<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1999
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
----------------
PRE-EFFECTIVE AMENDMENT NO. __ [ ]
POST-EFFECTIVE AMENDMENT NO. __ [ ]
----------------
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
(Exact Name of Registrant as Specified in Charter)
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(Address of Principal Executive Offices)
212-392-2550
(Registrant's Telephone Number)
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(Name and Address of Agent for Service)
----------------
COPY TO:
STUART M. STRAUSS, ESQ.
GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
The Exhibit Index is located on page [ ]
================================================================================
<PAGE>
FORM N-14
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PART A OF FORM N-14 ITEM NO. PROXY STATEMENT AND PROSPECTUS HEADING
- ------------------------------ -------------------------------------------------------
<S> <C>
1(a) ........................ Cross Reference Sheet
(b) ........................ Front Cover Page
(c) ........................ *
2(a) ........................ *
(b) ........................ Table of Contents
3(a) ........................ Fee Table
(b) ........................ Synopsis
(c) ........................ Principal Risk Factors
4(a) ........................ The Reorganization
(b) ........................ The Reorganization -- Capitalization Table (Unaudited)
5(a) ........................ Registrant's Prospectus
(b) ........................ *
(c) ........................ *
(d) ........................ *
(e) ........................ Available Information
(f) ........................ Available Information
6(a) ........................ Prospectus of TCW/DW Income and Growth Fund
(b) ........................ Available Information
(c) ........................ *
(d) ........................ *
7(a) ........................ Introduction -- Proxies
(b) ........................ *
(c) ........................ Introduction; The Reorganization -- Appraisal Rights
8(a) ........................ The Reorganization
(b) ........................ *
9 .......................... *
</TABLE>
<TABLE>
<CAPTION>
PART B OF FORM N-14 ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- ------------------------------ -------------------------------------------------
<S> <C>
10(a) ........................ Cover Page
(b) ........................ *
11 .......................... Table of Contents
12(a) ........................ Additional Information about Morgan Stanley Dean
Witter Income Builder Fund
(b) ........................ *
(c) ........................ *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B OF FORM N-14 ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- ------------------------------ ---------------------------------------------------------
<S> <C>
13(a) ........................ Additional Information about TCW/DW Income and
Growth Fund
(b) ........................ *
(c) ........................ *
14 .......................... Registrant's Annual Report for the fiscal year ended
September 30, 1998; TCW/DW Income and Growth
Fund's Annual Report for the fiscal year ended
January 31, 1998; and Pro Forma financial statements for
Registrant for the period ended on September 30, 1998.
PART C OF FORM N-14 ITEM NO. OTHER INFORMATION HEADING
- ------------------------------ ---------------------------------------------------------
15 .......................... Indemnification
16 .......................... Exhibits
17 .......................... Undertakings
</TABLE>
- --------------------
* Not Applicable or negative answer
<PAGE>
PRELIMINARY PROXY STATEMENT AND PROSPECTUS TO BE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION ONLY
TCW/DW INCOME AND GROWTH FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(800) 869-NEWS
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 8, 1999
TO THE SHAREHOLDERS OF TCW/DW INCOME AND GROWTH FUND:
Notice is hereby given of a Special Meeting of the Shareholders of TCW/DW
Income and Growth Fund ("Income and Growth") to be held in Conference Room A,
Forty-Fourth Floor, Two World Trade Center, New York, New York 10048, at 11:00
A.M., New York time, on June 8, 1999, and any adjournments thereof (the
"Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization, dated
February 25, 1999 (the "Reorganization Agreement"), between Income and
Growth and Morgan Stanley Dean Witter Income Builder Fund ("Income
Builder"), pursuant to which substantially all of the assets of Income and
Growth would be combined with those of Income Builder and shareholders of
Income and Growth would become shareholders of Income Builder receiving
shares of Income Builder with a value equal to the value of their holdings
in Income and Growth (the "Reorganization"); and
2. To act upon such other matters as may properly come before the Meeting.
The Reorganization is more fully described in the accompanying Proxy
Statement and Prospectus and a copy of the Reorganization Agreement is attached
as Exhibit A thereto. Shareholders of record at the close of business on March
26, 1999 are entitled to notice of, and to vote at, the Meeting. Please read
the Proxy Statement and Prospectus carefully before telling us, through your
proxy or in person, how you wish your shares to be voted. THE BOARD OF TRUSTEES
OF INCOME AND GROWTH RECOMMENDS YOU VOTE IN FAVOR OF THE REORGANIZATION. WE
URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Trustees,
BARRY FINK,
Secretary
, 1999
- -------------------------------------------------------------------------------
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE UNABLE
TO BE PRESENT IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED PROXY
IN ORDER THAT THE NECESSARY QUORUM BE REPRESENTED AT THE MEETING. THE
ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
CERTAIN SHAREHOLDERS WILL BE ABLE TO VOTE TELEPHONICALLY BY TOUCHTONE
TELEPHONE OR ELECTRONICALLY ON THE INTERNET BY FOLLOWING INSTRUCTIONS
CONTAINED ON THEIR PROXY CARDS OR ON THE ENCLOSED VOTING INFORMATION CARD.
- -------------------------------------------------------------------------------
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(800) 869-NEWS (TOLL FREE)
ACQUISITION OF THE ASSETS OF
TCW/DW INCOME AND GROWTH FUND
BY AND IN EXCHANGE FOR SHARES OF
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
This Proxy Statement and Prospectus is being furnished to shareholders of
TCW/DW Income and Growth Fund ("Income and Growth") in connection with an
Agreement and Plan of Reorganization, dated February 25, 1999 (the
"Reorganization Agreement"), pursuant to which substantially all the assets of
Income and Growth will be combined with those of Morgan Stanley Dean Witter
Income Builder Fund ("Income Builder") in exchange for shares of Income Builder
(the "Reorganization"). As a result of this transaction, shareholders of Income
and Growth will become shareholders of Income Builder and will receive shares
of Income Builder with a value equal to the value of their holdings in Income
and Growth. The terms and conditions of this transaction are more fully
described in this Proxy Statement and Prospectus and in the Reorganization
Agreement between Income and Growth and Income Builder, attached hereto as
Exhibit A. The address of Income and Growth is that of Income Builder set forth
above. This Proxy Statement also constitutes a Prospectus of Income Builder,
which is dated , 1999, filed by Income Builder with the Securities and
Exchange Commission (the "Commission") as part of its Registration Statement on
Form N-14 (the "Registration Statement").
Income Builder is an open-end diversified management investment company
whose primary investment objective is to seek reasonable income. Growth of
capital is the secondary objective. The Fund seeks to achieve its objectives by
investing, under normal market conditions, at least 65% of its total assets in
a diversified portfolio of income producing equity securities, including common
stock, preferred stock and convertible securities. Up to 35% of the Fund's
assets may be invested in fixed-income securities or common stocks that do not
pay a regular dividend but are expected to contribute to the Fund's ability to
meet its investment objectives.
This Proxy Statement and Prospectus sets forth concisely information about
Income Builder that shareholders of Income and Growth should know before voting
on the Reorganization Agreement. A copy of the Prospectus for Income Builder
dated November 25, 1998, is attached as Exhibit B and incorporated herein by
reference. Also enclosed and incorporated herein by reference is Income
Builder's Annual Report for the fiscal year ended September 30, 1998. A
Statement of Additional Information relating to the Reorganization, described
in this Proxy Statement and Prospectus (the "Additional Statement"), dated
, 1999, has been filed with the Commission and is also incorporated herein
by reference. Also incorporated herein by reference are Income and Growth's
Prospectus, dated March 31, 1998, and Annual Report for its fiscal year ended
January 31, 1999. Such documents are available without charge by calling (800)
869-NEWS (TOLL FREE).
Investors are advised to read and retain this Proxy Statement and Prospectus
for future reference.
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 ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROXY STATEMENT AND PROSPECTUS IS DATED , 1999.
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION ............................................................................. 1
General ................................................................................ 1
Record Date; Share Information ......................................................... 1
Proxies ................................................................................ 2
Expenses of Income and Growth .......................................................... 2
Vote Required .......................................................................... 3
SYNOPSIS ................................................................................. 3
The Reorganization ..................................................................... 3
Fee Table .............................................................................. 4
Tax Consequences of the Reorganization ................................................. 8
Comparison of Income and Growth and Income Builder ..................................... 8
PRINCIPAL RISK FACTORS ................................................................... 11
THE REORGANIZATION ....................................................................... 12
The Proposal ........................................................................... 12
The Board's Consideration .............................................................. 13
The Reorganization Agreement ........................................................... 14
Tax Aspects of the Reorganization ...................................................... 15
Description of Shares .................................................................. 17
Capitalization Table (unaudited) ....................................................... 17
Appraisal Rights ....................................................................... 17
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS ........................... 18
Investment Objectives and Policies ..................................................... 18
Investment Restrictions ................................................................ 19
ADDITIONAL INFORMATION ABOUT INCOME AND GROWTH AND INCOME
BUILDER ................................................................................. 20
General ................................................................................ 20
Financial Information .................................................................. 20
Management ............................................................................. 20
Description of Securities and Shareholder Inquiries .................................... 20
Dividends, Distributions and Taxes ..................................................... 20
Purchases, Repurchases and Redemptions ................................................. 20
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE .............................................. 20
FINANCIAL STATEMENTS AND EXPERTS ......................................................... 21
LEGAL MATTERS ............................................................................ 21
AVAILABLE INFORMATION .................................................................... 21
OTHER BUSINESS ........................................................................... 21
Exhibit A - Agreement and Plan of Reorganization, dated February 25, 1999, by and between
Income and Growth and Income Builder .................................................... A-1
Exhibit B - Prospectus of Income Builder dated November 25, 1998 ......................... B-1
</TABLE>
<PAGE>
TCW/DW INCOME AND GROWTH FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(800) 869-NEWS (TOLL FREE)
--------------------
PROXY STATEMENT AND PROSPECTUS
--------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 8, 1999
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the shareholders
of TCW/DW Income and Growth Fund ("Income and Growth"), an open-end
non-diversified management investment company, in connection with the
solicitation by the Board of Trustees of Income and Growth (the "Board") of
proxies to be used at the Special Meeting of Shareholders of Income and Growth
to be held in Conference Room A, Forty-Fourth Floor, Two World Trade Center,
New York, New York 10048 at 11:00 A.M., New York time, on June 8, 1999, and any
adjournments thereof (the "Meeting"). It is expected that the mailing of this
Proxy Statement and Prospectus will be made on or about , 1999.
At the Meeting, Income and Growth shareholders ("Shareholders") will
consider and vote upon an Agreement and Plan of Reorganization, dated February
25, 1999 (the "Reorganization Agreement"), between Income and Growth and Morgan
Stanley Dean Witter Income Builder Fund ("Income Builder") pursuant to which
substantially all of the assets of Income and Growth will be combined with
those of Income Builder in exchange for shares of Income Builder. As a result
of this transaction, Shareholders will become shareholders of Income Builder
and will receive shares of Income Builder equal to the value of their holdings
in Income and Growth on the date of such transaction (the "Reorganization").
Pursuant to the Reorganization, each Shareholder will receive the class of
shares of Income Builder that corresponds to the class of shares of Income and
Growth currently held by that Shareholder. Accordingly, as a result of the
Reorganization, each Class A, Class B, Class C and Class D Shareholder of
Income and Growth will receive Class A, Class B, Class C and Class D shares of
Income Builder, respectively. The shares to be issued by Income Builder
pursuant to the Reorganization (the "Income Builder Shares") will be issued at
net asset value without an initial sales charge. Further information relating
to Income Builder is set forth herein and in Income Builder's current
Prospectus, dated November 25, 1998 ("Income Builder's Prospectus"), attached
to this Proxy Statement and Prospectus and incorporated herein by reference.
The information concerning Income and Growth contained herein has been
supplied by Income and Growth and the information concerning Income Builder
contained herein has been supplied by Income Builder.
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on March 26, 1999 as the record
date (the "Record Date") for the determination of the Shareholders entitled to
notice of, and to vote at, the Meeting. As of the Record Date,
1
<PAGE>
there were shares of Income and Growth issued and outstanding.
Shareholders on the Record Date are entitled to one vote per share on each
matter submitted to a vote at the Meeting. A majority of the outstanding shares
entitled to vote, represented in person or by proxy, will constitute a quorum
at the Meeting.
The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of a Class of Income and Growth as of the Record
Date: -- [TO COME]. As of the Record Date, the trustees and officers of Income
and Growth, as a group, owned less than 1% of the outstanding shares of Income
and Growth.
The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of a Class of Income Builder as of the Record
Date: -- [TO COME]. As of the Record Date, the trustees and officers of Income
Builder, as a group, owned less than 1% of the outstanding shares of Income
Builder.
PROXIES
The enclosed form of proxy, if properly executed and returned, will be
voted in accordance with the choice specified thereon. The proxy will be voted
in favor of the Reorganization Agreement unless a choice is indicated to vote
against or to abstain from voting on the Reorganization Agreement. The Board
knows of no business, other than that set forth in the Notice of Special
Meeting of Shareholders, to be presented for consideration at the Meeting.
However, the proxy confers discretionary authority upon the persons named
therein to vote as they determine on other business, not currently
contemplated, which may come before the Meeting. Abstentions and, if
applicable, broker "non-votes" will not count as votes in favor of the
Reorganization Agreement, and broker "non-votes" will not be deemed to be
present at the meeting for purposes of determining whether the Reorganization
Agreement has been approved. Broker "non-votes" are shares held in street name
for which the broker indicates that instructions have not been received from
the beneficial owners or other persons entitled to vote and for which the
broker does not have discretionary voting authority. If a Shareholder executes
and returns a proxy but fails to indicate how the votes should be cast, the
proxy will be voted in favor of the Reorganization Agreement. The proxy may be
revoked at any time prior to the voting thereof by: (i) delivering written
notice of revocation to the Secretary of Income and Growth at Two World Trade
Center, New York, New York 10048; (ii) attending the Meeting and voting in
person; or (iii) signing and returning a new proxy (if returned and received in
time to be voted). Attendance at the Meeting will not in and of itself revoke a
proxy.
In the event that the necessary quorum to transact business or the vote
required to approve or reject the Reorganization Agreement is not obtained at
the Meeting, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of the holders of a majority of shares of
Income and Growth present in person or by proxy at the Meeting. The persons
named as proxies will vote in favor of such adjournment those proxies which
they are entitled to vote in favor of the Reorganization Agreement and will
vote against any such adjournment those proxies required to be voted against
the Reorganization Agreement.
EXPENSES OF INCOME AND GROWTH
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement and Prospectus, will be borne by Income and
Growth, which expenses are expected to approximate $97,000. Income and Growth
and Income Builder will bear all of their respective other expenses associated
with the Reorganization. In addition to the solicitation of proxies by mail,
proxies may be solicited by officers of Income and Growth, and officers and
regular employees of Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services" or the "Manager"), or its parent company Morgan Stanley Dean Witter
Advisors Inc. ("MSDW Advisors") and Morgan Stanley Dean Witter Trust FSB ("MSDW
Trust"), an affiliate of MSDW
2
<PAGE>
Services, personally or by mail, telephone, telegraph or otherwise, without
compensation therefor. Brokerage houses, banks and other fiduciaries may be
requested to forward soliciting material to the beneficial owners of shares and
to obtain authorization for the execution of proxies.
Shareholders whose shares are registered with MSDW Trust will be able to
vote their shares by touchtone telephone or by Internet by following the
instructions on the proxy card or on the Voting Information Card accompanying
this Proxy Statement. To vote by touchtone telephone, Shareholders can call the
toll-free number 1-800-690-6903. To vote by Internet, shareholders can access
the websites www.msdwt.com or www.proxyvote.com. Telephonic and Internet voting
with MSDW Trust presently are not available to Shareholders whose shares are
held in street name.
In certain instances, MSDW Trust may call Shareholders to ask if they
would be willing to have their votes recorded by telephone. This telephone
voting procedure is designed to authenticate Shareholders' identities, to allow
Shareholders to authorize the voting of their shares in accordance with their
instructions and to confirm that their instructions have been recorded
properly. No recommendation will be made as to how a Shareholder should vote on
the Reorganization Agreement other than to refer to the recommendation of the
Board. Income and Growth has been advised by counsel that these procedures are
consistent with the requirements of applicable law. Shareholders voting by
telephone in this manner will be asked for their social security number or
other identifying information and will be given an opportunity to authorize
proxies to vote their shares in accordance with their instructions. To ensure
that the Shareholders' instructions have been recorded correctly, they will
receive a confirmation of their instructions in the mail. A special toll-free
number will be available in case the information contained in the confirmation
is incorrect. Although a Shareholder's vote may be taken by telephone, each
Shareholder will receive a copy of this Proxy Statement and Prospectus and may
vote by mail using the enclosed proxy card or by touchtone telephone or the
Internet as set forth above. The last proxy vote received in time to be voted,
whether by proxy card, touchtone telephone or Internet will be the vote that is
counted and will revoke all previous votes by the shareholder.
VOTE REQUIRED
Approval of the Reorganization Agreement by the Shareholders requires the
affirmative vote of a majority (i.e., more than 50%) of the shares of Income
and Growth represented in person or by proxy and entitled to vote at the
Meeting, provided a quorum is present at the Meeting. If the Reorganization
Agreement is not approved by Shareholders, Income and Growth will continue in
existence and the Board will consider alternative actions.
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus. This synopsis
is only a summary and is qualified in its entirety by the more detailed
information contained or incorporated by reference in this Proxy Statement and
Prospectus and the Reorganization Agreement. Shareholders should carefully
review this Proxy Statement and Prospectus and The Reorganization Agreement in
their entirety and, in particular, Income Builder's Prospectus, which is
attached to this Proxy Statement and incorporated herein by reference.
THE REORGANIZATION
The Reorganization Agreement provides for the transfer of substantially
all the assets of Income and Growth, subject to stated liabilities, to Income
Builder in exchange for the Income Builder Shares. The aggregate net asset
value of the Income Builder Shares issued in the exchange will equal the
aggregate value of the net assets of Income and Growth received by Income
Builder. On or after the closing date scheduled for the Reorganization (the
"Closing Date"), Income and Growth will distribute the Income Builder Shares
3
<PAGE>
received by Income and Growth to Shareholders as of the Valuation Date (as
defined below under "The Reorganization Agreement") in complete liquidation of
Income and Growth and Income and Growth will thereafter be dissolved and
deregistered under the Investment Company Act of 1940, as amended (the "1940
Act"). As a result of the Reorganization, each Shareholder will receive that
number of full and fractional Income Builder Shares equal in value to such
Shareholder's pro rata interest in the net assets of Income and Growth
transferred to Income Builder. Pursuant to the Reorganization, each Shareholder
will receive the class of shares of Income Builder that corresponds to the
class of shares of Income and Growth currently held by that Shareholder.
Accordingly, as a result of the Reorganization, each Class A, Class B, Class C
and Class D Shareholder of Income and Growth will become holders of Class A,
Class B, Class C and Class D shares of Income Builder, respectively.
