S. Government and, as such, are backed by the
"full faith and credit" of the United States. FNMA is a federally chartered,
privately owned corporation and FHLMC is a corporate instrumentality of the
United States. FNMA and FHLMC certificates are not backed by the full faith and
credit of the United States but the issuing agency or instrumentality has the
right to borrow, to meet its obligations, from an existing line of credit with
the U.S. Treasury. The U.S. Treasury has no legal obligation to provide such
line of credit and may choose not to do so.
Certificates for Mortgage-Backed securities evidence an interest in a
specific pool of mortgages. These certificates are, in most cases, "modified
pass-through" instruments, wherein the issuing agency guarantees the payment of
principal and interest on mortgages underlying the certificates, whether or not
such amounts are collected by the issuer on the underlying mortgages.
Private mortgage pass-through securities are structured similarly to the
GNMA, FNMA and FHLMC mortgage pass-through securities and are issued by
originators of and investors in mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. These securities usually are backed by a
pool of conventional fixed rate or adjustable rate mortgage loans. Since private
mortgage pass-through securities typically are not guaranteed by an entity
having the credit status of GNMA, FNMA
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and FHLMC, such securities generally are structured with one or more types of
credit enhancement.
The Fund may also invest in adjustable rate mortgage securities ("ARMs"),
which are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed rates. ARMs eligible for inclusion in a mortgage
pool generally provide for a fixed initial mortgage interest rate for either the
first three, six, twelve or thirteen, twenty-four, thirty-six or longer
scheduled monthly payments. Thereafter, the interest rates are subject to
periodic adjustment based on changes to a designated benchmark index. ARMs
contain maximum and minimum rates beyond which the mortgage interest rate may
not vary over the lifetime of the security. In addition, certain ARMs provide
for additional limitations on the maximum amount by which the mortgage interest
rate may adjust for any single adjustment period. Alternatively, certain ARMs
contain limitations on changes in the required monthly payment. In the event
that a monthly payment is not sufficient to pay the interest accruing on an ARM,
any such excess interest is added to the principal balance of the mortgage loan,
which is repaid through future monthly payments. If the monthly payment for such
an instrument exceeds the sum of the interest accrued at the applicable mortgage
interest rate and the principal payment required at such point to amortize the
outstanding principal balance over the remaining term of the loan, the excess is
utilized to reduce the then outstanding principal balance of the ARM.
COLLATERALIZED MORTGAGE OBLIGATIONS. The Fund may invest in collateralized
mortgage obligations or "CMOs". CMOs are debt obligations collateralized by
mortgage loans or mortgage pass-through securities. Typically, CMOs are
collateralized by GNMA, FNMA, or FHLMC certificates, but also may be
collateralized by whole loans or private mortgage pass-through securities (such
collateral is collectively hereinafter referred to as "Mortgage Assets").
Multiclass pass-through securities are equity interests in a trust composed of
Mortgage Assets. Payments of principal of and interest on the Mortgage Assets,
and any reinvestment income thereon, provide the funds to pay debt service on
the CMOs or make scheduled distributions on the multiclass pass-through
securities. CMOs may be issued by agencies or instrumentalities of the United
States Government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing.
The issuer of a series of CMOs may elect to be treated as a Real Estate
Mortgage Investment Conduit ("REMIC"). REMICs include governmental and/ or
private entities that issue a fixed pool of mortgages secured by an interest in
real property. REMICs are similar to CMOs in that they issue multiple classes of
securities, but unlike CMOs, which are required to be structured as debt
securities, REMICs may be structured as indirect ownership interests in the
underlying assets of the REMICs themselves. However, there are no effects on the
Fund from investing in CMOs issued by entities that have elected to be treated
as REMICs, and all future references to CMOs shall also be deemed to include
REMICs. In addition, in reliance upon an interpretation by the staff of the
Securities and Exchange Commission with respect to limitations contained in
Section 12(d) of the Act, the Fund may invest without limitation in CMOs and
other Mortgage-Backed securities which are not by definition excluded from the
provisions of the Act, and which have obtained exemptive orders from such
provisions from the Securities and Exchange Commission.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis. Certain CMOs may have variable or floating
interest rates
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and others may be stripped (securities which provide only the principal or
interest feature of the underlying security).