Shareholders holding their shares of Income and Growth in certificate form will
be asked to surrender their certificates in connection with the Reorganization.
Shareholders who do not surrender their certificates prior to the Closing Date
will still receive their shares of Income Builder; however, such Shareholders
will not be able to redeem, transfer or exchange the Income Builder Shares
received until the old certificates have been surrendered. The Board has
determined that the interests of Shareholders will not be diluted as a result
of the Reorganization.
FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION -- THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING THE TRUSTEES WHO ARE NOT "INTERESTED
PERSONS" OF INCOME AND GROWTH ("INDEPENDENT TRUSTEES"), AS THAT TERM IS DEFINED
IN THE 1940 ACT, HAS CONCLUDED THAT THE REORGANIZATION IS IN THE BEST INTERESTS
OF INCOME AND GROWTH AND ITS SHAREHOLDERS AND RECOMMENDS APPROVAL OF THE
REORGANIZATION AGREEMENT.
FEE TABLE
Income and Growth and Income Builder each pay expenses for management of
their assets, distribution of their shares and other services, and those
expenses are reflected in the net asset value per share of each fund. The
following table illustrates expenses and fees that each class of shares of
Income and Growth incurred during the fund's fiscal year ended January 31,
1999. With respect to Income Builder, the table sets forth expenses and fees
based on the fund's September 30, 1998 fiscal year end. The table also sets
forth pro forma fees for the surviving combined fund (Income Builder)
reflecting what the fee schedule would have been on , 1998, if the
Reorganization had been consummated twelve (12) months prior to that date.
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
INCOME
AND INCOME PRO FORMA
GROWTH BUILDER COMBINED
--------------- --------------- ---------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFERING PRICE)
Class A ............................................... 4.25%(1) 5.25%(1) 5.25%(1)
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
MAXIMUM SALES CHARGE IMPOSED ON REINVESTED DIVIDENDS
Class A ............................................... none none none
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
MAXIMUM CONTINGENT DEFERRED SALES CHARGE (AS A
PERCENTAGE OF THE LESSER OF ORIGINAL PURCHASE PRICE OR
REDEMPTION PROCEEDS)
Class A ............................................... none (2) none (2) none (2)
Class B ............................................... 5.00%(3) 5.00%(3) 5.00%(3)
Class C ............................................... 1.00%(4) 1.00%(4) 1.00%(4)
Class D ............................................... none none none
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
INCOME
AND INCOME PRO FORMA
GROWTH BUILDER COMBINED
-------- --------- ----------
<S> <C> <C> <C>
REDEMPTION FEES
Class A ......... none none none
Class B ......... none none none
Class C ......... none none none
Class D ......... none none none
EXCHANGE FEE
Class A ......... none none none
Class B ......... none none none
Class C ......... none none none
Class D ......... none none none
</TABLE>
Annual Fund Operating Expenses As a Percentage of Average Net Assets
<TABLE>
<CAPTION>
INCOME
AND INCOME PRO FORMA
GROWTH BUILDER COMBINED
---------- --------------- ---------------
<S> <C> <C> <C>
MANAGEMENT AND ADVISORY FEE
Class A ..................... 0.75% 0.75% 0.75%
Class B ..................... 0.75% 0.75% 0.75%
Class C ..................... 0.75% 0.75% 0.75%
Class D ..................... 0.75% 0.75% 0.75%
12B-1 FEES(5)(6)
Class A ..................... 0.23% 0.25% 0.25%
Class B ..................... 0.75% 0.88%(6) 0.88%(6)
Class C ..................... 0.74% 1.00% 1.00%
Class D ..................... none none none
OTHER EXPENSES
Class A ..................... 0.58% 0.17% 0.17%
Class B ..................... 0.58% 0.17% 0.17%
Class C ..................... 0.58% 0.17% 0.17%
Class D ..................... 0.58% 0.17% 0.17%
TOTAL FUND OPERATING EXPENSES
Class A ..................... 1.26% 1.17% 1.17%
Class B ..................... 2.08% 1.80% 1.80%
Class C ..................... 2.07% 1.92% 1.92%
Class D ..................... 1.33% 0.92% 0.92%
</TABLE>
- ----------
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund Shares
-- Initial Sales Charge Alternative -- Class A Shares" in each fund's
Prospectus).
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a Contingent Deferred Sales Charge ("CDSC") of
1.00% that will be imposed on redemptions made within one year after
purchase, except for certain specific circumstances (see "Purchases,
Exchanges and Redemptions" below and "Purchase of Fund Shares -- Initial
Sales Charge Alternative -- Class A Shares" in each fund's Prospectus).
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchases, Exchanges and Redemptions" below and "Purchase of Fund Shares
-- Level Load Alternative -- Class C Shares" in each fund's Prospectus).
5
<PAGE>
(5) The 12b-1 fee is accrued daily and payable monthly. With respect to each
fund, the entire 12b-1 fee payable by Class A and a portion of the 12b-1
fee payable by each of Class B and Class C are currently characterized as
a service fee within the meaning of National Association of Securities
Dealers, Inc. ("NASD") guidelines and are payments made for personal
service and/ or maintenance of shareholder accounts. These amounts are
equal to 0.20% and 0.25% with respect to Class B and C, respectively, of
Income and Growth and 0.25% with respect to each of Class B and C of
Income Builder. The remainder of the 12b-1 fee, if any, is an asset-based
sales charge, and is a distribution fee paid to Morgan Stanley Dean
Witter Distributors Inc. (the "Distributor") to compensate it for the
services provided and the expenses borne by the Distributor and others in
the distribution of each fund's shares (see "Description of Shares" below
and "Purchase of Fund Shares -- Plan of Distribution" in each fund's
Prospectus).
(6) Upon conversion of Class B shares to Class A shares, such shares will be
subject to the lower 12b-1 fee applicable to Class A shares. No sales
charge is imposed at the time of conversion of Class B shares to Class A
shares. Class C shares do not have a conversion feature and, therefore,
are subject to an ongoing 0.75% 12b-1 fee, with respect to Income and
Growth, and 1.00% 12b-1 fee, with respect to Income Builder (see
"Description of Shares" below and "Purchase of Fund Shares -- Alternative
Purchase Arrangements" in each fund's Prospectus).
6
<PAGE>
HYPOTHETICAL EXPENSES
To attempt to show the effect of these expenses on an investment over
time, the hypotheticals shown below have been created. Assuming that an
investor makes a $10,000 investment in either Income and Growth or Income
Builder or the new combined fund (Income Builder), that the annual return is 5%
and that the operating expenses for each fund are the ones shown in the chart
above, if the investment was redeemed at the end of each period shown below,
the investor would incur the following expenses by the end of each period
shown:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income and Growth
Class A ......... $577 $897 $1,239 $2,203
Class B ......... $711 $952 $1,319 $2,410
Class C ......... $310 $649 $1,114 $2,400
Class D ......... $135 $421 $ 729 $1,601
Income Builder
Class A ......... $638 $877 $1,135 $1,871
Class B ......... $683 $866 $1,175 $2,116
Class C ......... $295 $603 $1,037 $2,243
Class D ......... $ 94 $293 $ 509 $1,131
Pro Forma Combined
Class A ......... $638 $877 $1,135 $1,871
Class B ......... $683 $866 $1,175 $2,116
Class C ......... $295 $603 $1,037 $2,243
Class D ......... $ 94 $293 $ 509 $1,131
</TABLE>
If such investment was not redeemed, the investor would incur the
following expenses:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income and Growth
Class A ......... $577 $897 $1,239 $2,203
Class B ......... $211 $652 $1,119 $2,410
Class C ......... $210 $649 $1,114 $2,400
Class D ......... $135 $421 $ 729 $1,601
Income Builder
Class A ......... $638 $877 $1,135 $1,871
Class B ......... $183 $566 $ 975 $2,116
Class C ......... $195 $603 $1,037 $2,243
Class D ......... $ 94 $293 $ 509 $1,131
Pro Forma Combined
Class A ......... $638 $877 $1,135 $1,871
Class B ......... $183 $566 $ 975 $2,116
Class C ......... $195 $603 $1,037 $2,243
Class D ......... $ 94 $293 $ 509 $1,131
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL OPERATING EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. LONG-TERM SHAREHOLDERS OF CLASS A, CLASS B AND CLASS C
SHARES OF INCOME AND GROWTH AND INCOME BUILDER MAY PAY MORE IN SALES CHARGES,
INCLUDING DISTRIBUTION FEES, THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM
FRONT-END SALES CHARGES PERMITTED BY THE NASD.
The purpose of the foregoing fee table is to assist the investor or
shareholder in understanding the various costs and expenses that an investor or
shareholder in the Fund will bear directly or indirectly. For a more complete
description of these costs and expenses, see "Comparison of Income and Growth
and Income Builder -- Investment Management and Distribution Plan Fees, Other
Significant Fees, and Purchases, Exchanges and Redemptions" below.
7
<PAGE>
TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the Reorganization, Income and Growth will receive an
opinion of Gordon Altman Butowsky Weitzen Shalov & Wein to the effect that the
Reorganization will constitute a tax-free reorganization for Federal income tax
purposes, and that no gain or loss will be recognized by Income and Growth or
the shareholders of Income and Growth for Federal income tax purposes as a
result of the transactions included in the Reorganization. For further
information about the tax consequences of the Reorganization, see "The
Reorganization -- Tax Aspects of the Reorganization" below.
COMPARISON OF INCOME AND GROWTH AND INCOME BUILDER
INVESTMENT OBJECTIVES AND POLICIES. Income and Growth and Income Builder
are funds that have similar investment objectives. The investment objective of
Income and Growth is to generate high total return by providing a high level of
current income and the potential for capital appreciation. The primary
investment objective of Income Builder is to seek reasonable income. Growth of
capital is the secondary objective.
Income and Growth seeks to achieve its investment objective by investing,
in descending order of preference under current market conditions, at least 65%
of its assets in any or all of the following types of securities: (1) bonds or
preferred stock convertible into common stock ("convertible securities"); (2)
other fixed-income securities, including bonds, notes, debentures and preferred
stocks; (3) common stocks; and (4) U.S. Government Securities (securities
issued or guaranteed by the United States or its agencies or
instrumentalities). Income and Growth will invest at least 50% of its total
assets in a combination of equity securities and fixed income securities with
equity components. Income Builder seeks to achieve its objectives by investing,
under normal market conditions, at least 65% of its total assets in income
producing equity securities, including common stock, preferred stock and
convertible securities.
Income and Growth may also invest without limitation in fixed income
securities rated lower than investment grade (commonly known as "junk bonds"),
and in Eurodollar convertible securities if the securities are convertible into
listed U.S. securities or American Depository Receipts ("ADR's") and may invest
up to 15% of its net assets in Eurodollar convertible securities that are
convertible into unlisted foreign equity securities. The fund may invest up to
25% of its total assets at the time of purchase in non-dollar denominated
foreign securities (other than securities of Canadian issuers registered under
the Securities Exchange Act of 1934 and ADR's, on which there is no limit). The
fund may also invest up to 5% of its net assets in warrants, including up to 2%
of its net assets in warrants not listed on the New York Stock Exchange, and
may invest up to 5% of its net assets in stock rights. Income and Growth may
also invest in real estate investment trusts. The fund may also engage in
options and futures transactions, including investments in stock and bond index
futures contracts. Up to 35% of the assets of Income Builder may be invested in
fixed-income securities or common stocks that do not pay a regular dividend but
are expected to contribute to the Fund's ability to meet its investment
objectives. The fund may invest up to 20% of its assets in junk bonds. The fund
may also invest up to 25% of its total assets in enhanced convertible
securities, up to 10% in synthetic convertible securities and without
limitation in exchangeable convertible bonds and exchangeable convertible
preferred stock. The fund may invest up to 25% of the value of its total assets
at the time of purchase in foreign securities (other than securities of
Canadian issuers registered under the Securities Exchange Act of 1934 and
ADR's, on which there is no limit) and up to 15% of its net assets in unlisted
foreign securities. The fund also may invest up to 20% of its assets in real
estate investment trusts, but does not currently intend to invest more than 10%
of its assets in such securities. The processes by which each fund selects
investments may differ and are more fully described under "Comparison of
Investment Objectives, Policies and Restrictions" below.
The principal differences between the funds' investment policies, as well
as certain similarities, are more fully described under "Comparison of
Investment Objectives, Policies and Restrictions" below.
8
<PAGE>
The investment policies of both Income and Growth and Income Builder are
not fundamental and may be changed by their respective Boards of Trustees.
ADVISORY, MANAGEMENT AND DISTRIBUTION PLAN FEES. Income and Growth
obtains its investment advisory services from TCW Funds Management, Inc.
("TCW") and obtains its management services from MSDW Services. Income Builder
obtains investment management services from MSDW Advisors. Income and Growth
pays TCW monthly compensation calculated daily by applying the annual rate of
0.30% to the first $500 million of the fund's average daily net assets and
0.28% to the fund's average net assets exceeding $500 million. The fund pays
MSDW Services monthly compensation calculated daily by applying the annual rate
of 0.45% to the first $500 million of the fund's daily net assets and 0.42% to
the fund's daily net assets exceeding $500 million. With respect to Income
Builder, the fund pays MSDW Advisors monthly compensation calculated daily by
applying the annual rate of 0.75% to the portion of the fund's average daily
net assets not exceeding $500 million; and 0.725% to the portion of such daily
net assets exceeding $500 million. Each class of both funds' shares is subject
to the same investment management fee or management and advisory fee rates
applicable to the respective fund.
Both Income and Growth and Income Builder have adopted similar
distribution plans (each a "Plan," collectively "Plans") pursuant to Rule 12b-1
under the 1940 Act. In the case of Class A and Class C shares, each fund's Plan
provides that the fund will reimburse the Distributor and others for the
expenses of certain activities and services incurred by them in connection with
the distribution of the Class A and Class C Shares of the fund. Reimbursement
for these expenses is made in monthly payments by each fund to the Distributor
which will in no event exceed amounts equal to payments at the annual rates of
0.25% and 0.75% of the average daily net assets of Class A and Class C shares,
respectively, with respect to Income and Growth and 0.25% and 1.0% of the
average daily net assets of Class A and Class C shares, respectively, with
respect to Income Builder. In the case of Class B shares of Income and Growth,
the Plan provides that the fund will pay the Distributor a fee, which is
accrued daily and paid monthly, at the annual rate of 0.75% of the average
daily net assets. In the case of Class B shares, Income Builder's Plan provides
that the fund will pay the Distributor a fee, which is accrued daily and paid
monthly, at the annual rate of 1.0% of the lesser of (a) the average daily net
sales of the fund's Class B shares or (b) the average daily net assets of Class
B of the fund. The fee is paid for the services provided and the expenses borne
by the Distributor and others in connection with the distribution of each
fund's Class B shares. There are no 12b-1 fees applicable to either funds'
Class D shares. For further information relating to the 12b-1 fees applicable
to each class of Income Builder's shares, see the section entitled "Purchase of
Fund Shares" in Income Builder's Prospectus, attached hereto. The Distributor
also receives the proceeds of any contingent deferred sales charge ("CDSC")
paid by the funds' shareholders at the time of redemption. The CDSC schedules
applicable to each of Income and Growth and Income Builder are set forth below
under "Purchases, Exchanges and Redemptions."
OTHER SIGNIFICANT FEES. Both Income and Growth and Income Builder pay
additional fees in connection with their operations, including legal, auditing,
transfer agent, trustees fees and custodial fees. See "Synopsis -- Fee Table"
above for the percentage of average net assets represented by such "Other
Expenses."
PURCHASES, EXCHANGES AND REDEMPTIONS. Class A shares of Income and Growth
are sold at net asset value plus an initial sales charge of up to 4.25%. Class
A shares of Income Builder are sold at net asset value plus an initial sales
charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investment by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase, but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase (except for certain specific circumstances fully
described in each fund's Prospectus). After completion of the Reorganization,
if approved, Shareholders of the combined fund who purchase additional shares
of Class A will purchase such shares at net asset value plus an initial sales
charge of up to 5.25%.
9
<PAGE>
Class B shares of each fund are offered at net asset value with no initial
sales charge, but are subject to the same CDSC schedule set forth below (Class
B shares of each fund purchased by certain qualified employer sponsored benefit
plans are subject to a reduced CDSC schedule):
<TABLE>
<CAPTION>
CLASS B SHARES OF INCOME AND GROWTH AND
YEAR SINCE PURCHASE PAYMENT MADE INCOME BUILDER
- ------------------------------------- ----------------------------------------
<S> <C>
First .......................... 5.0%
Second ......................... 4.0%
Third .......................... 3.0%
Fourth ......................... 2.0%
Fifth .......................... 2.0%
Sixth .......................... 1.0%
Seventh and thereafter ......... none
</TABLE>
Class C shares of each fund are sold at net asset value with no initial
sales charge, but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. The CDSC may be waived for certain redemptions (which are
fully described in each fund's Prospectus).
Class D shares of each fund are available only to limited categories of
investors and are sold at net asset value with no initial sales charge or CDSC.
The CDSC charge is paid to the Distributor. Shares of Income and Growth
and Income Builder are distributed by the Distributor and offered by Dean
Witter Reynolds Inc. and other dealers who have entered into selected dealer
agreements with the Distributor. For further information relating to the CDSC
schedules applicable to each class of Income Builder's shares, see the section
entitled "Purchase of Fund Shares" in Income Builder's Prospectus.
Shares of each class of Income and Growth may be exchanged for shares of
the same class of any other TCW/DW Fund that offers its shares in more than one
class, without the imposition of an exchange fee. Income and Growth shares may
also be exchanged for shares of TCW/DW North American Government Income Trust
or for any of five Morgan Stanley Dean Witter Funds that are money market funds
(the foregoing six funds are collectively referred to as the "Income and Growth
Exchange Funds"), without the imposition of an exchange fee. With respect to
both funds, no CDSC is imposed at the time of any exchange, although any
applicable CDSC will be imposed upon ultimate redemption. Upon consummation of
the Reorganization, Shareholders will no longer be able to exchange their
shares for shares of a TCW/DW Fund. For greater details relating to exchange
privileges applicable to Income Builder, see the section entitled "Shareholder
Services" in Income Builder's Prospectus.
Shares of each class of Income Builder may be exchanged for shares of the
same class of any other Morgan Stanley Dean Witter Fund that offers its shares
in more than one class, without the imposition of an exchange fee.
Additionally, shares of each class of Income Builder may be exchanged for
shares of Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust, Morgan
Stanley Dean Witter Limited Term Municipal Trust, Morgan Stanley Dean Witter
Short-Term Bond Fund and five Morgan Stanley Dean Witter Funds that are money
market funds (the foregoing eight funds are collectively referred to as the
"Income Builder Exchange Funds"), without the imposition of an exchange fee.
Class A shares of Income Builder may also be exchanged for shares of Morgan
Stanley Dean Witter Multi-State Municipal Series Trust and Morgan Stanley Dean
Witter Hawaii Municipal Trust. Upon consummation of the Reorganization, the
foregoing exchange privileges will still be applicable to shareholders of the
combined fund (Income Builder).
During the period of time an Income and Growth shareholder remains in an
Income and Growth Exchange Fund or an Income Builder shareholder remains in an
Income Builder Exchange Fund, the holding
10
<PAGE>
period (for purposes of determining the CDSC rate) is frozen. Both Income and
Growth and Income Builder provide telephone exchange privileges to their
shareholders. For greater details relating to exchange privileges applicable to
Income Builder, see the section entitled "Shareholder Services" in Income
Builder's Prospectus.
Shareholders of Income and Growth and Income Builder may redeem their
shares 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 CDSC. Both Income and Growth and Income Builder offer a
reinstatement privilege whereby a shareholder who has not previously exercised
such privilege whose shares have been redeemed or repurchased may, within
thirty-five days after the date of redemption or repurchase, reinstate any
portion or all of the proceeds thereof in shares of the same class from which
such shares were redeemed or repurchased and receive a pro rata credit for any
CDSC paid in connection with such redemption or repurchase. Income and Growth
and Income Builder may redeem involuntarily, at net asset value, most accounts
valued at less than $100.
DIVIDENDS. Each fund declares dividends separately for each of its
classes. Each fund intends to pay quarterly income dividends and to distribute
substantially all of its net short-term and net long-term capital gains, if
there are any, at least once a year. Each fund, however, may determine either
to distribute or to retain all or part of any net long-term capital gains in
any year for reinvestment. With respect to each fund, dividends and capital
gains distributions are automatically reinvested in additional shares of the
same class of shares of the fund at net asset value unless the shareholder
elects to receive cash.
PRINCIPAL RISK FACTORS
The net asset value of Income and Growth and Income Builder will fluctuate
with changes in the market value of their respective portfolio securities. The
market value of the funds' portfolio securities will increase or decrease due
to a variety of economic, market and political factors, including movements in
interest rates, which cannot be predicted. All fixed-income securities are
subject to two types of risk: credit risk and interest rate risk. Credit risk
relates to the ability of the issuer to meet interest or principal payments or
both as they come due. 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.
Income Builder generally invests a substantially greater portion of its
assets in common stocks than Income and Growth. In general, stock values
fluctuate in response to activities specific to the company as well as general
market, economic and political conditions. Stock prices can fluctuate widely in
response to these factors.
Unlike Income Builder, Income and Growth is a non-diversified investment
company and, as such, is not limited in the proportion of its assets that may
be invested in the securities of a single issuer.
Both funds may invest a portion (up to 25% for each fund) of their assets
in foreign securities (other than securities of Canadian issuers registered
under the Securities Exchange Act of 1934, and ADR's on which there is no
limit) and, as such, are subject to additional risks such as adverse 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 reporting standards and requirements comparable to those applicable
to U.S. companies. Additionally, 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
11
<PAGE>
government and exchange scrutiny and regulation than their American
counterparts and brokerage commissions, dealer concessions and other
transaction costs may be higher on foreign markets than in the U.S.
Fluctuations in the relative rates of exchange between the currencies of
different countries will affect the value of a fund's investments. Changes in
foreign currency exchange rates relative to the U.S. dollar will affect the
U.S. dollar value of a fund's assets denominated in that currency and thereby
impact upon the fund's total return on such assets.
Income and Growth may invest without limitation and Income Builder may
invest up to 20% of its total assets in junk bonds, which securities are
subject to greater risk, including the risk of default, than higher rated,
investment grade debt securities.
Income and Growth and Income Builder may enter into foreign currency
exchange contracts when purchasing foreign securities in order to facilitate
settlement and to limit the effect of changes in the relationship between the
U.S. dollar and the foreign currency during the period between trade date and
settlement date. Both funds may enter into repurchase agreements, may purchase
securities on a when-issued and delayed delivery basis, or on a when, as and if
issued basis, may lend their portfolio securities, all of which may involve
special risks. Income and Growth may enter into options and futures
transactions which involves special risks; whereas Income Builder may not enter
into options and futures transactions. Both Income and Growth and Income
Builder may invest in or acquire convertible securities which are fixed-income
securities convertible into common stock. To the extent that a convertible
security's investment value is greater than its conversion value, its price
will be primarily a reflection of such investment value and its price will be
likely to increase when interest rates fall and decrease when interest rates
rise, as with a fixed-income security (the credit standing of the issuer and
other factors may also have an effect on the convertible security's value). If
the conversion value exceeds the investment value, the price of the convertible
security will rise above its investment value and, in addition, the convertible
security will sell at some premium over its conversion value. (This premium
represents the price investors are willing to pay for the privilege of
purchasing a fixed-income security with a possibility of capital appreciation
due to the conversion privilege.) At such times the price of the convertible
security will tend to fluctuate directly with the price of the underlying
equity security. Income Builder may also invest in enhanced convertible
securities, synthetic convertible securities and exchangeable convertible bonds
and exchangeable convertible preferred stocks, each of which may be less liquid
and more volatile than traditional convertible securities. Income and Growth
and Income Builder each may invest in real estate investment trusts and Income
and Growth may also invest in securities of other investment companies, each of
which investments may result in the payment of additional fees by the fund and
its shareholders. Income and Growth may also invest up to 5% of the value of
its net assets in warrants and rights, which may entail additional risks;
whereas Income Builder may not make such investments.
The foregoing discussion is a summary of the principal risk factors. For a
more complete discussion of the risks of each fund, see "Investment Objective
and Policies -- Risk Considerations" in the Prospectus of Income and Growth and
in Income Builder's Prospectus attached hereto and incorporated herein by
reference.
THE REORGANIZATION
THE PROPOSAL
The Board of Trustees of Income and Growth, including the Independent
Trustees, having reviewed the financial position of Income and Growth and the
prospects for achieving economies of scale through the Reorganization and
having determined that the Reorganization is in the best interests of Income
and Growth and its Shareholders and that the interests of Shareholders will not
be diluted as a result thereof, recommends approval of the Reorganization by
Shareholders of Income and Growth.
12
<PAGE>
THE BOARD'S CONSIDERATION
At a meeting held on February 25, 1999, the Board, including all of the
Independent Trustees, unanimously approved the Reorganization Agreement and
determined to recommend that Shareholders approve the Reorganization Agreement.
In reaching this decision, the Board made an extensive inquiry into a number of
factors, particularly the comparative expenses currently incurred in the
operations of Income and Growth and Income Builder. The Board also considered
other factors, including, but not limited to: the general compatibility of the
investment objectives, policies, restrictions and portfolios of Income and
Growth and Income Builder; the terms and conditions of the Reorganization which
would affect the price of shares to be issued in the Reorganization; the
tax-free nature of the Reorganization; the ability of MSDW Advisors to provide
investment management services to Income Builder and any direct or indirect
costs to be incurred by Income and Growth and Income Builder in connection with
the Reorganization.
In recommending the Reorganization to Shareholders, the Board of Income
and Growth considered that the Reorganization would have the following benefits
to Shareholders:
1. Once the Reorganization is consummated, the expenses which would be
borne by shareholders of each class of the "combined fund" should be lower on a
percentage basis than the expenses per share of each corresponding class of
Income and Growth. In part, this is because the other expenses to be paid by
Income Builder (0.17% of average daily net assets) would be lower than the rate
of the other expenses currently paid by Income and Growth (0.51% of average
daily net assets). Furthermore, to the extent that the Reorganization would
result in Shareholders becoming shareholders of a combined larger fund, further
economies of scale could be achieved since various fixed expenses (e.g.,
auditing and legal) can be spread over a larger number of shares. The Board
noted that the expense ratio for each class of Income and Growth was higher
(for its fiscal year ended January 31, 1998) than the expense ratio for each
corresponding class of Income Builder (for its fiscal year ended September 30,
1998).
2. The Reorganization will constitute a tax-free reorganization for
Federal income tax purposes, and no gain or loss will be recognized by Income
and Growth or its Shareholders for Federal income tax purposes as a result of
transactions included in the Reorganization.
3. The Board also took into consideration that absent the Reorganization,
Income Builder will continue to compete for investor funds directly with Income
and Growth. The Reorganization should allow for more concentrated selling
efforts to the benefit of both Income and Growth and Income Builder
shareholders and avoid the inefficiencies associated with the operation and
distribution of two similar funds through the same sales organization.
4. Shareholders would have expanded exchange privileges. Rather than being
able to exchange their shares of Income and Growth only among the TCW/DW Funds
offering multiple classes of shares and the Income and Growth Exchange Funds,
Shareholders would be permitted to exchange their shares for shares of any of
the Morgan Stanley Dean Witter Funds offering multiple classes of shares and
the Income Builder Exchange Funds (the exchange privilege is subject to
revision or termination at any time).
The Board of Trustees of Income Builder, including a majority of the
Independent Trustees of Income Builder, also have determined that the
Reorganization is in the best interests of Income Builder and its shareholders
and that the interests of existing shareholders of Income Builder will not be
diluted as a result thereof. The transaction will enable Income Builder to
acquire investment securities which are consistent with Income Builder's
investment objective, without the brokerage costs attendant to the purchase of
such securities in the market. Also, the addition of assets to Income Builder's
portfolio may result in a further reduction in the investment management fee
resulting from the addition of more assets at a lower breakpoint rate in the
management fee schedule. Furthermore, like the shareholders of Income and
Growth, the shareholders of Income Builder may also realize an intangible
benefit in having the Morgan Stanley Dean Witter sales organization concentrate
its selling efforts on one rather than two similar funds, which may result in
further
13
<PAGE>
economies of scale. Finally, the Board considered that even if the benefits
enumerated above are not realized, the costs to the Fund are sufficiently minor
to warrant taking the opportunity to realize those benefits. With respect to
the Class B shares, the Board recognized that the application of the formula
for determining the 12b-1 fee would, at least initially, result in somewhat
higher 12b-1 fees for the combined Fund than Income Builder's current 12b-1 fee
and that the Rule 12b-1 fees paid by Class C shareholders of Income Builder are
higher than those paid by Class C shareholders of Income and Growth, as noted
above under "Synopsis -- Fee Table." The Board believes, however, that this
relatively minor disadvantage would be offset by the other benefits of the
Reorganization.
THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization would be
consummated, as summarized below, are set forth in the Reorganization
Agreement. This summary is qualified in its entirety by reference to the
Reorganization Agreement, a copy of which is attached as Exhibit A to this
Proxy Statement and Prospectus.
The Reorganization Agreement provides that (i) Income and Growth will
transfer all of its assets, including portfolio securities, cash (other than
cash amounts retained by Income and Growth as a "Cash Reserve" in the amount
sufficient to discharge its liabilities not discharged prior to the Valuation
Date (as defined below) and for expenses of the dissolution), cash equivalents
and receivables to Income Builder on the Closing Date in exchange for the
assumption by Income Builder of stated liabilities of Income and Growth,
including all expenses, costs, charges and reserves, as reflected on an
unaudited statement of assets and liabilities of Income and Growth prepared by
the Treasurer of Income and Growth as of the Valuation Date (as defined below)
in accordance with generally accepted accounting principles consistently
applied from the prior audited period, and the delivery of the Income Builder
Shares; (ii) such Income Builder Shares would be distributed to Shareholders on
the Closing Date or as soon as practicable thereafter; (iii) Income and Growth
would be dissolved; and (iv) the outstanding shares of Income and Growth would
be canceled.
The number of Income Builder Shares to be delivered to Income and Growth
will be determined by dividing the aggregate net asset value of each class of
shares of Income and Growth acquired by Income Builder by the net asset value
per share of the corresponding class of shares of Income Builder; these values
will be calculated as of the close of business of the New York Stock Exchange
on the third business day following the receipt of the requisite approval by
Shareholders of the Reorganization Agreement or at such other time as Income
and Growth and Income Builder may agree (the "Valuation Date"). As an
illustration, assume that on the Valuation Date, Class B shares of Income and
Growth had an aggregate net asset value (not including any Cash Reserve of
Income and Growth) of $100,000. If the net asset value per Class B share of
Income Builder were $10 per share at the close of business on the Valuation
Date, the number of Class B shares Income Builder to be issued would be 10,000
($100,000 (divided by) $10). These 10,000 Class B shares of Income Builder
would be distributed to the former Class B shareholders of Income and Growth.
This example is given for illustration purposes only and does not bear any
relationship to the dollar amounts or shares expected to be involved in the
Reorganization.
On the Closing Date or as soon as practicable thereafter, Income and
Growth will distribute pro rata to its Shareholders of record as of the close
of business on the Valuation Date, the Income Builder Shares it receives. Each
Shareholder will receive the class of shares of Income Builder that corresponds
to the class of shares of Income and Growth currently held by that Shareholder.
Accordingly, the Income Builder Shares will be distributed as follows: each of
the Class A, Class B, Class C and Class D shares of Income Builder will be
distributed to holders of Class A, Class B, Class C and Class D shares of
Income and Growth, respectively. Income Builder will cause its transfer agent
to credit and confirm an appropriate number of Income Builder Shares to each
Shareholder. Certificates for Income Builder Shares will be issued only upon
written request of a Shareholder and only for whole shares, with fractional
shares credited to the name of the Shareholder on the
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<PAGE>
books of Income Builder. Shareholders who wish to receive certificates
representing their Income Builder Shares must, after receipt of their
confirmations, make a written request to Income Builder's transfer agent Morgan
Stanley Dean Witter Trust FSB, Harborside Financial Center, Jersey City, New
Jersey 07311. Shareholders of Income and Growth holding their shares in
certificate form will be asked to surrender such certificates in connection
with the Reorganization. Shareholders who do not surrender their certificates
prior to the Closing Date will still receive their shares of Income Builder;
however, such Shareholders will not be able to redeem, transfer or exchange the
Income Builder Shares received until the old certificates have been
surrendered.
The Closing Date will be the next business day following the Valuation
Date. The consummation of the Reorganization is contingent upon the approval of
the Reorganization by the Shareholders and the receipt of the other opinions
and certificates set forth in Sections 6, 7 and 8 of the Reorganization
Agreement and the occurrence of the events described in those Sections, certain
of which may be waived by Income and Growth or Income Builder. The
Reorganization Agreement may be amended in any mutually agreeable manner. All
expenses of this solicitation, including the cost of preparing and mailing this
Proxy Statement and Prospectus, will be borne by Income and Growth, which
expenses are expected to approximate $97,000. Income and Growth and Income
Builder will bear all of their respective other expenses associated with the
Reorganization.
The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by Shareholders or by mutual
consent of Income and Growth and Income Builder. In addition, either party may
terminate the Reorganization Agreement upon the occurrence of a material breach
of the Reorganization Agreement by the other party or if, by , 1999, any
condition set forth in the Reorganization Agreement has not been fulfilled or
waived by the party entitled to its benefits.
Under the Reorganization Agreement, within one year after the Closing
Date, Income and Growth shall: either pay or make provision for all of its
liabilities and distribute any remaining amount of the Cash Reserve (after
paying or making provision for such liabilities and the estimated cost of
making the distribution) to former shareholders of Income and Growth that
received Income Builder Shares. Income and Growth shall be dissolved and
deregistered as an investment company promptly following the distributions of
shares of Income Builder to Shareholders of record of Income and Growth.
The effect of the Reorganization is that Shareholders who vote their
shares in favor of the Reorganization Agreement are electing to sell their
shares of Income and Growth (at net asset value on the Valuation Date
calculated after subtracting any Cash Reserve) and reinvest the proceeds in
Income Builder Shares at net asset value and without recognition of taxable
gain or loss for Federal income tax purposes. See "Tax Aspects of the
Reorganization" below. As noted in "Tax Aspects of the Reorganization" below,
if Income and Growth recognizes net gain from the sale of securities prior to
the Closing Date, such gain, to the extent not offset by capital loss
carryforwards, will be distributed to Shareholders prior to the Closing Date
and will be taxable to Shareholders as a capital gain.
Shareholders will continue to be able to redeem their shares of Income and
Growth at net asset value next determined after receipt of the redemption
request (subject to any applicable CDSC) until the close of business on the
business day next preceding the Closing Date. Redemption requests received by
Income and Growth thereafter will be treated as requests for redemption of
shares of Income Builder.
TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation
Date, Income and Growth will declare and pay a dividend or dividends which,
together with all previous such dividends, will have the effect of distributing
to Shareholders all of Income and Growth's investment company taxable income
for all periods
15
<PAGE>
since the inception of Income and Growth through and including the Valuation
Date (computed without regard to any dividends paid deduction), and all of
Income and Growth's net capital gain, if any, realized in such periods (after
reduction for any capital loss carryforward).
The Reorganization is intended to qualify for Federal income tax purposes
as a tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended (the "Code"). Income and Growth and Income Builder
have represented that, to their best knowledge, there is no plan or intention
by Shareholders to redeem, sell, exchange or otherwise dispose of a number of
Income Builder Shares received in the transaction that would reduce
Shareholders' ownership of Income Builder Shares to a number of shares having a
value, as of the Closing Date, of less than 50% of the value of all of the
formerly outstanding Income and Growth shares as of the same date. Income and
Growth and Income Builder have each further represented that, as of the Closing
Date, Income and Growth and Income Builder will qualify as regulated investment
companies.
As a condition to the Reorganization, Income and Growth and Income Builder
will receive an opinion of Gordon Altman Butowsky Weitzen Shalov & Wein that,
based on certain assumptions, facts, the terms of the Reorganization Agreement
and additional representations set forth in the Reorganization Agreement or
provided by Income and Growth and Income Builder:
1. The transfer of substantially all of Income and Growth's assets in
exchange for the Income Builder Shares and the assumption by Income Builder of
certain stated liabilities of Income and Growth followed by the distribution by
Income and Growth of the Income Builder Shares to Shareholders in exchange for
their Income and Growth shares will constitute a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code, and Income and Growth and Income
Builder will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
2. No gain or loss will be recognized by Income Builder upon the receipt
of the assets of Income and Growth solely in exchange for the Income Builder
Shares and the assumption by Income Builder of the stated liabilities of Income
and Growth;
3. No gain or loss will be recognized by Income and Growth upon the
transfer of the assets of Income and Growth to Income Builder in exchange for
the Income Builder Shares and the assumption by Income Builder of the stated
liabilities or upon the distribution of Income Builder Shares to Shareholders
in exchange for their Income and Growth shares;
4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of Income and Growth for the Income Builder Shares;
5. The aggregate tax basis for the Income Builder Shares received by each
of the Shareholders pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares in Income and Growth held by each such
Shareholder immediately prior to the Reorganization;
6. The holding period of the Income Builder Shares to be received by each
Shareholder will include the period during which the shares in Income and
Growth surrendered in exchange therefor were held (provided such shares in
Income and Growth were held as capital assets on the date of the
Reorganization);
7. The tax basis of the assets of Income and Growth acquired by Income
Builder will be the same as the tax basis of such assets to Income and Growth
immediately prior to the Reorganization; and
8. The holding period of the assets of Income and Growth in the hands of
Income Builder will include the period during which those assets were held by
Income and Growth.