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of a CMO series in a number of different ways. Generally,
the purpose of the allocation of the cash flow of a CMO to the various classes
is to obtain a more predictable cash flow to the individual tranches than exists
with the underlying collateral of the CMO. As a general rule, the more
predictable the cash flow is on a CMO tranche, the lower the anticipated yield
will be on that tranche at the time of issuance relative to prevailing market
yields on Mortgage-Backed securities. As part of the process of creating more
predictable cash flows on most of the tranches in a series of CMOs, one or more
tranches generally must be created that absorb most of the volatility in the
cash flows on the underlying mortgage loans. The yields on these tranches are
generally higher than prevailing markets yields on Mortgage-Backed securities
with similar maturities. As a result of the uncertainty of the cash flows of
these tranches, the market prices of and yield on these tranches generally are
more volatile.
The Fund may invest up to 10% of its total assets in inverse floaters.
Inverse floaters constitute a class of CMOs with a coupon rate that moves
inversely to a designated index, such as the LIBOR (London Inter-Bank Offered
Rate) Index. Inverse floaters have coupon rates that typically change at a
multiple of the changes of the relevant index rate. Any rise in the index rate
(as a consequence of an increase in interest rates) causes a drop in the coupon
rate of an inverse floater while any drop in the index rate causes an increase
in the coupon of an inverse floater. In addition, like most other fixed-income
securities, the value of inverse floaters will decrease as interest rates
increase. Inverse floaters exhibit greater price volatility than the majority of
mortgage pass-through securities or CMOs. In addition, some inverse floaters
exhibit extreme sensitivity to changes in prepayments. As a result, the yield to
maturity of an inverse floater is sensitive not only to changes in interest
rates but also to changes in prepayment rates on the related underlying Mortgage
Assets.
The Fund also may invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds always are
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped Mortgage-Backed securities are
derivative multiclass mortgage securities. Stripped Mortgage-Backed securities
may be issued by agencies or instrumentalities of the United States Government,
or by private originators of, or investors in, mortgage loans, including savings
and loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. Up to 15% of the net assets of
the Fund may be invested in Stripped Mortgage-Backed Securities.
Stripped Mortgage-Backed securities usually are structured with two classes
that receive different proportions of the interest and principal distribution on
a pool of Mortgage Assets. A common type of Stripped Mortgage-Backed security
will have one class receiving some of the interest and most of the principal
from the Mortgage Assets, while the other class will receive most of the
interest and the remainder of the principal. In the most extreme case, one class
will receive all of the interest (the interest-only or "IO" class), while the
other class receive all of the principal (the principal-only or "PO" class). PO
classes generate income through the accretion of the deep discount at which such
securities are purchased, and, while PO classes do not receive periodic payments
of interest, they
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receive monthly payments associated with scheduled amortization and principal
prepayment from the Mortgage Assets underlying the PO class. The yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying Mortgage Assets, and a rapid
rate of principal payments may have a material adverse effect on the Fund's
yield to maturity. If the underlying Mortgage Assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities even if the securities are rated
investment grade.
The Fund may purchase Stripped Mortgage-Backed securities for income, or for
hedging purposes to protect the Fund's portfolio against interest rate
fluctuations. For example, since an IO class will tend to increase in value as
interest rates rise, it may be utilized to hedge against a decrease in value of
other fixed-income securities in a rising interest rate environment. The Fund's
management understands that the staff of the Securities and Exchange Commission
("SEC") considers privately issued Stripped Mortgage-Backed securities
representing interest only or principal only components of U.S. Government or
other debt securities to be illiquid securities. The Fund will treat such
securities as illiquid so long as the staff maintains such position. The staff
of the SEC also takes the position that the determination of whether a
particular government-issued IO or PO backed by fixed-rate mortgages is liquid
may be made under guidelines and standards established by the Fund's Trustees.
Such securities may be deemed liquid if they can be disposed of promptly in the
ordinary course of business at a value reasonably close to that used in the
calculation of the net asset value per share. The Fund may not invest more than
15% of its net assets in illiquid securities.
TYPES OF CREDIT ENHANCEMENT. Mortgage-Backed securities are often backed by
a pool of assets representing the obligations of a number of different parties.