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<PAGE>
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE EFFECT, IF
ANY, OF THE PROPOSED TRANSACTION IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
BECAUSE THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED TRANSACTION, SHAREHOLDERS SHOULD ALSO CONSULT
THEIR TAX ADVISORS AS TO STATE AND LOCAL TAX CONSEQUENCES, IF ANY, OF THE
PROPOSED TRANSACTION.
DESCRIPTION OF SHARES
Income Builder shares to be issued pursuant to the Reorganization
Agreement will, when issued, be fully paid and non-assessable by Income Builder
and transferable without restrictions and will have no preemptive rights. Class
B shares of Income Builder, like Class B shares of Income and Growth, have a
conversion feature pursuant to which approximately ten (10) years after the
date of the original purchase of such shares, the shares will convert
automatically to Class A shares, based on the relative net asset values of the
two classes. For greater details regarding the conversion feature, including
the method by which the 10 year period is calculated and the treatment of
reinvested dividends, see "Purchase of Fund Shares" in each fund's Prospectus.
CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of the Income Builder
and TCW/DW Income & Growth as of January 31, 1999 and on a pro forma combined
basis as if the Reorganization had occurred on that date:
<TABLE>
<CAPTION>
NET ASSET
SHARES VALUE
CLASS A NET ASSETS OUTSTANDING PER SHARE
- ------------------------------------- -------------- ------------- ----------
<S> <C> <C> <C>
TCW/DW Income & Growth Fund ......... $ 88,349 7,728 $ 11.43
Income Builder ...................... $ 12,300,188 1,073,862 $ 11.45
Combined Fund (pro forma) ........... $ 12,388,537 1,081,578 $ 11.45
CLASS B
- --------------------------------------
TCW/DW Income & Growth .............. $ 8,927,127 781,025 $ 11.43
Income Builder ...................... $421,497,820 36,809,451 $ 11.45
Combined Fund (pro forma) ........... $430,424,947 37,589,113 $ 11.45
CLASS C
- --------------------------------------
TCW/DW Income & Growth .............. $ 47,957,979 4,191,798 $ 11.44
Income Builder ...................... $ 5,845,733 511,572 $ 11.43
Combined Fund (pro forma) ........... $ 53,803,712 4,707,371 $ 11.43
CLASS D
- --------------------------------------
TCW/DW Income & Growth .............. $ 11,662 1,019 $ 11.44
Income Builder ...................... $ 772,030 63,011 $ 11.46
Combined Fund (pro forma) ........... $ 733,692 64,029 $ 11.46
</TABLE>
APPRAISAL RIGHTS
Shareholders will have no appraisal rights in connection with the
Reorganization.
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COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
Income and Growth and Income Builder each are funds that have similar
although not identical investment objectives. The investment objective of
Income and Growth is to generate high total return by providing a high level of
current income and the potential for capital appreciation. The primary
investment objective of Income Builder is to seek reasonable income. Growth of
capital is a secondary objective. Income and Growth seeks to achieve its
investment objective by investing, in descending order of preference under
current market conditions, at least 65% of its assets in any or all of the
following types of securities: (1) bonds or preferred stock convertible into
common stock ("convertible securities"); (2) other fixed-income securities,
including bonds, notes debentures and preferred stocks; (3) common stocks; and
(4) U.S. Government Securities (securities issued or guaranteed by the United
States or its agencies or instrumentalities. Income and Growth will invest at
least 50% of its total assets in a combination of equity securities and fixed
income securities with equity components. All fixed income securities without
an equity component in which the fund invests have a weighted average life or a
maturity date of ten years or less. Income Builder seeks to achieve its
objectives by investing, under normal market conditions, at least 65% of its
total assets in income producing equity securities, including common stock,
preferred stock and convertible securities. The fund invests, under normal
market conditions, primarily in common stocks of large-cap companies that have
a record of paying dividends, and, in the opinion of the Investment Manager,
have the potential of maintaining dividends, in preferred stocks and in
securities convertible into common stocks of small and mid-cap companies. The
Investment Manager uses a value-oriented investment style in selecting
securities for the fund's portfolio.
Up to 35% of the total assets of Income and Growth may be invested in
money market instruments. The fund may also invest without limit in junk bonds
and Eurodollar convertible securities if the securities are convertible into
listed U.S. securities or American Depository Receipts ("ADR's") and may invest
up to 15% of its net assets in Eurodollar convertible securities that are
convertible into unlisted foreign equity securities. The fund may also invest
up to 5% of its net assets in warrants, including up to 2% of its net assets in
warrants not listed on the New York Stock Exchange, and may invest up to 5% of
its net assets in stock rights.
Up to 35% of the assets of Income Builder may be invested in fixed-income
securities or common stocks that do not pay a regular dividend but are expected
to contribute to the Fund's ability to meet its investment objectives. The fund
may invest up to 20% of its assets in junk bonds and up to 35% of its assets in
U.S. Government securities and money market instruments. The fund may also
invest up to 25% of its total assets in enhanced convertible securities, up to
10% in synthetic convertible securities and without limitation in exchangeable
convertible bonds and exchangeable convertible preferred stock. The fund may
invest up to 15% of its net assets in unlisted foreign securities.
Income and Growth may engage in options and futures transactions. The fund
may purchase and sell (write) options on portfolio securities denominated in
U.S. dollars and foreign currencies and may purchase and sell (write) options
on the U.S. dollar and foreign currencies which are or may be in the future
listed on U.S. and foreign securities exchanges or are written in
over-the-counter transactions ("OTC options"). Income and Growth may write
covered call options on portfolio securities and 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.
The fund may purchase listed and OTC call and put options in amounts equaling
up to 5% of its total assets and may invest in stock index options. The fund
may purchase call and put options to close out covered call or written put
positions, as applicable, or to protect the value of the relevant
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<PAGE>
security. The fund may purchase and sell interest rate and stock index futures
contracts that are currently traded, or may in the future be traded, on U.S.
and foreign commodity exchanges. Income Builder may not purchase or sell
options or futures contracts.
Both Income and Growth and Income Builder may invest up to 25% of its
total assets at the time of purchase in non-dollar denominated foreign
securities (other than securities of Canadian issuers registered under the
Securities Exchange Act of 1934 and ADR's, on which there is no limit).
Both Income and Growth and Income Builder may (i) purchase securities on a
when-issued or delayed delivery basis, (ii) purchase or sell securities on a
forward commitment basis, (iii) purchase securities on a "when, as and if
issued" basis, (iv) enter into repurchase agreements subject to certain
procedures designed to minimize risks associated with such agreements, (v)
purchase rights and warrants, (vi) invest in zero coupon securities and (vii)
invest up to 15% of their respective 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, or which are not otherwise readily
marketable (both funds do not include Rule 144A securities in this 15%
limitation). Both funds may engage in lending portfolio securities.
Additionally, both Income and Growth and Income Builder may invest in real
estate investment trusts. Income Builder currently intends to limit its
investments in real estate investment trusts to 10% of its assets, but may
invest up to 20% in such securities. Income and Growth has no such limit.
Income and Growth may invest in other investment companies up to the legal
limits.
The investment policies of both Income and Growth and Income Builder are
not fundamental and may be changed by their respective Boards. The foregoing
discussion is a summary of the principal differences and similarities between
the investment policies of the funds. For a more complete discussion of each
fund's policies, see "Investment Objective and Policies" in each fund's
Prospectus and "Investment Practices and Policies" in each fund's Statement of
Additional Information.
INVESTMENT RESTRICTIONS
The investment restrictions adopted by Income and Growth and Income
Builder as fundamental policies are substantially similar and are summarized
under the caption "Investment Restrictions" in their respective Prospectuses
and Statements of Additional Information. A fundamental investment restriction
cannot be changed without the vote of the majority of the outstanding voting
securities of a fund, as defined in the 1940 Act. The material differences are
as follows: (a) Income Builder may not 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; Income and Growth has no such restriction; (b) Income
Builder may not purchase more than 10% of all outstanding voting securities or
any class of securities of any one issuer; Income and Growth has no such
restriction; (c) Income Builder may not invest in securities of any issuer, if
in the exercise of reasonable diligence, the fund has determined that an
officer or trustee/director of the fund or of the Investment Manager owns more
than 1/2 of 1% of the outstanding securities of such issuer, and such officers
and trustees/directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer; (d) both funds are
prohibited from purchasing or selling commodities; Income and Growth also may
not purchase or sell commodities contracts, except that the Fund may purchase
or sell futures contracts or options on futures; (e) both funds are prohibited
from pledging assets except to secure permitted borrowings; and in the case of
Income and Growth, for collateral arrangements with respect to initial or
variation margin for futures, which are not deemed to be the pledge of assets;
(f) both funds are prohibited from issuing senior securities with certain
exceptions; and (g) both funds are prohibited from
19
<PAGE>
purchasing securities on margin, except for such short-term loans as are
necessary for the clearance of portfolio securities; Income and Growth provides
an exception for the deposit or payment by the fund of initial or variation
margin in connection with futures contracts, which is not considered the
purchase of a security on margin.
ADDITIONAL INFORMATION ABOUT INCOME AND GROWTH
AND INCOME BUILDER
GENERAL
For a discussion of the organization and operation of Income and Growth
and Income Builder, see "The Fund and its Management," "Investment Objective
and Policies," "Investment Restrictions" and "Prospectus Summary" in, and the
cover page of, their respective Prospectuses.
FINANCIAL INFORMATION
For certain financial information about Income and Growth and Income
Builder, see "Financial Highlights" and "Performance Information" in their
respective Prospectuses.
MANAGEMENT
For information about the respective Board of Trustees, Manager and
Adviser of Income and Growth, Investment Manager of Income Builder, and the
Distributor of Income and Growth and Income Builder, see "The Fund and its
Management" and "Investment Objective and Policies" in, and on the back cover
of, their respective Prospectuses.
DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES
For a description of the nature and most significant attributes of shares
of Income and Growth and Income Builder, and information regarding shareholder
inquiries, see "Additional Information" in their respective Prospectuses.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Income and Growth's and Income Builder's policies with
respect to dividends, distributions and taxes, see "Dividends, Distributions
and Taxes" in their respective Prospectuses as well as the discussion herein
under "Synopsis -- Purchases, Exchanges and Redemptions."
PURCHASES, REPURCHASES AND REDEMPTIONS
For a discussion of how Income and Growth's and Income Builder's shares
may be purchased, repurchased and redeemed, see "Purchase of Fund Shares,"
"Shareholder Services" and "Redemptions and Repurchases" in their respective
Prospectuses.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For a discussion of Income Builder's performance, see management's letter
to shareholders in its Annual Report for its fiscal year ended September 30,
1998 accompanying this Proxy Statement and Prospectus. For a discussion of the
performance of Income and Growth, see its Annual Report for its fiscal year
ended January 31, 1999.
20
<PAGE>
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Income Builder, for the year ended September
30, 1998 and Income and Growth, for the year ended January 31, 1999 that are
incorporated by reference in the Statement of Additional Information relating
to the Registration Statement on Form N-14 of which this Proxy Statement and
Prospectus forms a part, have been audited by PricewaterhouseCoopers LLP,
independent accountants. The financial statements have been incorporated by
reference in reliance upon such reports given upon the authority of
PricewaterhouseCoopers LLP as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Income Builder
will be passed upon by Gordon Altman Butowsky Weitzen Shalov & Wein, New York,
New York. Such firm will rely on Lane Altman & Owens as to matters of
Massachusetts law.
AVAILABLE INFORMATION
Additional information about Income and Growth and Income Builder is
available, as applicable, in the following documents which are incorporated
herein by reference: (i) Income Builder's Prospectus dated November 25, 1998,
attached to this Proxy Statement and Prospectus, which Prospectus forms a part
of Post-Effective Amendment No. 4 to Income Builder's Registration Statement on
Form N-1A (File Nos. 333-01995; 811-7575); (ii) Income Builder's Annual Report
for its fiscal year ended September 30, 1998, accompanying this Proxy Statement
and Prospectus; (iii) Income and Growth's Prospectus dated March 31, 1998,
which Prospectus forms a part of Post-Effective Amendment No. 7 to Income and
Growth's Registration Statement on Form N-1A (File Nos. 33-55218; 811-7372);
and (iv) Income and Growth's Annual Report for its fiscal year ended January
31, 1999. The foregoing documents may be obtained without charge by calling
(800) 869-NEWS (toll-free).
Income and Growth and Income Builder are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, file reports and other information with the Commission.
Proxy material, reports and other information about Income and Growth and
Income Builder which are of public record can be inspected and copied at public
reference facilities maintained by the Commission at Room 1204, Judiciary
Plaza, 450 Fifth Street, NW, Washington, D.C. 20549 and certain of its regional
offices, and copies of such materials can be obtained at prescribed rates from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549.
OTHER BUSINESS
Management of Income and Growth knows of no business other than the
matters specified above which will be presented at the Meeting. Since matters
not known at the time of the solicitation may come before the Meeting, the
proxy as solicited confers discretionary authority with respect to such matters
as properly come before the Meeting, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.
By Order of the Board of Trustees
Barry Fink,
Secretary
, 1999
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<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
25th day of February, 1999, by and between MORGAN STANLEY DEAN WITTER INCOME
BUILDER FUND, a Massachusetts business trust ("Income Builder") and TCW/DW
INCOME AND GROWTH FUND, a Massachusetts business trust ("Income and Growth").
This Agreement is intended to be and is adopted as a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization ("Reorganization") will consist of the
transfer to Income Builder of substantially all of the assets of Income and
Growth in exchange for the assumption by Income Builder of all stated
liabilities of Income and Growth and the issuance by Income Builder of shares
of beneficial interest, par value $0.01 per share (the "Income Builder
Shares"), to be distributed, after the Closing Date hereinafter referred to, to
the shareholders of Income and Growth in liquidation of Income and Growth as
provided herein, all upon the terms and conditions hereinafter set forth in
this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. THE REORGANIZATION AND LIQUIDATION OF CAPITAL APPRECIATION
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, Income and Growth
agrees to assign, deliver and otherwise transfer the Income and Growth Assets
(as defined in paragraph 1.2) to Income Builder and Income Builder agrees in
exchange therefor to assume all of Income and Growth's stated liabilities on
the Closing Date as set forth in paragraph 1.3(a) and to deliver to Income and
Growth the number of Income Builder Shares, including fractional Income Builder
Shares, determined in the manner set forth in paragraph 2.3. Such transactions
shall take place at the closing provided for in paragraph 3.1 ("Closing").
1.2 (a) The "Income and Growth Assets" shall consist of all property,
including without limitation, all cash (other than the "Cash Reserve" (as
defined in paragraph 1.3(b)), cash equivalents, securities and dividend and
interest receivables owned by Income and Growth, and any deferred or prepaid
expenses shown as an asset on Income and Growth's books on the Valuation Date.
(b) On or prior to the Valuation Date, Income and Growth will provide
Income Builder with a list of all of Income and Growth's assets to be assigned,
delivered and otherwise transferred to Income Builder and of the stated
liabilities to be assumed by Income Builder pursuant to this Agreement. Income
and Growth reserves the right to sell any of the securities on such list but
will not, without the prior approval of Income Builder, acquire any additional
securities other than securities of the type in which Income Builder is
permitted to invest and in amounts agreed to in writing by Income Builder.
Income Builder will, within a reasonable time prior to the Valuation Date,
furnish Income and Growth with a statement of Income Builder's investment
objectives, policies and restrictions and a list of the securities, if any, on
the list referred to in the first sentence of this paragraph that do not
conform to Income Builder's investment objective, policies and restrictions. In
the event that Income and Growth holds any investments that Income Builder is
not permitted to hold, Income and Growth will dispose of such securities on or
prior to the Valuation Date. In addition, if it is determined that the
portfolios of Income and Growth and Income Builder, when aggregated, would
contain investments exceeding
A-1
<PAGE>
certain percentage limitations imposed upon Income Builder with respect to such
investments, Income and Growth if requested by Income Builder will, on or prior
to the Valuation Date, dispose of and/or reinvest a sufficient amount of such
investments as may be necessary to avoid violating such limitations as of the
Closing Date (as defined in paragraph 3.1).
1.3 (a) Income and Growth will endeavor to discharge all of its
liabilities and obligations on or prior to the Valuation Date. Income Builder
will assume all stated liabilities, which includes, without limitation, all
expenses, costs, charges and reserves reflected on an unaudited Statement of
Assets and Liabilities of Income and Growth prepared by the Treasurer of Income
and Growth as of the Valuation Date in accordance with generally accepted
accounting principles consistently applied from the prior audited period.
(b) On the Valuation Date, Income and Growth may establish a cash reserve,
which shall not exceed 5% of Income and Growth's net assets as of the close of
business on the Valuation Date ("Cash Reserve") to be retained by Income and
Growth and used for the payment of its liabilities not discharged prior to the
Valuation Date and for the expenses of dissolution.
1.4 In order for Income and Growth to comply with Section 852(a)(1) of the
Code and to avoid having any investment company taxable income or net capital
gain (as defined in Sections 852(b)(2) and 1222(11) of the Code, respectively)
in the short taxable year ending with its dissolution, Income and Growth will
on or before the Valuation Date (a) declare a dividend in an amount large
enough so that it will have declared dividends of all of its investment company
taxable income and net capital gain, if any, for such taxable year (determined
without regard to any deduction for dividends paid) and (b) distribute such
dividend.
1.5 On the Closing Date or as soon as practicable thereafter, Income and
Growth will distribute Income Builder Shares received by Income and Growth
pursuant to paragraph 1.1 pro rata to its shareholders of record determined as
of the close of business on the Valuation Date ("Income and Growth
Shareholders"). Each Income and Growth Shareholder will receive the class of
shares of Income Builder that corresponds to the class of shares of Income and
Growth currently held by that Income and Growth Shareholder. Accordingly, the
Income Builder Shares will be distributed as follows: each of the Class A,
Class B, Class C and Class D shares of Income Builder will be distributed to
holders of Class A, Class B, Class C and Class D shares of Income and Growth,
respectively. Such distribution will be accomplished by an instruction, signed
by Income and Growth's Secretary, to transfer Income Builder Shares then
credited to Income and Growth's account on the books of Income Builder to open
accounts on the books of Income Builder in the names of the Income and Growth
Shareholders and representing the respective pro rata number of Income Builder
Shares due such Income and Growth Shareholders. All issued and outstanding
shares of Income and Growth simultaneously will be canceled on Income and
Growth's books; however, share certificates representing interests in Income
and Growth will represent a number of Income Builder Shares after the Closing
Date as determined in accordance with paragraph 2.3. Income Builder will issue
certificates representing Income Builder Shares in connection with such
exchange only upon the written request of a Income and Growth Shareholder.
1.6 Ownership of Income Builder Shares will be shown on the books of
Income Builder's transfer agent. Income Builder Shares will be issued in the
manner described in Income Builder's current Prospectus and Statement of
Additional Information.
1.7 Any transfer taxes payable upon issuance of Income Builder Shares in a
name other than the registered holder of Income Builder Shares on Income and
Growth's books as of the close of business on the Valuation Date shall, as a
condition of such issuance and transfer, be paid by the person to whom Income
Builder Shares are to be issued and transferred.