To lessen the effect of failures by obligors on underlying assets to make
payments, those securities may contain elements of credit support, which fall
into two categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from default ensures ultimate payment of the obligations on at least a
portion of assets in the pool. This protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the transaction
or through a combination of such approaches. The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit risk associated with the underlying assets. Delinquencies or
losses in excess of those anticipated could adversely affect the return on an
investment in a security. In addition, any circumstances adversely affecting the
ability of third parties (E.G., insurance companies) to satisfy any of their
obligations with respect to any Mortgage-Backed security, such as a diminishment
of their creditworthiness, could adversely affect the value of the security. The
Fund will not pay any fees for credit support, although the existence of credit
support may increase the price of a security.
RISKS OF MORTGAGE-BACKED SECURITIES. Mortgage-Backed securities have
certain different characteristics than traditional debt securities. Among the
major differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans or other assets generally may be prepaid
at any time. As a result, if the Fund purchases such a security at a premium, a
prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Alternatively, if the Fund purchases
these securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity. The Fund
may invest a
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portion of its assets in derivative Mortgage-Backed securities such as Stripped
Mortgage-Backed securities which are highly sensitive to changes in prepayment
and interest rates. The Investment Manager seeks to manage these risks (and
potential benefits) by investing in a variety of such securities and through
hedging techniques.
Mortgage-Backed securities, like all fixed income securities, generally
decrease in value as a result of increases in interest rates. In addition,
although generally the value of fixed-income securities increases during periods
of falling interest rates and, as stated above, decreases during periods of
rising interest rates, as a result of prepayments and other factors, this is not
always the case with respect to Mortgage-Backed securities.
Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Fund are likely to be greater during a period
of declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates. Mortgage-Backed
securities generally decrease in value as a result of increases in interest
rates and may benefit less than other fixed-income securities from declining
interest rates because of the risk of prepayment.
There are certain risks associated specifically with CMOs. CMOs issued by
private entities are not U.S. Government securities and are not guaranteed by
any government agency, although the securities underlying a CMO may be subject
to a guarantee. Therefore, if the collateral securing the CMO, as well as any
third party credit support or guarantees, is insufficient to make payment, the
holder could sustain a loss. Also, a number of different factors, including the
extent of prepayment of principal of the Mortgage Assets, affect the
availability of cash for principal payments by the CMO issuer on any payment
date and, accordingly, affect the timing of principal payments on each CMO
class. In addition, CMO classes with higher yields tend to be more volatile with
respect to cash flow of the underlying mortgages; as a result the market prices
of a yield on these classes tend to be more volatile.
ASSET-BACKED SECURITIES. The Fund may invest in Asset-Backed securities.
Asset-Backed securities represent the securitization techniques used to develop
Mortgage-Backed securities applied to a broad range of other assets. Through the
use of trusts and special purpose corporations, various types of assets,
primarily automobile and credit card receivables and home equity loans, are
being securitized in pass-through structures similar to the mortgage
pass-through structures described above or in a pay-through structure similar to
the CMO structure.
Asset-Backed securities involve certain risks that are not posed by
Mortgage-Backed securities, resulting mainly from the fact that Asset-Backed
securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, including the bankruptcy laws, some of which
may reduce the ability to obtain full payment. In the case of automobile
receivables, due to various legal and economic factors, proceeds for repossessed
collateral may not always be sufficient to support payments on these securities.
New instruments and variations of existing Mortgage-Backed securities and
Asset-Backed securities continue to be developed. The Fund may invest in any
such instruments or variations as may be developed, to the extent consistent
with its investment objective and policies and applicable regulatory
requirements.
FOREIGN SECURITIES. Foreign securities investments may be affected by
changes in currency rates or exchange control regulations, changes in
governmental administration or economic or monetary policy (in the United States
and abroad) or changed circumstances in dealings between nations. Fluctuations
in the relative rates of
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exchange between the currencies of different nations will affect the value of
the Fund's investments denominated in foreign currency. Changes in foreign
currency exchange rates relative to the U.S. dollar will affect the U.S. dollar
value of the Fund's assets denominated in that currency and thereby impact upon
the Fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The foreign currency transactions of
the Fund will be conducted on a spot basis or through forward contracts or
futures contracts (described in the Statement of Additional Information). The
Fund will 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 the more
rigorous uniform accounting, auditing and financial reporting standards and
requirements 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 the
extent the Fund purchases Eurodollar certificates of deposit issued by foreign
branches of domestic United States banks, consideration will be given to their
domestic marketability, the lower reserve requirements normally mandated for
overseas banking operations, the possible impact of interruptions in the flow of
international currency transactions, and future international political and
economic developments which might adversely affect the payment of principal or
interest.
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 ("collateral") 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, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase agreements only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continually monitored by the Investment Manager
subject to procedures established by the Trustees of the Fund. In addition, as
described above,the value of the collateral underlying the repurchase agreement
will be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a
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<PAGE>
selling financial institution, the Fund will seek to liquidate such collateral.
However, the exercising of the Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss.
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. While the Fund will
only purchase securities on a when-issued, delayed delivery or forward
commitment basis with the intention of acquiring the securities, the Fund may
sell the securities before the settlement date, if it is deemed advisable. The
securities so purchased or sold are subject to market fluctuation and no
interest accrues to the purchaser during this period. At the time the Fund makes
the commitment to purchase or sell securities on a when-issued, delayed delivery
or forward commitment basis, it will record the transaction and thereafter
reflect the value, each day, of such security purchased or, if a sale, the
proceeds to be received in determining its net asset value. At the time of
delivery of the securities, their value may be more or less than the purchase or
sale price. The Fund will also establish a segregated account with its custodian
bank in which it will continually maintain cash or cash equivalents or other
high grade debt portfolio securities equal in value to commitments to purchase
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.
Except as specifically noted, all investment policies and practices
discussed in this Prospectus are not fundamental policies of the Fund and, as
such, may be changed without shareholder approval.
PORTFOLIO MANAGEMENT
The Fund's portfolio is managed by its Investment Manager with a view to
achieving its investment objective. The Fund is managed within InterCapital's
Corporate Bond Group, which managed approximately $4 billion in assets at
November 30, 1993. Rochelle G. Siegel, Senior Vice President of InterCapital and
a member of InterCapital's Corporate Bond Group has been designated as the
Fund's primary portfolio manager. Ms. Siegel has been managing portfolios
comprised of fixed-income securities at InterCapital for over five years.
Securities purchased by the Fund are, generally, sold by dealers acting as
principal for their own accounts. Pursuant to an order issued by the Securities
and Exchange Commission, the Fund may effect principal transactions in certain
money market instruments with DWR. In addition, the Fund may incur brokerage
commissions on transactions conducted through DWR.
Although the Fund does not intend to engage in substantial short-term
trading, it 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.
The Fund anticipates a portfolio turnover rate of no more than 200%. 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 may result from such portfolio transactions. See "Dividends,
Distributions and Taxes" for a discussion of the tax implications of the trading
policy of the Fund.
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INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions that
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.
The Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value of
its total assets in the securities of any one issuer (other than obligations
issued, or guaranteed by, the United States Government, its agencies or
instrumentalities).
2. As to 75% of its total assets, purchase more than 10% of all
outstanding voting securities or any class of securities of any one issuer.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities.
4. Invest more than 5% of the value of its total assets in securities
of issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction shall not apply to
Mortgage-Backed securities or Asset-Backed securities or to any obligation
of the United States Government, its agencies or instrumentalities.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
PURCHASE OF FUND SHARES
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The Fund offers it shares for sale to the public on a continuous basis at
the offering price without the imposition of a sales charge. The offering price
will be the net asset value per share next determined following receipt of an
order (see "Determination of Net Asset Value"). 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 are offered by DWR and other broker-dealers
which have entered into agreements with the Distributor ("Selected
Broker-Dealers"). The principal executive office of the Distributor is located
at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000 and subsequent purchases of $100 or
more may be made by sending a check, payable to Dean Witter Short-Term Bond
Fund, directly to Dean Witter Trust Company (the "Transfer Agent") at P.O. Box
1040, Jersey City, NJ 07303 or by contacting an account executive of DWR or
other Selected Broker-Dealers. In the case of investments pursuant to Systematic
Payroll Deduction 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 or a Selected
Broker-Dealer on a normal five business day settlement basis; that is, payment
is due on the fifth business day (settlement date) after the order is placed
with the Distributor or Selected Broker-Dealer. Since DWR or any other Selected
Broker-Dealer may forward investors' funds on settlement date, it will benefit
from the temporary use of the funds if payment is made prior thereto. As noted
above, orders placed directly with the Transfer Agent must be accompanied by
payment. Investors will be entitled to receive dividends or distributions if
their order is received by the close of business on the day prior to the record
date for such dividends and distributions.