1.8 Any reporting responsibility of Income and Growth is and shall remain
the responsibility of Income and Growth up to and including the date on which
Income and Growth is dissolved and deregistered pursuant to paragraph 1.9.
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1.9 Within one year after the Closing Date, Income and Growth shall pay or
make provision for the payment of all its liabilities and taxes, and distribute
to the shareholders of Income and Growth as of the close of business on the
Valuation Date any remaining amount of the Cash Reserve (as reduced by the
estimated cost of distributing it to shareholders). Income and Growth shall be
dissolved as a Massachusetts business trust and deregistered as an investment
company under the Investment Company Act of 1940, as amended ("1940 Act"),
promptly following the making of all distributions pursuant to paragraph 1.5.
1.10 Copies of all books and records maintained on behalf of Income and
Growth in connection with its obligations under the 1940 Act, the Code, state
blue sky laws or otherwise in connection with this Agreement will promptly
after the Closing be delivered to officers of Income Builder or their designee
and Income Builder or its designee shall comply with applicable record
retention requirements to which Income and Growth is subject under the 1940
Act.
2. VALUATION
2.1 The value of the Income and Growth Assets shall be the value of such
assets computed as of 4:00 p.m. on the New York Stock Exchange on the third
business day following the receipt of the requisite approval by shareholders of
Income and Growth of this Agreement or at such time on such earlier or later
date after such approval as may be mutually agreed upon in writing (such time
and date being hereinafter called the "Valuation Date"), using the valuation
procedures set forth in Income Builder's then current Prospectus and Statement
of Additional Information.
2.2 The net asset value of an Income Builder Share shall be the net asset
value per share computed on the Valuation Date, using the valuation procedures
set forth in Income Builder's then current Prospectus and Statement of
Additional Information.
2.3 The number of Income Builder Shares (including fractional shares, if
any) to be issued hereunder shall be determined, with respect to each class, by
dividing the aggregate net asset value of each class of Income and Growth
shares (determined in accordance with paragraph 2.1) by the net asset value per
share of the corresponding class of shares of Income Builder (determined in
accordance with paragraph 2.2). For purposes of this paragraph, the aggregate
net asset value of each class of shares of Income and Growth shall not include
the amount of the Cash Reserve.
2.4 All computations of value shall be made by Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services") in accordance with its regular practice
in pricing Income Builder. Income Builder shall cause MSDW Services to deliver
a copy of its valuation report at the Closing.
3. CLOSING AND CLOSING DATE
3.1 The Closing shall take place on the next business day following the
Valuation Date (the "Closing Date"). The Closing shall be held as of 9:00 a.m.
eastern time, or at such other time as the parties may agree. The Closing shall
be held in a location mutually agreeable to the parties hereto. All acts taking
place at the Closing shall be deemed to take place simultaneously as of 9:00
a.m. eastern time on the Closing Date unless otherwise provided.
3.2 Portfolio securities held by Income and Growth and represented by a
certificate or other written instrument shall be presented by it or on its
behalf to The Bank of New York (the "Custodian"), as custodian for Income
Builder, for examination no later than five business days preceding the
Valuation Date. Such portfolio securities (together with any cash or other
assets) shall be delivered by Income and Growth to the Custodian for the
account of Income Builder on or before the Closing Date in conformity with
applicable
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custody provisions under the 1940 Act and duly endorsed in proper form for
transfer in such condition as to constitute good delivery thereof in accordance
with the custom of brokers. The portfolio securities shall be accompanied by
all necessary Federal and state stock transfer stamps or a check for the
appropriate purchase price of such stamps. Portfolio securities and instruments
deposited with a securities depository (as defined in Rule 17f-4 under the 1940
Act) shall be delivered on or before the Closing Date by book-entry in
accordance with customary practices of such depository and the Custodian. The
cash delivered shall be in the form of a Federal Funds wire, payable to the
order of "The Bank of New York, Custodian for Morgan Stanley Dean Witter Income
Builder Fund."
3.3 In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall be
disrupted so that, in the judgment of both Income Builder and Income and
Growth, accurate appraisal of the value of the net assets of Income Builder or
the Income and Growth Assets is impracticable, the Valuation Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed without restriction or disruption and reporting shall have
been restored.
3.4 If requested, Income and Growth shall deliver to Income Builder or its
designee (a) at the Closing, a list, certified by its Secretary, of the names,
addresses and taxpayer identification numbers of the Income and Growth
Shareholders and the number and percentage ownership of outstanding Income and
Growth shares owned by each such Income and Growth Shareholder, all as of the
Valuation Date, and (b) as soon as practicable after the Closing, all original
documentation (including Internal Revenue Service forms, certificates,
certifications and correspondence) relating to the Income and Growth
Shareholders' taxpayer identification numbers and their liability for or
exemption from back-up withholding. Income Builder shall issue and deliver to
such Secretary a confirmation evidencing delivery of Income Builder Shares to
be credited on the Closing Date to Income and Growth or provide evidence
satisfactory to Income and Growth that such Income Builder Shares have been
credited to Income and Growth's account on the books of Income Builder. At the
Closing, each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request.
4. COVENANTS OF AMERICAN VALUE AND CAPITAL APPRECIATION
4.1 Except as otherwise expressly provided herein with respect to Income
and Growth, Income Builder and Income and Growth each will operate its business
in the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and other distributions.
4.2 Income Builder will prepare and file with the Securities and Exchange
Commission ("Commission") a registration statement on Form N-14 under the
Securities Act of 1933, as amended ("1933 Act"), relating to Income Builder
Shares ("Registration Statement"). Income and Growth will provide Income
Builder with the Proxy Materials as described in paragraph 4.3 below, for
inclusion in the Registration Statement. Income and Growth will further provide
Income Builder with such other information and documents relating to Income and
Growth as are reasonably necessary for the preparation of the Registration
Statement.
4.3 Income and Growth will call a meeting of its shareholders to consider
and act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein. Income and Growth will
prepare the notice of meeting, form of proxy and proxy statement (collectively,
"Proxy Materials") to be used in connection with such meeting; provided that
Income Builder will furnish Income and Growth with its currently effective
prospectus for inclusion in the Proxy Materials and with such other information
relating to Income Builder as is reasonably necessary for the preparation of
the Proxy Materials.
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4.4 Income and Growth will assist Income Builder in obtaining such
information as Income Builder reasonably requests concerning the beneficial
ownership of Income and Growth shares.
4.5 Subject to the provisions of this Agreement, Income Builder and Income
and Growth will each take, or cause to be taken, all action, and do or cause to
be done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
4.6 Income and Growth shall furnish or cause to be furnished to Income
Builder within 30 days after the Closing Date a statement of Income and
Growth's assets and liabilities as of the Closing Date, which statement shall
be certified by Income and Growth's Treasurer and shall be in accordance with
generally accepted accounting principles consistently applied. As promptly as
practicable, but in any case within 60 days after the Closing Date, Income and
Growth shall furnish Income Builder, in such form as is reasonably satisfactory
to Income Builder, a statement certified by Income and Growth's Treasurer of
Income and Growth's earnings and profits for Federal income tax purposes that
will be carried over to Income Builder pursuant to Section 381 of the Code.
4.7 As soon after the Closing Date as is reasonably practicable, Income
and Growth (a) shall prepare and file all Federal and other tax returns and
reports of Income and Growth required by law to be filed with respect to all
periods ending on or before the Closing Date but not theretofore filed and (b)
shall pay all Federal and other taxes shown as due thereon and/or all Federal
and other taxes that were unpaid as of the Closing Date, including without
limitation, all taxes for which the provision for payment was made as of the
Closing Date (as represented in paragraph 5.2(k)).
4.8 Income Builder agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act and the 1940 Act and to
make such filings required by the state Blue Sky and securities laws as it may
deem appropriate in order to continue its operations after the Closing Date.
5. REPRESENTATIONS AND WARRANTIES
5.1 Income Builder represents and warrants to Income and Growth as
follows:
(a) Income Builder is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;
(b) Income Builder is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company
under the 1940 Act and the registration of its shares under the 1933 Act
are in full force and effect;
(c) All of the issued and outstanding shares of Income Builder have been
offered and sold in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws. Shares
of Income Builder are registered in all jurisdictions in which they are
required to be registered under state securities laws and other laws, and
said registrations, including any periodic reports or supplemental filings,
are complete and current, all fees required to be paid have been paid, and
Income Builder is not subject to any stop order and is fully qualified to
sell its shares in each state in which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information of
Income Builder conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
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(e) Income Builder is not in, and the execution, delivery and performance
of this Agreement will not result in, a material violation of any provision
of Income Builder's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which Income
Builder is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against Income Builder or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and Income
Builder knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects, or is reasonably likely to materially and
adversely effect, its business or its ability to consummate the
transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights for the year
ended September 30, 1998, of Income Builder certified by
PricewaterhouseCoopers LLP (copies of which have been furnished to Income
and Growth), fairly present, in all material respects, Income Builder's
financial condition as of such date in accordance with generally accepted
accounting principles, and its results of such operations, changes in its
net assets and financial highlights for such period, and as of such date
there were no known liabilities of Income Builder (contingent or otherwise)
not disclosed therein that would be required in accordance with generally
accepted accounting principles to be disclosed therein;
(h) All issued and outstanding Income Builder Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Additional Information" in
Income Builder's current Prospectus incorporated by reference in the
Registration Statement. Income Builder does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares;
(i) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of Income Builder, and
this Agreement constitutes a valid and binding obligation of Income Builder
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors rights and to general equity principles. No other
consents, authorizations or approvals are necessary in connection with
Income Builder's performance of this Agreement;
(j) Income Builder Shares to be issued and delivered to Income and
Growth, for the account of the Income and Growth Shareholders, pursuant to
the terms of this Agreement will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly
issued Income Builder Shares, and will be fully paid and non-assessable
with no personal liability attaching to the ownership thereof, except as
set forth under the caption "Additional Information" in Income Builder's
current Prospectus incorporated by reference in the Registration Statement;
(k) All material Federal and other tax returns and reports of Income
Builder required by law to be filed on or before the Closing Date have been
filed and are correct, and all Federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of Income
Builder's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, Income Builder has met the
requirements of Subchapter M of the Code for qualification and treatment as
a "regulated investment company" and neither the
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execution or delivery of nor the performance of its obligations under this
Agreement will adversely affect, and no other events are reasonably likely
to occur which will adversely affect the ability of Income Builder to
continue to meet the requirements of Subchapter M of the Code;
(m) Since September 30, 1998 there has been no change by Income Builder
in accounting methods, principles, or practices, including those required
by generally accepted accounting principles;
(n) The information furnished or to be furnished by Income Builder for
use in registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated hereby
shall be accurate and complete in all material respects and shall comply in
all material respects with Federal securities and other laws and
regulations applicable thereto; and
(o) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to Income Builder) will, on the effective date
of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading.
5.2 Income and Growth represents and warrants to Income Builder as
follows:
(a) Income and Growth is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;
(b) Income and Growth is a duly registered, open-end, management
investment company, and its registration with the Commission as an
investment company under the 1940 Act and the registration of its shares
under the 1933 Act are in full force and effect;
(c) All of the issued and outstanding shares of beneficial interest of
Income and Growth have been offered and sold in compliance in all material
respects with applicable requirements of the 1933 Act and state securities
laws. Shares of Income and Growth are registered in all jurisdictions in
which they are required to be registered and said registrations, including
any periodic reports or supplemental filings, are complete and current, all
fees required to be paid have been paid, and Income and Growth is not
subject to any stop order and is fully qualified to sell its shares in each
state in which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information of
Income and Growth conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(e) Income and Growth is not, and the execution, delivery and performance
of this Agreement will not result, in a material violation of any provision
of Income and Growth's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which Income
and Growth is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against Income and Growth or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and Income
and Growth knows of no facts that might form the basis for the institution
of such proceedings and is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body which
materially and adversely affects, or is reasonably likely to materially and
adversely effect, its business or its ability to consummate the
transactions herein contemplated;
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(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights of Income and
Growth for the year ended January 31, 1999, certified by
PricewaterhouseCoopers LLP (copies of which have been or will be furnished
to Income Builder) fairly present, in all material respects, Income and
Growth's financial condition as of such date, and its results of
operations, changes in its net assets and financial highlights for such
period in accordance with generally accepted accounting principles, and as
of such date there were no known liabilities of Income and Growth
(contingent or otherwise) not disclosed therein that would be required in
accordance with generally accepted accounting principles to be disclosed
therein;
(h) Income and Growth has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it
prior to the Closing Date;
(i) All issued and outstanding shares of Income and Growth are, and at
the Closing Date will be, duly and validly issued and outstanding, fully
paid and nonassessable with no personal liability attaching to the
ownership thereof, except as set forth under the caption "Additional
Information" in Income and Growth's current Prospectus incorporated by
reference in the Registration Statement. Income and Growth does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of its shares, nor is there outstanding any security
convertible to any of its shares. All such shares will, at the time of
Closing, be held by the persons and in the amounts set forth in the list of
shareholders submitted to Income Builder pursuant to paragraph 3.4;
(j) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of Income and Growth, and subject to the approval of Income and
Growth's shareholders, this Agreement constitutes a valid and binding
obligation of Income and Growth, enforceable in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors rights and to
general equity principles. No other consents, authorizations or approvals
are necessary in connection with Income and Growth's performance of this
Agreement;
(k) All material Federal and other tax returns and reports of Income and
Growth required by law to be filed on or before the Closing Date shall have
been filed and are correct and all Federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of Income
and Growth's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, Income and Growth has met
all the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the execution or
delivery of nor the performance of its obligations under this Agreement
will adversely affect, and no other events are reasonably likely to occur
which will adversely affect the ability of Income and Growth to continue to
meet the requirements of Subchapter M of the Code;
(m) At the Closing Date, Income and Growth will have good and valid title
to the Income and Growth Assets, subject to no liens (other than the
obligation, if any, to pay the purchase price of portfolio securities
purchased by Income and Growth which have not settled prior to the Closing
Date), security interests or other encumbrances, and full right, power and
authority to assign, deliver and otherwise transfer such assets hereunder,
and upon delivery and payment for such assets, Income Builder will acquire
good and marketable title thereto, subject to no restrictions on the full
transfer thereof, including any restrictions as might arise under the 1933
Act;
(n) On the effective date of the Registration Statement, at the time of
the meeting of Income and Growth's shareholders and on the Closing Date,
the Proxy Materials (exclusive of the currently effective
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Income Builder Prospectus contained therein) will (i) comply in all
material respects with the provisions of the 1933 Act, the Securities
Exchange Act of 1934, as amended ("1934 Act") and the 1940 Act and the
regulations thereunder and (ii) not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. Any
other information furnished by Income and Growth for use in the
Registration Statement or in any other manner that may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete and shall comply in all material respects with applicable Federal
securities and other laws and regulations thereunder;
(o) Income and Growth will, on or prior to the Valuation Date, declare
one or more dividends or other distributions to shareholders that, together
with all previous dividends and other distributions to shareholders, shall
have the effect of distributing to the shareholders all of its investment
company taxable income and net capital gain, if any, through the Valuation
Date (computed without regard to any deduction for dividends paid);
(p) Income and Growth has maintained or has caused to be maintained on its
behalf all books and accounts as required of a registered investment company
in compliance with the requirements of Section 31 of the 1940 Act and the
Rules thereunder; and
(q) Income and Growth is not acquiring Income Builder Shares to be issued
hereunder for the purpose of making any distribution thereof other than in
accordance with the terms of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF CAPITAL APPRECIATION
The obligations of Income and Growth to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
Income Builder of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of Income Builder contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if
made on and as of the Closing Date;
6.2 Income Builder shall have delivered to Income and Growth a certificate
of its President and Treasurer, in a form reasonably satisfactory to Income and
Growth and dated as of the Closing Date, to the effect that the representations
and warranties of Income Builder made in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as Income and
Growth shall reasonably request;
6.3 Income and Growth shall have received a favorable opinion from Gordon
Altman Butowsky Weitzen Shalov & Wein, counsel to Income Builder, dated as of
the Closing Date, to the effect that:
(a) Income Builder is a validly existing Massachusetts business trust,
and has the power to own all of its properties and assets and to carry on
its business as presently conducted (Massachusetts counsel may be relied
upon in delivering such opinion); (b) Income Builder is a duly registered,
open-end, management investment company, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect; (c) this Agreement has been duly authorized, executed and delivered
by Income Builder and, assuming that the Registration Statement complies
with the 1933 Act, the 1934 Act and the 1940 Act and regulations thereunder
and assuming due authorization, execution and delivery of this Agreement by
Income and Growth, is a valid and binding obligation of Income Builder
enforceable against Income Builder in accordance with its terms, subject as
to enforcement, to bankruptcy, insolvency,
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reorganization, moratorium and other laws relating to or affecting
creditors rights and to general equity principles; (d) Income Builder
Shares to be issued to Income and Growth Shareholders as provided by this
Agreement are duly authorized and upon such delivery will be validly
issued, fully paid and non-assessable (except as set forth under the
caption "Additional Information" in Income Builder's Prospectus), and no
shareholder of Income Builder has any preemptive rights to subscription or
purchase in respect thereof (Massachusetts counsel may be relied upon in
delivering such opinion); (e) the execution and delivery of this Agreement
did not, and the consummation of the transactions contemplated hereby will
not, violate Income Builder's Declaration of Trust or By-Laws; and (f) to
the knowledge of such counsel, no consent, approval, authorization or order
of any court or governmental authority of the United States or any state is
required for the consummation by Income Builder of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act and the 1940 Act and such as may be required under state
securities laws; and
6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any increase in the
investment management fees or annual fees pursuant to Income Builder's 12b-1
plan of distribution from those described in Income Builder's Prospectus dated
November 25, 1998 and Statement of Additional Information dated November 25,
1998.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMERICAN VALUE
The obligations of Income Builder to complete the transactions provided
for herein shall be subject, at its election, to the performance by Income and
Growth of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of Income and Growth contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
7.2 Income and Growth shall have delivered to Income Builder at the
Closing a certificate of its President and its Treasurer, in form and substance
satisfactory to Income Builder and dated as of the Closing Date, to the effect
that the representations and warranties of Income and Growth made in this
Agreement are true and correct at and as of the Closing Date, except as they
may be affected by the transactions contemplated by this Agreement, and as to
such other matters as Income Builder shall reasonably request;
7.3 Income and Growth shall have delivered to Income Builder a statement
of the Income and Growth assets and its liabilities, together with a list of
Income and Growth's portfolio securities and other assets showing the
respective adjusted bases and holding periods thereof for income tax purposes,
as of the Closing Date, certified by the Treasurer of Income and Growth;
7.4 Income and Growth shall have delivered to Income Builder within three
business days after the Closing a letter from PricewaterhouseCoopers LLP dated
as of the Closing Date stating that (a) such firm has performed a limited
review of the Federal and state income tax returns of Income and Growth for
each of the last three taxable years and, based on such limited review, nothing
came to their attention that caused them to believe that such returns did not
properly reflect, in all material respects, the Federal and state income tax
liabilities of Income and Growth for the periods covered thereby, (b) for the
period from January 31, 1998 to and including the Closing Date, such firm has
performed a limited review (based on unaudited financial data) to ascertain the
amount of applicable Federal, state and local taxes and has determined that
same either have been paid or reserves have been established for payment of
such taxes, and, based on such limited review, nothing came to their attention
that caused them to believe that the taxes paid or reserves set aside for
payment
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of such taxes were not adequate in all material respects for the satisfaction
of all Federal, state and local tax liabilities for the period from January 31,
1998 to and including the Closing Date and (c) based on such limited reviews,
nothing came to their attention that caused them to believe that Income and
Growth would not qualify as a regulated investment company for Federal income
tax purposes for any such year or period;
7.5 Income Builder shall have received at the Closing a favorable opinion
from Gordon Altman Butowsky Weitzen Shalov & Wein, counsel to Income and
Growth, dated as of the Closing Date to the effect that:
(a) Income and Growth is a validly existing Massachusetts business trust
and has the power to own all of its properties and assets and to carry on
its business as presently conducted (Massachusetts counsel may be relied
upon in delivering such opinion); (b) Income and Growth is a duly
registered, open-end, management investment company under the 1940 Act, and
its registration with the Commission as an investment company under the
1940 Act is in full force and effect; (c) this Agreement has been duly
authorized, executed and delivered by Income and Growth and, assuming that
the Registration Statement complies with the 1933 Act, the 1934 Act and the
1940 Act and the regulations thereunder and assuming due authorization,
execution and delivery of this Agreement by Income Builder, is a valid and
binding obligation of Income and Growth enforceable against Income and
Growth in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors rights and to general equity principles; (d) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate Income and Growth's
Declaration of Trust or By-Laws; and (e) to the knowledge of such counsel,
no consent, approval, authorization or order of any court or governmental
authority of the United States or any state is required for the
consummation by Income and Growth of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the
1940 Act and such as may be required under state securities laws; and
7.6 On the Closing Date, the Income and Growth Assets shall include no
assets that Income Builder, by reason of limitations of the fund's Declaration
of Trust or otherwise, may not properly acquire.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF INCOME AND GROWTH
AND INCOME BUILDER
The obligations of Income and Growth and Income Builder hereunder are each
subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
Income and Growth in accordance with the provisions of Income and Growth's
Declaration of Trust, and certified copies of the resolutions evidencing such
approval shall have been delivered to Income Builder;
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of and exemptive orders from such Federal and state
authorities) deemed necessary by Income Builder or Income and Growth to permit
consummation, in all material respects, of the transactions contemplated herein
shall have been obtained, except where failure to obtain any such consent,
order or permit would not involve risk of a material adverse effect on the
assets or properties of Income Builder or Income and Growth;
A-11
<PAGE>
8.4 The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.5 Income and Growth shall have declared and paid a dividend or dividends
and/or other distribution or distributions that, together with all previous
such dividends or distributions, shall have the effect of distributing to the
Income and Growth Shareholders all of Income and Growth's investment company
taxable income (computed without regard to any deduction for dividends paid)
and all of its net capital gain (after reduction for any capital loss
carry-forward and computed without regard to any deduction for dividends paid)
for all taxable years ending on or before the Closing Date; and
8.6 The parties shall have received a favorable opinion of the law firm of
Gordon Altman Butowsky Weitzen Shalov & Wein (based on such representations as
such law firm shall reasonably request), addressed to Income Builder and Income
and Growth, which opinion may be relied upon by the shareholders of Income and
Growth, substantially to the effect that, for Federal income tax purposes:
(a) The transfer of substantially all of Income and Growth's assets in
exchange for Income Builder Shares and the assumption by Income Builder of
certain stated liabilities of Income and Growth followed by the
distribution by Income and Growth of Income Builder Shares to the Income
and Growth Shareholders in exchange for their Income and Growth shares will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of
the Code, and Income and Growth and Income Builder will each be a "party to
a reorganization" within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by Income Builder upon the receipt
of the assets of Income and Growth solely in exchange for Income Builder
Shares and the assumption by Income Builder of the stated liabilities of
Income and Growth;
(c) No gain or loss will be recognized by Income and Growth upon the
transfer of the assets of Income and Growth to Income Builder in exchange
for Income Builder Shares and the assumption by Income Builder of the
stated liabilities or upon the distribution of Income Builder Shares to the
Income and Growth Shareholders in exchange for their Income and Growth
shares;
(d) No gain or loss will be recognized by the Income and Growth
Shareholders upon the exchange of the Income and Growth shares for Income
Builder Shares;
(e) The aggregate tax basis for Income Builder Shares received by each
Income and Growth Shareholder pursuant to the reorganization will be the
same as the aggregate tax basis of the Income and Growth Shares held by
each such Income and Growth Shareholder immediately prior to the
Reorganization;
(f) The holding period of Income Builder Shares to be received by each
Income and Growth Shareholder will include the period during which the
Income and Growth Shares surrendered in exchange therefor were held
(provided such Income and Growth Shares were held as capital assets on the
date of the Reorganization);
(g) The tax basis of the assets of Income and Growth acquired by Income
Builder will be the same as the tax basis of such assets to Income and
Growth immediately prior to the Reorganization; and
(h) The holding period of the assets of Income and Growth in the hands of
Income Builder will include the period during which those assets were held
by Income and Growth.