The Fund and the Distributor reserve the right to reject any purchase
orders.
PLAN OF DISTRIBUTION
The Fund has entered into a Plan of Distribution pursuant to Rule 12b-1
under the Act with the Distributor whereby the Distributor is authorized to
util-
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ize its own resources or those of its affiliates, including InterCapital, to
finance certain services and activities in connection with the distribution of
the Fund's shares. The principal activities and services which may be provided
by the Distributor, DWR, its affiliates and other Selected Broker-Dealers under
the Plan include: (1) compensation to, and expenses of, account executives and
other employees of DWR and other Selected Broker-Dealers, including overhead and
telephone expenses; (2) sales incentives and bonuses to sales representatives
and to marketing personnel in connection with promoting sales of the Fund's
shares; (3) expenses incurred in connection with promoting sales of the Fund's
shares; (4) preparing and distributing sales literature; and (5) providing
advertising and promotional activities, including direct mail solicitation and
television, radio, newspaper, magazine and other media advertisements.
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
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 Investment Manager); 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 or bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Fund's Trustees. For valuation purposes,
quotations of foreign portfolio securities are translated into U.S. dollar
equivalents at the prevailing market rates as of the morning of valuation.
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 sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
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
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service utilizes a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and 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.
SHAREHOLDER SERVICES
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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 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. Such dividends and distributions will be
paid in shares of the Fund at net asset value per share. At any time an investor
may request the Transfer Agent in writing to have subsequent dividends and/or
capital gains distributions paid to the investor in cash rather than shares. To
assure sufficient time to process the change, such request should be received by
the Transfer Agent at least five business days prior to the payment date for
which it commences to take effect. In the case of recently purchased shares for
which registration instructions have not been received on the record
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<PAGE>
date, cash payments will be made to DWR or other Selected Broker-Dealer through
whom shares were purchased.
INVESTMENT OF DISTRIBUTIONS RECEIVED IN CASH. Any shareholder who receives a
cash payment representing a dividend or capital gains distribution may invest
such dividend or distribution at the net asset value next determined after
receipt by the Transfer Agent by returning the check or the proceeds to the
Transfer Agent within 30 days after the payment date.
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 Fund's Transfer Agent for investment in
shares of the Fund.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis.
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
the self-employed, eligible 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 DWR or other Selected Broker-Dealer account
executive or the Transfer Agent.
EXCHANGE PRIVILEGE. An "Exchange Privilege", that is, the privilege of
exchanging shares of certain Dean Witter Funds for shares of the Fund, exists
whereby shares of various Dean Witter Funds which are open-end investment
companies sold with either a front-end (at time of purchase) sales charge ("FESC
funds") or a contingent deferred sales charge ("CDSC funds") may be redeemed at
their next calculated net asset value and the proceeds of the redemption may be
used to purchase shares of the Fund, shares of Dean Witter Tax-Free Daily Income
Trust, Dean Witter U.S. Government Money Market Trust, Dean Witter Liquid Asset
Fund Inc., Dean Witter California Tax-Free Daily Income Trust and Dean Witter
New York Municipal Money Market Trust (which five funds are hereinafter called
"money market funds") and shares of Dean Witter Short-Term U.S. Treasury Trust
and Dean Witter Limited Term Municipal Trust (collectively, the Fund, the money
market funds, Dean Witter Short-Term U.S. Treasury Trust and Dean Witter Limited
Term Municipal Trust are referred to herein as the "Exchange Funds"). An
exchange from an FESC fund or a CDSC fund to the Fund, Dean Witter Short-Term
U.S. Treasury Trust or Dean Witter Limited Term Municipal Trust 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 an FESC fund or
a CDSC fund, shares of the FESC fund or the CDSC fund are redeemed at their next
calculated net asset value and exchanged for shares of the money market fund at
their net asset value determined the following business day. Subsequently,
shares of the Exchange Funds received in an exchange for shares of an FESC fund
(regardless of the type of fund originally purchased) may be redeemed and
exchanged for shares of the other Exchange Funds, FESC funds or CDSC funds
(however, shares of CDSC funds, including shares acquired in exchange for (i)
shares of FESC funds or (ii) shares of the Exchange Funds which were acquired in
exchange for shares of FESC funds, may not be exchanged for shares of FESC
funds). Additionally, shares of the Exchange Funds received in an exchange for
shares of a CDSC fund (regardless of the type of fund originally purchased) may
be redeemed and exchanged for shares of the other Exchange Funds or CDSC funds.