A-12
<PAGE>
Notwithstanding anything herein to the contrary, neither Income Builder
nor Income and Growth may waive the conditions set forth in this paragraph 8.6.
9. FEES AND EXPENSES
9.1 (a) Income Builder shall bear its expenses incurred in connection with
the entering into, and carrying out of, the provisions of this Agreement,
including legal, accounting, Commission registration fees and Blue Sky
expenses. Income and Growth shall bear its expenses incurred in connection with
the entering into and carrying out of the provisions of this Agreement,
including legal and accounting fees, printing, filing and proxy solicitation
expenses and portfolio transfer taxes (if any) incurred in connection with the
consummation of the transactions contemplated herein.
(b) In the event the transactions contemplated herein are not consummated
by reason of Income and Growth being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
Income and Growth's obligations specified in this Agreement), Capital
Appreciation's only obligation hereunder shall be to reimburse Income Builder
for all reasonable out-of-pocket fees and expenses incurred by Income Builder
in connection with those transactions.
(c) In the event the transactions contemplated herein are not consummated
by reason of Income Builder being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
Income Builder's obligations specified in this Agreement), Income Builder's
only obligation hereunder shall be to reimburse Income and Growth for all
reasonable out-of-pocket fees and expenses incurred by Income and Growth in
connection with those transactions.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
herein, except that the representations, warranties and covenants of Income and
Growth hereunder shall not survive the dissolution and complete liquidation of
Income and Growth in accordance with Section 1.9.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of Income and Growth and Income Builder;
(b) by either Income Builder or Income and Growth by notice to the other,
without liability to the terminating party on account of such termination
(providing the terminating party is not otherwise in material default or
breach of this Agreement) if the Closing shall not have occurred on or
before May 31, 1999; or
(c) by either Income Builder or Income and Growth, in writing without
liability to the terminating party on account of such termination (provided
the terminating party is not otherwise in material default or breach of
this Agreement), if (i) the other party shall fail to perform in any
material respect its agreements contained herein required to be performed
on or prior to the Closing Date, (ii) the other party materially breaches
any of its representations, warranties or covenants contained herein, (iii)
the Income
A-13
<PAGE>
and Growth shareholders fail to approve this Agreement at any meeting
called for such purpose at which a quorum was present or (iv) any other
condition herein expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will
not or cannot be met.
11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1 (a) or
(b) shall terminate all obligations of the parties hereunder and there shall be
no liability for damages on the part of Income Builder or Income and Growth, or
the trustees or officers of Income Builder or Income and Growth, to any other
party or its trustees or officers.
(b) Termination of this Agreement pursuant to paragraph 11.1 (c) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of Income Builder or Income and Growth,
or the trustees or officers of Income Builder or Income and Growth, except
that any party in breach of this Agreement shall, upon demand, reimburse
the non-breaching party for all reasonable out-of-pocket fees and expenses
incurred in connection with the transactions contemplated by this
Agreement, including legal, accounting and filing fees.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties.
13. MISCELLANEOUS
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 The obligations and liabilities of Income Builder hereunder are
solely those of Income Builder. It is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of Income Builder shall be
personally liable hereunder. The execution and delivery of this Agreement have
been authorized by the trustees of Income Builder and signed by authorized
officers of Income Builder acting as such, and neither such authorization by
such trustees nor such execution and delivery by such officers shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally.
13.6 The obligations and liabilities of Income and Growth hereunder are
solely those of Income and Growth. It is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of Income and Growth shall be
personally liable hereunder. The execution and delivery of this Agreement have
been authorized by the trustees of Income and Growth and signed by authorized
officers of Income and Growth acting as such, and neither such authorization by
such trustees nor such execution and delivery by such officers shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally.
A-14
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by a duly authorized officer.
TCW/DW INCOME AND GROWTH FUND
By: /s/ CHARLES A. FIUMEFREDDO
--------------------------------------------
Name: Charles A. Fiumefreddo
Title: President
MORGAN STANLEY DEAN WITTER INCOME
BUILDER FUND
By: /s/ BARRY FINK
--------------------------------------------
Name: Barry Fink
Title: Vice President
A-15
<PAGE>
Exhibit B
PROSPECTUS
NOVEMBER 25, 1998
Morgan Stanley Dean Witter Income Builder Fund (the
"Fund") is an open-end, diversified management investment company whose primary
investment objective is to seek reasonable income. Growth of capital is the
secondary objective. The Fund seeks to achieve its objectives by investing,
under normal market conditions, at least 65% of its total assets in a
diversified portfolio of income-producing equity securities, including common
stock, preferred stock and convertible securities. Up to 35% of the Fund's
assets may be invested in fixed-income securities or common stocks that do not
pay a regular dividend but are expected to contribute to the Fund's ability to
meet its investment objectives.
The Fund offers four classes of shares (each, a
"Class"), each with a different combination of sales charges, ongoing fees and
other features. The different distribution arrangements permit an investor to
choose the method of purchasing shares that the investor believes is most
beneficial given the amount of the purchase, the length of time the investor
expects to hold the shares and other relevant circumstances. (See "Purchase of
Fund Shares -- Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information
you should know before investing in the Fund. It should be read and retained
for future reference. Additional information about the Fund is contained in the
Statement of Additional Information, dated November 25, 1998, which has been
filed with the Securities and Exchange Commission, and which is available at no
charge upon request of the Fund at the address or telephone numbers listed on
this page. The Statement of Additional Information is incorporated herein by
reference.
Morgan Stanley Dean Witter
Income Builder Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
869-NEWS (toll-free)
TABLE OF CONTENTS
Prospectus Summary/ 2
Summary of Fund Expenses/ 4
Financial Highlights/ 6
The Fund and its Management/ 9
Investment Objectives and Policies/ 9
Risk Considerations/ 13
Investment Restrictions/ 17
Purchase of Fund Shares/ 18
Shareholder Services/ 29
Redemptions and Repurchases/ 32
Dividends, Distributions and Taxes/ 33
Performance Information/ 34
Additional Information/ 35
Appendix/ 37
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.
MORGAN STANLEY
DEAN WITTER DISTRIBUTORS INC.,
DISTRIBUTOR
<PAGE>
<TABLE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an
Fund open-end, diversified management investment company. Under normal market conditions, the
Fund will invest at least 65% of its total assets in income-producing equity securities, including
common stock, preferred stock and convertible securities. Up to 35% of the Fund's assets may be
invested in fixed-income securities or common stocks that do not pay a regular dividend but are
expected to contribute to the Fund's ability to meet its investment objectives.
- --------------------------------------------------------------------------------------------------------------------------
Shares Offered Shares of beneficial interest with $0.01 par value (see page 34). The Fund offers four Classes of
shares, each with a different combination of sales charges, ongoing fees and other features (see
pages 18-28).
- --------------------------------------------------------------------------------------------------------------------------
Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened through
Purchase EasyInvestSM). Class D shares are only available to persons investing $5 million ($25 million for
certain qualified plans) or more and to certain other limited categories of investors. For the
purpose of meeting the minimum $5 million (or $25 million) investment for Class D shares, and
subject to the $1,000 minimum initial investment for each Class of the Fund, an investor's existing
holdings of Class A and Class D shares and shares of funds for which Morgan Stanley Dean Witter
Advisors Inc. serves as investment manager ("Morgan Stanley Dean Witter Funds") that are sold
with a front-end sales charge, and concurrent investments in Class D shares of the Fund and
other Morgan Stanley Dean Witter Funds that are multiple class funds, will be aggregated. The
minimum subsequent investment is $100 (see page 19).
- --------------------------------------------------------------------------------------------------------------------------
Investment The primary investment objective of the Fund is to seek reasonable income. Growth of capital is
Objective the secondary objective.
- --------------------------------------------------------------------------------------------------------------------------
Investment Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Fund, and its
Manager wholly-owned subsidiary, Morgan Stanley Dean Witter Services Company Inc., serve in various
investment management, advisory, management and administrative capacities to 100 investment
companies and other portfolios with net assets under management of approximately $117.3 billion
at October 31, 1998.
- --------------------------------------------------------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee at the annual rate of 0.75% of the portion of daily
Fee net assets not exceeding $500 million; and 0.725% of the portion of daily net assets exceeding
$500 million (see page 9).
- --------------------------------------------------------------------------------------------------------------------------
Distributor and Morgan Stanley Dean Witter Distributors Inc. is the Distributor of the Fund's shares. The Fund has
Distribution adopted a distribution plan pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1
Fee Plan") with respect to the distribution fees paid by the Class A, Class B and Class C shares of the
Fund to the Distributor. The entire 12b-1 fee payable by Class A and a portion of the 12b-1 fee
payable by each of Class B and Class C equal to 0.25% of the average daily net assets of the
Class are currently each characterized as a service fee within the meaning of the National
Association of Securities Dealers, Inc. guidelines. The remaining portion of the 12b-1 fee, if any,
is characterized as an asset-based sales charge (see pages 18 and 27).
- --------------------------------------------------------------------------------------------------------------------------
Alternative Four classes of shares are offered:
Purchase
Arrangements o Class A shares are offered with a front-end sales charge, starting at 5.25% and reduced for
larger purchases. Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charge at the time of purchase but a
contingent deferred sales charge ("CDSC") of 1.0% may be imposed on redemptions within one
year of purchase. The Fund is authorized to reimburse the Distributor for specific expenses
incurred in promoting the distribution of the Fund's Class A shares and servicing shareholder
accounts pursuant to the Fund's 12b-1 Plan. Reimbursement may in no event exceed an amount
equal to payments at an annual rate of 0.25% of average daily net assets of the Class (see pages
18, 22 and 27).
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
o Class B shares are offered without a front-end sales charge, but will in most cases be subject
to a CDSC (scaled down from 5.0% to 1.0%) if redeemed within six years after purchase. The
CDSC will be imposed on any redemption of shares if after such redemption the aggregate current
value of a Class B account with the Fund falls below the aggregate amount of the investor's
purchase payments made during the six years preceding the redemption. A different CDSC
schedule applies to investments by certain qualified plans. Class B shares are also subject to a
12b-1 fee assessed at the annual rate of 1.0% of the lesser of: (a) the average daily net sales of
the Fund's Class B shares or (b) the average daily net assets of Class B. All shares of the Fund
held prior to July 28, 1997 have been designated Class B shares. Shares held before May 1, 1997
that have been designated Class B shares will convert to Class A shares in May, 2007. In all other
instances, Class B shares convert to Class A shares approximately ten years after the date of the
original purchase (see pages 18, 24 and 27).
o Class C shares are offered without a front-end sales charge, but will in most cases be subject
to a CDSC of 1.0% if redeemed within one year after purchase. The Fund is authorized to
reimburse the Distributor for specific expenses incurred in promoting the distribution of the Fund's
Class C shares and servicing shareholder accounts pursuant to the Fund's 12b-1 Plan.
Reimbursement may in no event exceed an amount equal to payments at an annual rate of 1.0%
of average daily net assets of the Class (see pages 18, 26 and 27).
o Class D shares are offered only to investors meeting an initial investment minimum of $5 million
($25 million for certain qualified plans) and to certain other limited categories of investors. Class
D shares are offered without a front-end sales charge or CDSC and are not subject to any 12b-1
fees (see pages 18, 26 and 27).
- --------------------------------------------------------------------------------------------------------------------------
Dividends and The Fund pays quarterly income dividends and distributes substantially all of any net short-term
Capital Gains and net long-term capital gains at least once each year. The Fund may, however, determine to
Distributions retain all or part of any net long-term capital gains in any year for reinvestment. Dividends and
capital gains distributions paid on shares of a Class are automatically reinvested in additional
shares of the same Class at net asset value unless the shareholder elects to receive cash. Shares
acquired by dividend and distribution reinvestment will not be subject to any sales charge or
CDSC (see pages 29 and 33).
- --------------------------------------------------------------------------------------------------------------------------
Redemption Shares are redeemable by the shareholder at net asset value less any applicable CDSC on Class
A, Class B or Class C shares. An account may be involuntarily redeemed if the total value of the
account is less than $100 or, if the account was opened through EasyInvestSM, if after twelve
months the shareholder has invested less than $1,000 in the account (see page 32).
- --------------------------------------------------------------------------------------------------------------------------
Risk The net asset value of the Fund's shares will fluctuate with changes in market value of portfolio
Considerations securities. Dividends payable by the Fund will vary in relation to the amounts of dividends earned
on common stock and interest earned on fixed-income securities. The value of the Fund's
convertible and fixed-income portfolio securities and, therefore, the Fund's net asset value per
share, may increase or decrease due to various factors, including changes in prevailing interest
rates. Generally, a rise in interest rates will result in a decrease in the Fund's net asset value per
share, while a drop in interest rates will result in an increase in the Fund's net asset value per
share. The high yield, high risk fixed-income securities in which the Fund may invest are subject
to greater risk of loss of income and principal than higher rated, lower yielding fixed-income
securities. The prices of high yield, high risk securities have been found to be less sensitive to
changes in prevailing interest rates than higher rated investments, but are likely to be more
sensitive to adverse economic changes or individual corporate developments. The Fund may
enter into repurchase agreements, may purchase foreign securities; securities on a when-issued
and delayed delivery basis and may utilize certain investement techniques, all of which involve
certain special risks (see pages 13-17).
- --------------------------------------------------------------------------------------------------------------------------
Shareholder Automatic Investment of Dividends and Distributions; Investment of Distributions Received in
Services Cash; Systematic Withdrawal Plan; Exchange Privilege; EasyInvestSM; Tax-Sheltered Retirement
Plans (see page 29).
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
3
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of the
Fund will incur. The expenses and fees set forth in the table are based on the
expenses and fees for the fiscal year ended September 30, 1998.