Ultimately, any applicable contingent deferred sales charge ("CDSC") will have
to be paid upon redemption of shares originally purchased from a CDSC fund. (If
shares of the Exchange Fund received in exchange
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<PAGE>
for shares originally purchased from a CDSC fund are exchanged for shares of
another CDSC fund having a different CDSC schedule than that of the CDSC fund
from which the Exchange Funds shares were acquired, the shares will be subject
to the higher CDSC schedule.) During the period of time the shares originally
purchased from a CDSC fund remain in an Exchange Fund (calculated from the last
day of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of 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 CDSC fund are reacquired. Thus, the CDSC is
based upon the period of time (calculated as described above) the shareholder
was invested in a CDSC fund. Exchanges involving FESC funds or CDSC funds may be
made after the shares of the FESC fund or CDSC 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.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders and,
at the Investment Manager's discretion, may be limited by the Fund's refusal to
accept additional purchases and/ or exchanges from the investor. Although the
Fund does not have any specific definition of what constitutes a pattern of
frequent exchanges, and will consider all relevant factors in determining
whether a particular situation is abusive and contrary to the best interests of
the Fund and its other shareholders, investors should be aware that the Fund and
each of the other Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers
are part of the account information, shareholders may initiate an exchange of
shares of the Fund for shares of any of the above Dean Witter Funds (for which
the Exchange Privilege is available) pursuant to this Exchange Privilege by
contacting their DWR or other Selected Dealer account executive (no Exchange
Privilege Authorization Form is required). Other shareholders (and those who are
clients of DWR or other Selected Broker-Dealer but who wish to make exchanges
directly by writing or telephoning the Transfer Agent) must complete and forward
to the Transfer Agent an Exchange Privilege Authorization Form, copies of which
may be obtained from the Fund, to initiate an exchange. If the Authorization
Form is used, exchanges may be made in writing or by contacting the Transfer
Agent at (800) 526-3143 (toll free).The Fund will employ reasonable procedures
to confirm that exchange instructions communicated over the telephone are
genuine. Such procedures may include requiring various forms of personal
identification such as name, mailing address, social security or other tax
identification number and DWR or other Selected Dealer account number (if any).
Telephone instructions may also be recorded. If such procedures are not
employed, the Fund may be liable for any losses due to unauthorized or
fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the experience of the other
Dean Witter Funds in the past.
Additional information on the above is available from an account executive
of DWR or another Selected Broker-Dealer or from the Transfer Agent.
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REDEMPTIONS AND REPURCHASES
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REDEMPTION. Shares of the Fund can be redeemed for cash at any time at its
respective current net asset value per share (without any redemption or other
charge). If shares are held in a shareholder's account without a share
certificate, a written request for redemption is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption. The share certificate, or an
accompanying stock power, and the request for redemption, must be signed by the
shareholder or shareholders exactly as the shares are registered. Each request
for redemption, whether or not accompanied by a share certificate, must be sent
to the Fund's Transfer Agent at P.O Box 983, Jersey City, NJ 07303, which will
redeem the shares at their net asset value next determined (see "Purchase of
Fund Shares -- Determination of Net Asset Value") after it receives the request,
and certificates, if any, in good order. Any redemption request received after
such determination will be redeemed at the price next determined. The term "good
order" means that the share certificates, if any, and request for redemption are
properly signed, accompanied by any documentation required by the Transfer
Agent, and bear signature guarantees when required by the Fund or the Transfer
Agent. If redemption is requested by a corporation, partnership, trust or
fiduciary, the Transfer Agent may require that written evidence of authority
acceptable to the Transfer Agent be submitted before such request will be
accepted. A stock power may be obtained from any dealer or commercial bank. The
Fund may change the signature guarantee requirements upon notice to
shareholders, which may be by means of a new Prospectus.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor for the account of the shareholder), partnership, trust or
fiduciary, or sent to the shareholder at an address other than the registered
address, signature(s) must be guaranteed by an eligible guarantor acceptable to
the Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is an eligible guarantor).