<TABLE>
<CAPTION>
Class A Class B Class C Class D
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
- --------------------------------
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) ........................... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments ........... None None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or redemption
proceeds) ............................................... None(2) 5.00%(3) 1.00%(4) None
Redemption Fees .......................................... None None None None
Exchange Fee ............................................. None None None None
Annual Fund Operating Expenses (as a percentage of average net assets)
- ----------------------------------------------------------------------
Management Fees .......................................... 0.75% 0.75% 0.75% 0.75%
12b-1 Fees (5) (6) ....................................... 0.25% 0.88% 1.00% None
Other Expenses ........................................... 0.17% 0.17% 0.17% 0.17%
Total Fund Operating Expenses ............................ 1.17% 1.80% 1.92% 0.92%
</TABLE>
- ----------
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on
redemptions made within one year after purchase, except for certain
specific circumstances (see "Purchase of Fund Shares--Initial Sales
Charge Alternative--Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares--Level Load Alternative--Class C Shares").
(5) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1 fee
payable by Class A and a portion of the 12b-1 fee payable by each of
Class B and Class C equal to 0.25% of the average daily net assets of the
Class are currently each characterized as a service fee within the
meaning of National Association of Securities Dealers, Inc. ("NASD")
guidelines and are payments made for personal service and/or maintenance
of shareholder accounts. The remainder of the 12b-1 fee, if any, is an
asset-based sales charge, and is a distribution fee paid to the
Distributor to compensate it for the services provided and the expenses
borne by the Distributor and others in the distribution of the Fund's
shares (see "Purchase of Fund Shares--Plan of Distribution").
(6) Upon conversion of Class B shares to Class A shares, such shares will be
subject to the lower 12b-1 fee applicable to Class A shares. No sales
charge is imposed at the time of conversion of Class B shares to Class A
shares. Class C shares do not have a conversion feature and, therefore,
are subject to an ongoing 1.00% distribution fee (see "Purchase of Fund
Shares--Alternative Purchase Arrangements").
4
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Examples 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) a 5% annual return and (2) redemption at the end of each time period:
Class A ............................................................... $64 $88 $113 $187
Class B ............................................................... $68 $87 $117 $212
Class C ............................................................... $29 $60 $104 $224
Class D ............................................................... $ 9 $29 $ 51 $113
You would pay the following expenses on the same $1,000 investment
assuming no redemption at the end of the period:
Class A ............................................................... $64 $88 $113 $187
Class B ............................................................... $18 $57 $ 97 $212
Class C ............................................................... $19 $60 $104 $224
Class D ............................................................... $ 9 $29 $ 51 $113
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management" "Purchase of Fund Shares--Plan of Distribution"
and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales
charges, including distribution fees, than the economic equivalent of the
maximum front-end sales charge permitted by the NASD.
5
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by PricewaterhouseCoopers
LLP, independent accountants. The financial highlights should be read in
conjunction with the financial statements, the notes thereto and the
unqualified report of independent accountants, which are contained in 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 period
For the year For the year June 26, 1996*
ended ended through
September 30, 1998++ September 30, 1997**++ September 30, 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $ 12.81 $ 10.23 $ 10.00
-------- -------- --------
Net investment income ........................... 0.50 0.46 0.08
Net realized and unrealized gain (loss) ......... (1.11) 2.54 0.23
-------- -------- --------
Total from investment operations ................ (0.61) 3.00 0.31
-------- -------- --------
Less dividends and distributions from:
Net investment income .......................... (0.43) (0.41) (0.08)
Net realized gain .............................. (0.59) (0.01) --
-------- -------- --------
Total dividends and distributions ............... (1.02) (0.42) (0.08)
-------- -------- --------
Net asset value, end of period .................. $ 11.18 $ 12.81 $ 10.23
======== ======== ========
TOTAL INVESTMENT RETURN+ ........................ (5.29)% 29.83% 3.10%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.80%(3) 1.85% 2.25%(2)
Net investment income ........................... 3.98%(3) 4.16% 3.60%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $416,909 $358,973 $148,142
Portfolio turnover rate ......................... 58% 74% 7%(1)
</TABLE>
- ----------
* Commencement of operations.
** Prior to July 28, 1997 the Fund issued one class of shares. All shares held
prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
6
<PAGE>
FINANCIAL HIGHLIGHTS, continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
For the year July 28, 1997*
ended through
September 30, 1998++ September 30, 1997++
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $ 12.81 $ 12.20
------- -------
Net investment income ........................... 0.59 0.12
Net realized and unrealized gain (loss) ......... (1.12) 0.61
------- -------
Total from investment operations ................ (0.53) 0.73
------- -------
Less dividends and distributions from:
Net investment income .......................... (0.51) (0.12)
Net realized gain .............................. (0.59) --
------- -------
Total dividends and distributions ............... (1.10) (0.12)
------- -------
Net asset value, end of period .................. $ 11.18 $ 12.81
======= =======
TOTAL INVESTMENT RETURN+ ........................ (4.67)% 5.95%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.17%(3) 1.28%(2)
Net investment income ........................... 4.61%(3) 5.77%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $10,073 $1,047
Portfolio turnover rate ......................... 58% 74%
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $ 12.80 $ 12.20
--------- -----------
Net investment income ........................... 0.50 0.10
Net realized and unrealized gain (loss) ......... (1.12) 0.61
--------- -----------
Total from investment operations ................ (0.62) 0.71
--------- -----------
Less dividends and distributions from:
Net investment income .......................... (0.43) (0.11)
Net realized gain .............................. (0.59) --
--------- -----------
Total dividends and distributions ............... (1.02) (0.11)
--------- -----------
Net asset value, end of period .................. $ 11.16 $ 12.80
========= ===========
TOTAL INVESTMENT RETURN+ ........................ (5.38)% 5.79%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.92%(3) 1.98%(2)
Net investment income ........................... 3.86%(3) 4.61%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $ 5,630 $ 987
Portfolio turnover rate ......................... 58% 74%
</TABLE>
- ----------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
7
<PAGE>
FINANCIAL HIGHLIGHTS, continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
For the year July 28, 1997*
ended through
September 30, 1998++ September 30, 1997++
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $ 12.82 $ 12.20
------- -------
Net investment income ........................... 0.64 0.12
Net realized and unrealized gain (loss) ......... (1.15) 0.62
------- -------
Total from investment operations ................ (0.51) 0.74
------- -------
Less dividends and distributions from:
Net investment income .......................... (0.54) (0.12)
Net realized gain .............................. (0.59) --
------- -------
Total dividends and distributions ............... (1.13) (0.12)
------- -------
Net asset value, end of period .................. $ 11.18 $ 12.82
======= =======
TOTAL INVESTMENT RETURN+ ........................ (4.46)% 5.98%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 0.92%(3) 0.96%(2)
Net investment income ........................... 4.86%(3) 5.41%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $ 618 $ 21
Portfolio turnover rate ......................... 58% 74%
</TABLE>
- ----------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
8
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Income Builder Fund (formerly named Dean
Witter Income Builder Fund) (the "Fund") is an open-end, diversified management
investment company. The Fund is a trust of the type commonly known as a
"Massachusetts business trust" and was organized under the laws of The
Commonwealth of Massachusetts on March 21, 1996.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" 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 is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., a preeminent
global financial services firm that maintains leading market positions in each
of its three primary businesses--securities, asset management and credit
services. The Investment Manager, which was incorporated in July, 1992 under
the name Dean Witter InterCapital Inc., changed its name to Morgan Stanley Dean
Witter Advisors Inc. on June 22, 1998.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean
Witter Services Company Inc. ("MSDW Services"), serve in various investment
management, advisory, management and administrative capacities to 100
investment companies, 28 of which are listed on the New York Stock Exchange,
with combined assets of approximately $112.8 billion at October 31, 1998. The
Investment Manager also manages portfolios of pension plans, other institutions
and individuals which aggregated approximately $4.4 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. MSDW Advisors has retained MSDW Services to perform the
aforementioned administrative services for the Fund.
The Fund's Trustees review the various services provided by or under the
direction of the Investment Manager to ensure that the Fund's general
investment policies and programs are being properly carried out and that
administrative services are being provided to the Fund in a satisfactory
manner.
As full compensation for the services and facilities furnished to the
Fund and for expenses of the Fund assumed by the Investment Manager, the Fund
pays the Investment Manager monthly compensation calculated daily by applying
the annual rate of 0.75% to the Fund's net assets. Effective May 1, 1998, the
Investment Manager's compensation was scaled down to 0.725% on assets over $500
million. For the fiscal year ended September 30, 1998, the Fund accrued total
compensation to the Investment Manager amounting to 0.75% of the Fund's average
daily net assets and the total expenses of each Class amounted to 1.17%, 1.80%,
1.92% and 0.92% of the average daily net assets of Class A, Class B, Class C
and Class D, respectively.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The primary investment objective of the Fund is to seek reasonable
income. Growth of capital is the secondary objective. The objectives are
fundamental policies of the Fund and may not be changed without a vote of a
majority of the outstanding voting securities of the Fund. There is no
assurance that the objectives will be achieved.
The Fund seeks to achieve its objectives by investing, under normal
market conditions, at least 65% of its total assets in income-producing equity
securities, including common stock, preferred stock and convertible securities.
Up to 35% of the Fund's assets may be invested in fixed-income securities or
common stocks that do not pay a regular dividend
9
<PAGE>
but are expected to contribute to the Fund's ability to meet its investment
objectives.
Common Stocks, Preferred Stocks and Securities Convertible into Common
Stocks. The Fund will invest, under normal market conditions, primarily in
common stocks of large-cap companies which have a record of paying dividends
and, in the opinion of the Investment Manager, have the potential for
maintaining dividends, in preferred stock and in securities convertible into
common stocks of small and mid-cap companies. The Investment Manager intends to
use a value-oriented investment style in the selection of securities for the
Fund's portfolio. A convertible security is a bond, debenture, note, preferred
stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or based on a specified formula.
Convertible securities rank senior to common stocks in a corporation's capital
structure and, therefore, entail less risk than the corporation's common stock.
The value of a convertible security is a function of its "investment value"
(its value as if it did not have a conversion privilege), and its "conversion
value" (the security's worth if it were to be exchanged for the underlying
security, at market value, pursuant to its conversion privilege).
Lower Rated Fixed-Income Securities. The Fund also may invest up to 20%
in fixed-income securities rated below investment grade. Securities below
investment grade are the equivalent of high yield, high risk bonds (commonly
known as "junk bonds"). Investment grade is generally considered to be debt
securities rated BBB or higher by Standard & Poor's Corporation ("S&P") or Baa
or higher by Moody's Investors Service, Inc. ("Moody's"). (Fixed-income
securities rated BBB by S&P or Baa by Moody's which generally are regarded as
having an adequate capacity to pay interest and repay principal, have
speculative characteristics.) However, the Fund will not invest in fixed-income
securities that are rated lower than B by S&P or Moody's or, if not rated,
determined to be of comparable quality by the Investment Manager. The Fund will
not invest in fixed-income securities that are in default in payment of
principal or interest. The 20% limitation on securities rated below investment
grade in which the Fund may invest does not include securities convertible into
common stock. A description of fixed-income securities ratings is contained in
the appendix to the Prospectus.
Foreign Securities. The Fund may invest in equity securities of foreign
issuers. However, the Fund will not invest more than 25% of the value of its
total assets, at the time of purchase, in securities of foreign issuers (other
than securities of Canadian issuers registered under the Securities Exchange
Act of 1934 or American Depository Receipts, on which there is no such limit).
The Fund may invest in American Depository Receipts (ADRs), European Depository
Receipts (EDRs) or other similar securities convertible into securities of
foreign issuers. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying securities. EDRs are European receipts evidencing a
similar arrangement. Generally, ADRs, in registered form, are designed for use
in the United States securities markets and EDRs, in bearer form, are designed
for use in European securities markets. The Fund's investments in unlisted
foreign securities are subject to the Fund's overall policy limiting its
investment in illiquid securities to 15% or less of its net assets.
Corporate Notes and Bonds and U.S. Government Securities. A portion of
the Fund's assets may be invested in investment grade fixed income (fixed-rate
and adjustable rate) securities such as corporate notes and bonds and
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities.
The non-governmental debt securities in which the Fund will invest will
include: (a) corporate debt securities, including bonds, notes and commercial
paper, rated in the four highest categories by a nationally recognized
statistical rating organization
10
<PAGE>
("NRSRO") including Moody's Investors Service, Inc., Standard & Poor's
Corporation, Duff and Phelps, Inc. and Fitch Investors Service, Inc.; and (b)
bank obligations, including CDs, banker's acceptances and time deposits, issued
by banks with a long-term CD rating in one of the four highest categories by a
NRSRO. Investments in securities rated within the four highest rating
categories by a NRSRO are considered "investment grade." However, such
securities rated within the fourth highest rating category by a NRSRO have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make principal
and interest payments than would be the case with investments in securities
with higher credit ratings. Where a fixed-income security is not rated by a
NRSRO (as may be the case with a foreign security) the Investment Manager will
make a determination of its creditworthiness and may deem it to be investment
grade. A description of fixed-income security ratings is contained in the
appendix to the Prospectus.
The U.S. Government Securities in which the Fund may invest include
securities which are direct obligations of the United States Government, such
as United States treasury bills, notes and bonds, and which are backed by the
full faith and credit of the United States; securities which are backed by the
full faith and credit of the United States but which are obligations of a
United States agency or instrumentality (e.g., obligations of the Government
National Mortgage Association); securities issued by a United States agency or
instrumentality which has the right to borrow, to meet its obligations, from an
existing line of credit with the United States Treasury (e.g., obligations of
the Federal National Mortgage Association); securities issued by a United
States agency or instrumentality which is backed by the credit of the issuing
agency or instrumentality (e.g., obligations of the Federal Farm Credit
System).
Money market instruments in which the Fund may invest include securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
(Treasury bills, notes and bonds, including zero coupon securities); bank
obligations; Eurodollar certificates of deposit; obligations of savings
institutions; fully insured certificates of deposit; and commercial paper rated
within the four highest grades by Moody's or Standard & Poor's or, if not
rated, issued by a company having an outstanding debt issue rated at least AA
by Standard & Poor's or Aa by Moody's. Such securities may be used to invest
uncommitted cash balances.
There may be periods during which, in the opinion of the Investment
Manager, market conditions warrant reduction of some or all of the Fund's
securities holdings. During such periods, the Fund may adopt a temporary
"defensive" posture in which up to 100% of its total assets is invested in
money market instruments or cash.
In addition to the securities noted above, the Fund may invest in the
following:
When-Issued and Delayed Delivery Securities and Forward
Commitments. From time to time, in the ordinary course of business, the Fund
may purchase securities on a when-issued or delayed delivery basis or may
purchase or sell securities on a forward commitment basis. When such
transactions are negotiated, the price is fixed at the time of the commitment,
but delivery and payment can take place a month or more after the date of the
commitment. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis may increase the volatility of the Fund's net asset value. (See the
Statement of Additional Information for added risk disclosure.)
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have lost an investment opportunity. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a "when, as and if
issued"
11
<PAGE>
basis may increase the volatility of its net asset value. See the Statement of
Additional Information for additional risk disclosure.
Investment in Real Estate Investment Trusts. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments primarily
in commercial real estate properties. Investment in real estate investment
trusts may be the most practical available means for the Fund to invest in the
real estate industry (the Fund is prohibited from investing in real estate
directly). As a shareholder in a real estate investment trust, the Fund would
bear its ratable share of the real estate investment trust's expenses,
including its advisory and administration fees. At the same time the Fund would
continue to pay its own investment management fees and other expenses, as a
result of which the Fund and its shareholders in effect will be absorbing
duplicate levels of fees with respect to investments in real estate investment
trusts.
Zero Coupon Securities. A portion of the fixed-income securities purchased by
the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. The interest earned on such securities is,
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as income
each year even though the Fund receives no interest payments in cash on the
security during the year.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at any
time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account pursuant
to applicable regulations and that are equal to at least the market value,
determined daily, of the loaned securities. As with any extensions of credit,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans of portfolio securities will only be made to firms deemed by the
Investment Manager to be creditworthy and when the income which can be earned
from such loans justifies the attendant risks.
Rule 144A Securities. The Fund may invest up to 5% of its total assets
in securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
such securities may have an adverse effect on their marketability, and may
prevent the Fund from disposing of them promptly at reasonable prices. The Fund
may have to bear the expense of registering such securities for resale and the
risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to buy securities restricted as to
12
<PAGE>
resale to qualified institutional buyers without limitation. The Investment
Manager, pursuant to procedures adopted by the Trustees of the Fund, will make
a determination as to the liquidity of each restricted security purchased by
the Fund. If a restricted security is determined to be "liquid," such security
will not be included within the category "illiquid securities," which under
current policy may not exceed 15% of the Fund's net assets. However, investing
in Rule 144A securities could have the effect of increasing the level of Fund
illiquidity to the extent the Fund, at a particular point in time, may be
unable to find qualified institutional buyers interested in purchasing such
securities.
Repurchase Agreements. The Fund may enter into repurchase agreements,
which may be viewed as a type of secured lending by the Fund, and which
typically involve the acquisition by the Fund of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying security
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. While repurchase agreements involve
certain risks not associated with direct investments in debt securities,
including the risks of default or bankruptcy of the selling financial
institution, the Fund follows procedures designed to minimize those risks.
These procedures include effecting repurchase transactions only with large,
well-capitalized and well established financial institutions and maintaining
adequate collateralization.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in
the market value of its portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market or political factors which cannot be predicted. The Fund's yield will
also vary based on the yield of the Fund's portfolio securities.
Common Stocks, Preferred Stocks and Securities Convertible into Common
Stocks. The net asset value of the Fund's shares will fluctuate with changes in
market values of portfolio securities. Convertible securities rank senior to
common stocks in a corporation's capital structure and, therefore, entail less
risk than the corporation's common stock. The value of a convertible security
is a function of its "investment value" (its value as if it did not have a
conversion privilege), and its "conversion value" (the security's worth if it
were to be exchanged for the underlying security, at market value, pursuant to
its conversion privilege).
The Investment Manager intends to follow a "bottom-up" approach in the
selection of convertible securities. Beginning with a universe of about 500
companies, the Investment Manager will narrow the focus to small and mid-cap
companies and review the issues to determine if the convertible is trading with
the underlying equity security. The yield of the underlying equity security
will be evaluated and company fundamentals will be studied to evaluate cash
flow, risk/reward balance, valuation and the prospects for growth. The
Investment Manager intends to select convertible securities that, in its
judgment, are issued by companies with sound management practices and that
represent good value.
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security
(the credit standing of the issuer and other factors may also have an effect on
the convertible security's value). If the conversion value exceeds the
investment value, the price of the convertible security will rise above its
investment value and, in addition, may sell at some premium over its conversion
value. (This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilige.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
The Fund may invest up to 25% of its total assets in "enhanced"
convertible securities. En-
13
<PAGE>
hanced convertible securities offer holders the opportunity to obtain higher
current income than would be available from a traditional equity security
issued by the same company, in return for reduced participation or a cap on
appreciation in the underlying common stock of the issuer which the holder can
realize. In addition, in many cases, enhanced convertible securities are
convertible into the underlying common stock of the issuer automatically at
maturity, unlike traditional convertible securities which are convertible only
at the option of the security holder. Enhanced convertible securities may be
more volatile than traditional convertible securities due to the mandatory
conversion feature.