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value next determined (see "Purchase of Fund Shares -- Determination of
Net Asset Value") after such repurchase order is received by DWR or other
Selected Broker-Dealer. Payment for shares repurchased may be made by the Fund
to the Distributor for the account of the shareholder. The offer by DWR and
other Selected Broker-Dealers to repurchase shares from shareholders may be
suspended without notice by them at any time. In that event, shareholders may
redeem their shares through the Fund's Transfer Agent as set forth above under
"Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or 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
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determined after a reinstatement request, together with the proceeds, is
received by the Transfer Agent.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem, on sixty
days' notice and at net asset value, the shares of any shareholder whose shares
have a value of less than $100 as a result of redemptions or repurchases, or
such lesser amount as may be fixed by the Trustees. However, before the Fund
redeems such shares and sends the proceeds to the shareholder, it will notify
the shareholder that the value of the shares is less than $100 and allow the
shareholder sixty days in which 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends on each day the
New York Stock Exchange is open for business. Such dividends are payable
monthly. The Fund intends to distribute substantially all of its daily net
investment income on an annual basis. Dividends from net capital gains, if any,
will be paid at least once each year.
Shareholders may instruct the Transfer Agent (in writing) to have their
dividends paid out monthly in cash. Processing of dividend checks begins
immediately following the monthly payment date. Shareholders who have requested
to receive dividends in cash will normally be sent their monthly dividend check
during the first ten days of the following month.
TAXES. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise remain
qualified as a regulated investment company under Subchapter M of the Internal
Revenue Code, it is not expected that the Fund will be required to pay any
federal income tax on such income and capital gains.
Shareholders who are required to pay taxes on their income 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 calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes,
including information as to the portion taxable as ordinary income 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.
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
18
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and are not intended to indicate future performance. The yield of the Fund is
computed by dividing the net investment income of the Fund over a 30-day period
by an average value (using the average number of shares entitled to receive
dividends and the net asset value per share at the end of the period), all in
accordance with applicable regulatory requirements. Such amount is compounded
for six months and then annualized for a twelve-month period to derive the yield
of the Fund.
From time to time the Fund may quote its "total return" in advertisements
and sales literature. The total return of the Fund is based on historical
earnings and is not intended to indicate future performance. The "average annual
total return" of the Fund refers to a figure reflecting the average annualized
percentage increase (or decrease) in the value of an initial investment in the
Fund of $1,000 over the life of the Fund. Average annual total return reflects
all income earned by the Fund, any appreciation or depreciation of the Fund's
assets, all expenses incurred by the Fund and any sales charges which would be
incurred by redeeming shareholders, for the period. 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. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of the Fund.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations
(such as mutual fund performance rankings of Lipper Analytical Services, Inc.).
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges. There are
no conversion, pre-emptive or other subscription rights. In the event of
liquidation, each share of beneficial interest 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
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, in the opinion of Massachusetts
counsel to the Fund, the risk to shareholders of personal liability is remote.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone number or address set forth on the front cover of
this Prospectus.
The Investment Manager provided the initial capital for the Fund by
purchasing 10,000 shares of the Fund for $100,000 on December 2, 1993. As of the
date of this Prospectus, the Investment Manager owned 100% of the outstanding
shares of the Fund. The Investment Manager may be deemed to control the Fund
until such time as it owns less than 25% of the outstanding shares of the Fund.
19
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<TABLE>
<S> <C>
Dean Witter DEAN WITTER
Short-Term Bond Fund SHORT-TERM
Two World Trade Center BOND FUND
New York, New York 10048
TRUSTEES
Jack F. Bennett
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Albert T. Sommers
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
Peter M. Avelar
Vice President
Rajesh K. Gupta
Vice President
Rochelle G. Siegel
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
110 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
</TABLE>
Prospectus
December 21, 1993