The Fund also may invest up to 10% in "synthetic" convertible
securities. Unlike traditional convertible securities whose conversion values
are based on the common stock of the issuer of the convertible security,
"synthetic" convertible securities are preferred stocks or debt obligations of
an issuer which are combined with an equity component whose conversion value is
based on the value of the common stock of a different issuer or a particular
benchmark (which may include a foreign issuer or basket of foreign stocks, or a
company whose stock is not yet publicly traded). In many cases, "synthetic"
convertible securities are not convertible prior to maturity, at which time the
value of the security is paid in cash by the issuer.
"Synthetic" convertible securities may be less liquid than traditional
convertible securities and their price changes may be more volatile. Reduced
liquidity may have an adverse impact on the Fund's ability to sell particular
synthetic securities promptly at favorable prices and may also make it more
difficult for the Fund to obtain market quotations based on actual trades, for
purposes of valuing the Fund's portfolio securities.
The Fund may invest without limitation in "exchangeable" convertible
bonds and convertible preferred stock which are issued by one company, but
convertible into the common stock of a different publicly traded company. These
securities generally have liquidity trading and risk characteristics similar to
traditional convertible securities noted above.
Foreign securities. Foreign securities investments may be affected by
changes in currency rates or exchange control regulations, changes in
governmental administration or economic or monetary policy (in the United
States and abroad) or changed circumstances in dealings between nations.
Fluctuations in the relative rates of exchange between different currencies
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.
When purchasing foreign securities, the Fund may enter into foreign currency
exchange transactions or forward foreign exchange contracts to facilitate
settlement. The Fund may utilize forward foreign exchange contracts in these
instances as an attempt to limit the effect of changes in the relationship
between the U.S. dollar and the foreign currency during the period between the
trade date and settlement date for the transaction.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of
the exchanges on which the currencies trade.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements
of U.S. companies and, as such, there may be less publicly available
information about such companies. Moreover, foreign companies are not subject
to uniform accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies.
14
<PAGE>
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their
American counterparts. Brokerage commissions, dealer concessions and other
transaction costs may be higher on foreign markets than in the U.S. In
addition, differences in clearance and settlement procedures on foreign markets
may occasion delays in settlements of the Fund's trades effected in such
markets. As such, the inability to dispose of portfolio securities due to
settlement delays could result in losses to the Fund due to subsequent declines
in value of such securities and the inability of the Fund to make intended
security purchases due to settlement problems could result in a failure of the
Fund to make potentially advantageous investments. To the extent the Fund
purchases Eurodollar certificates of deposit issued by foreign branches of
domestic United States banks, consideration will be given to their domestic
marketability, the lower reserve requirements normally mandated for overseas
banking operations, the possible impact of interruptions in the flow of
international currency transactions and future international political and
economic developments which might adversely affect the payment of principal or
interest.
Many European countries are about to adopt a single European currency,
the euro (the "Euro Conversion"). The consequences of the Euro Conversion for
foreign exchange rates, interest rates and the value of European securities
eligible for purchase by the Fund are presently unclear. Such consequences may
adversely affect the value and/or increase the volatility of securities held by
the Fund.
Lower Rated Convertible and Fixed-Income Securities. A portion of the
fixed-income and convertible securities in which the Fund may invest will
generally be below investment grade. Securities below investment grade are the
equivalent of high yield, high risk bonds, commonly known as "junk bonds."
Investment grade is generally considered to be debt securities rated BBB or
higher by Standard & Poor's Corporation ("S&P") or Baa or higher by Moody's
Investors Service, Inc. ("Moody's"). Fixed-income securities rated Baa by
Moody's or BBB by Standard & Poor's have speculative characteristics greater
than those of more highly rated bonds, while fixed-income securities rated Ba
or BB or lower by Moody's and Standard & Poor's, respectively, are considered
to be speculative investments. The Fund will not invest in convertibles and
fixed-income securities that are rated lower than B by S&P or Moody's or, if
not rated, determined to be of comparable quality by the Investment Manager.
The Fund will not invest in debt securities that are in default in payment of
principal or interest. The ratings of fixed-income securities by Moody's and
Standard & Poor's are a generally accepted barometer of credit risk. However,
as the creditworthiness of issuers of lower-rated fixed-income securities is
more problematical than that of issuers of higher-rated fixed-income
securities, the achievement of the Fund's investment objective will be more
dependent upon the Investment Manager's own credit analysis than would be the
case with a mutual fund investing primarily in higher quality bonds. The
Investment Manager will utilize a security's credit rating as simply one
indication of an issuer's creditworthiness and will principally rely upon its
own analysis of any security currently held by the Fund or potentially
purchasable by the Fund for its portfolio.
During the fiscal year ended September 30, 1998, the monthly dollar
weighted average ratings of the debt obligations held by the Fund, expressed as
a percentage of the Fund's total investments, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
- ----------------------- ------------------
<S> <C>
AAA/Aaa ............. 0.7%
AA/Aa ............... 0.0%
A/A ................. 2.2%
BBB/Baa ............. 7.1%
BB/Ba ............... 6.4%
B/B ................. 13.9%
CCC/Caa ............. 0.0%
CC/Ca ............... 0.0%
C/C ................. 0.0%
Unrated ............. 4.9%
</TABLE>
15
<PAGE>
Because of the special nature of the Fund's permitted investments in
lower rated debt securities, the Investment Manager must take account of
certain special considerations in assessing the risks associated with such
investments. Historically, the prices of lower rated securities have been found
to be less sensitive to changes in prevailing interest rates than higher rated
investments, but are likely to be more sensitive to adverse economic changes or
individual corporate developments. During an economic downturn or substantial
period of rising interest rates, highly leveraged issuers may experience
financial stress which would adversely affect their ability to service their
principal and interest payment obligations, to meet their projected business
goals or to obtain additional financing. If the issuer of a fixed-income
security owned by the Fund defaults, the Fund may incur additional expenses to
seek recovery. In addition, periods of economic uncertainty and change can be
expected to result in an increased volatility of market prices of lower rated
securities and a corresponding volatility in the net asset value of a share of
the Fund.
Corporate Notes and Bonds and U.S. Government Securities. Payments of
interest and principal of U.S. Government securities are guaranteed by the U.S.
Government, however, neither the value nor the yield of corporate notes and
bonds and U.S. Government securities which may be invested in by the Fund are
guaranteed by the U.S. Government. Values and yield of corporate and government
bonds will fluctuate with changes in prevailing interest rates and other
factors. Generally, as prevailing interest rates rise, the value of corporate
notes and bonds and government bonds held by the Fund will fall. Securities
with longer maturities generally tend to produce higher yields and are subject
to greater market fluctuation as a result of changes in interest rates than
debt securities with shorter maturities. The Fund is not limited as to the
maturities of the U.S. Government securities in which it may invest.
Real Estate Investment Trusts. Real estate investment trusts are not
diversified and are subject to the risk of financing projects. They are also
subject to heavy cash flow dependency, defaults by borrowers or tenants,
self-liquidation, and the possibility of failing to qualify for tax-free status
under the Internal Revenue Code and failing to maintain exemption from the Act.
The Fund currently intends to invest up to 10%, but may invest up to 20% of its
assets in real estate investment trusts.
Repurchase Agreements. While repurchase agreements involve certain risks
not associated with direct investments in debt securities, including the risks
of default or bankruptcy of the selling financial institution, the Fund follows
procedures designed to minimize such risks. These procedures include effecting
repurchase transactions only with large, well-capitalized and well-established
financial institutions whose financial condition will be continually monitored
by the Investment Manager subject to procedures established by the Board of
Trustees of the Fund. In addition, as described above, the value of the
collateral underlying the repurchase agreement will be at least equal to the
repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, the Fund will seek to liquidate such collateral. However, the
exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price,
the Fund could suffer a loss. It is the current policy of the Fund not to
invest in repurchase agreements that do not mature within seven days if any
such investment, together with any other illiquid assets held by the Fund,
amounts to more than 15% of its net assets.
Year 2000. The investment management services provided to the Fund by
the Investment Manager and the services provided to shareholders by the
Distributor and the Transfer Agent depend on the smooth functioning of their
computer systems. Many computer software systems in use today cannot recognize
the year 2000, but revert to 1900 or some other date, due to the manner in
which dates were encoded and calculated. That failure could have a negative
impact on the handling of securities trades, pricing and account services. The
16
<PAGE>
Investment Manager, the Distributor and the Transfer Agent have been actively
working on necessary changes to their own computer systems to prepare for the
year 2000 and expect that their systems will be adapted before that date, but
there can be no assurance that they will be successful, or that interaction
with other non-complying computer systems will not impair their services at
that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S. and
foreign financial statements. Accordingly, the Fund's investments may be
adversely affected.
For additional risk disclosure, please refer to the "Investment
Objectives and Policies" section of the Prospectus and to the "Investment
Practices and Policies" section of the Statement of Additional Information.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with
a view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers, including Dean Witter
Reynolds Inc., Morgan Stanley & Co. Incorporated and other broker-dealers that
are affiliates of the Investment Manager, and the Investment Manager's own
analysis of factors it deems relevant. The Investment Manager also may use
quantitative screens in the process of selecting portfolio securities.
The Fund's portfolio is managed within MSDW Advisors' Growth and Income
Group, which manages 20 equity funds and fund portfolios with approximately
$32.9 billion in assets as of October 31, 1998. Paul D. Vance and Peter M.
Avelar, Senior Vice Presidents of MSDW Advisors and members of MSDW Advisors'
Growth and Income Group, have been the primary portfolio co-managers of the
Fund since its inception and January 1998, respectively, and have been
portfolio managers with MSDW Advisors for over five years.
Although the Fund does not intend to engage in short-term trading of
portfolio securities as a means of achieving its investment objective, it may
sell portfolio securities without regard to the length of time they have been
held whenever such sale will in the Investment Manager's opinion strengthen the
Fund's position and contribute to its investment objective. The portfolio
turnover rate is not expected to exceed 90%. Brokerage commissions are not
normally charged on the purchase or sale of U.S. Government obligations, but
such transactions may involve costs in the form of spreads between bid and
asked prices. Pursuant to an order of the Securities and Exchange Commission,
the Fund may effect principal transactions in certain money market instruments
with Dean Witter Reynolds Inc. In addition, the Fund may incur brokerage
commissions on transactions conducted through Dean Witter Reynolds Inc., Morgan
Stanley & Co. Incorporated and other brokers and dealers that are affiliates of
MSDW Advisors.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions
which have been adopted by the Fund as fundamental policies. Under the
Investment Company Act of 1940, as amended (the "Act"), a fundamental policy
may not be changed without the vote of a majority of the outstanding voting
securities of the Fund, as defined in the Act. For purposes of the following
limitations: (i) all percentage limitations apply immediately after a purchase
or initial investment; and (ii) any subse-
17
<PAGE>
quent 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 more than 5% of the value of its total assets in the
securities of any one issuer (other than obligations issued, or
guaranteed by, the United States Government, its agencies or
instrumentalities).
2. Purchase more than 10% of all outstanding voting securities or
any class of securities of any one issuer.
3. Invest 25% or more of the value of its total assets in securities
of issuers in any one industry. This restriction does not apply to
obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities.
4. Invest more than 5% of the value of its total assets in
securities of issuers having a record, together with predecessors, of
less than three years of continuous operation. This restriction shall
not apply to any obligation of the United States Government, its
agencies or instrumentalities. (See the Statement of Addi-tional
Information for additional investment restrictions.)
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objectives by investing all or substantially all
of its assets in another investment company having substantially the same
investment objectives and policies as the Fund.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each Class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and
Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors" or the
"Distributor"), an affiliate of the Investment Manager, shares of the Fund are
distributed by the Distributor and offered by Dean Witter Reynolds Inc.
("DWR"), a selected dealer and subsidiary of Morgan Stanley Dean Witter & Co.,
and other dealers which have entered into selected dealer agreements with the
Distributor ("Selected Broker-Dealers"). It is anticipated that DWR will
undergo a change of corporate name which is expected to incorporate the brand
name of "Morgan Stanley Dean Witter," pending approval of various regulatory
authorities. The principal executive office of the Distributor is located at
Two World Trade Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares
are sold to investors with an initial sales charge that declines to zero for
larger purchases; however, Class A shares sold without an initial sales charge
are subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified plans are
subject to a CDSC scaled down from 2.0% to 1.0% if redeemed within three years
after purchase.) Class C shares are sold without an initial sales charge but
are subject to a CDSC of 1.0% on most redemptions made within one year after
purchase. Class D shares are sold without an initial sales charge or CDSC and
are available only to investors meeting an initial investment minimum of $5
million ($25 million for certain qualified plans), and to certain other limited
categories of investors. At the discretion of the Board of Trustees of the
Fund, Class A shares may be sold to categories of investors in addition to
those set forth in this prospectus at net asset value without a front-end sales
charge, and Class D shares may be sold to certain other categories of
investors, in each case as may
18
<PAGE>
be described in the then current prospectus of the Fund. See "Alternative
Purchase Arrange-ments--Selecting a Particular Class" for a discussion of
factors to consider in selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares,
although Class D shares are only available to persons investing $5 million ($25
million for certain qualified plans) or more and to certain other limited
categories of investors. For the purpose of meeting the minimum $5 million (or
$25 million) initial investment for Class D shares, and subject to the $1,000
minimum initial investment for each Class of the Fund, an investor's existing
holdings of Class A and Class D shares of the Fund and other Morgan Stanley
Dean Witter Funds that are multiple class funds ("Morgan Stanley Dean Witter
Multi-Class Funds") and shares of Morgan Stanley Dean Witter Funds sold with a
front-end sales charge ("FSC Funds") and concurrent investments in Class D
shares of the Fund and other Morgan Stanley Dean Witter Multi-Class Funds will
be aggregated. Subsequent purchases of $100 or more may be made by sending a
check, payable to Morgan Stanley Dean Witter Income Builder Fund, directly to
Morgan Stanley Dean Witter Trust FSB (the "Transfer Agent" or "MSDW Trust") at
P.O. Box 1040, Jersey City, NJ 07303 or by contacting a Morgan Stanley Dean
Witter Financial Advisor or other Selected Broker-Dealer representative of DWR
or other Selected Broker-Dealer. When purchasing shares of the Fund, investors
must specify whether the purchase is for Class A, Class B, Class C or Class D
shares. If no Class is specified, the Transfer Agent will not process the
transaction until the proper Class is identified. The minimum initial purchase
in the case of investments through EasyInvestSM, an automatic purchase plan
(see "Shareholder Services"), is $100, provided that the schedule of automatic
investments will result in investments totalling at least $1,000 within the
first twelve months. The minimum initial purchase in the case of an "Education
IRA" is $500, if the Distributor has reason to believe that additional
investments will increase the investment in the account to $1,000 within three
years. In the case of investments pursuant to (i) Systematic Payroll Deduction
Plans (including Individual Retirement Plans), (ii) the MSDW Advisors mutual
fund asset allocation program and (iii) fee-based programs approved by the
Distributor, pursuant to which participants pay an asset based fee for services
in the nature of investment advisory, administrative and/or brokerage services,
the Fund, in its discretion, may accept investments without regard to any
minimum amounts which would otherwise be required, provided, in the case of
Systematic Payroll Deduction Plans, that the Distributor 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 three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since DWR
and other Selected Broker-Dealers forward investors' funds on settlement date,
they will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive income dividends
and capital gains distributions if their order is received by the close of
business on the day prior to the record date for such dividends and
distributions. Sales personnel of a Selected Broker-Dealer are compensated for
selling shares of the Fund by the Distributor or any of its affiliates and/or
the Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive various types of non-cash compensation as special
sales incentives, including trips, educational and/or business seminars and
merchandise. The Fund and the Distributor reserve the right to reject any
purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to
provide them with the flexibil-
19
<PAGE>
ity of selecting an investment best suited to their needs. The general public
is offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of expenses
to which they are subject. A fourth Class of shares, Class D shares, is offered
only to limited categories of investors. See "No Load Alternative--Class D
Shares."
Each Class A, Class B, Class C or Class D share of the Fund represents
an identical interest in the investment portfolio of the Fund except that Class
A, Class B and Class C shares bear the expenses of the ongoing shareholder
service fees, Class B and Class C shares bear the expenses of the ongoing
distribution fees and Class A, Class B and Class C shares which are redeemed
subject to a CDSC bear the expense of the additional incremental distribution
costs resulting from the CDSC applicable to shares of those Classes. The
ongoing distribution fees that are imposed on Class A, Class B and Class C
shares will be imposed directly against those Classes and not against all
assets of the Fund and, accordingly, such charges against one Class will not
affect the net asset value of any other Class or have any impact on investors
choosing another sales charge option. See "Plan of Distribution" and
"Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and
the factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
Class A Shares. Class A shares are sold at net asset value plus an
initial sales charge of up to 5.25%. The initial sales charge is reduced for
certain purchases. Investments of $1 million or more (and investments by
certain other limited categories of investors) are not subject to any sales
charges at the time of purchase but are subject to a CDSC of 1.0% on
redemptions made within one year after purchase, except for certain specific
circumstances. Class A shares are also subject to a 12b-1 fee of up to 0.25% of
the average daily net assets of the Class. See "Initial Sales Charge
Alternative--Class A Shares."
Class B Shares. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed
within three years after purchase.) This CDSC may be waived for certain
redemptions. Class B shares are also subject to an annual 12b-1 fee of 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's Class
B shares since the inception of the Fund (not including reinvestments of
dividends or capital gains distributions), less the average daily aggregate net
asset value of the Fund's Class B shares redeemed since the Fund's inception
upon which a CDSC has been imposed or waived, or (b) the average daily net
assets of Class B. The Class B shares' distribution fee will cause that Class
to have higher expenses and pay lower dividends than Class A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
Class C Shares. Class C shares are sold at net asset value with no
initial sales charge but are subject to a CDSC of 1.0% on redemptions made
within one year after purchase. This CDSC may be waived for certain
redemptions. They are subject to an annual 12b-1 fee of up to 1.0% of the
average daily net assets of the Class C shares. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A or Class D shares. See "Level Load Alternative--Class C
Shares."
Class D Shares. Class D shares are available only to limited categories
of investors (see "No Load Alternative--Class D Shares" below). Class D shares
are sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
20
<PAGE>
Selecting a Particular Class. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an
investor depends on the amount and intended length of his or her investment.
Investors who prefer an initial sales charge alternative may elect to purchase
Class A shares. Investors qualifying for significantly reduced or, in the case
of purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly
lower CDSC upon redemptions, they do not, unlike Class B shares, convert into
Class A shares after approximately ten years, and, therefore, are subject to an
ongoing 12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A
shares) for an indefinite period of time. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks. Other investors, however, may elect to purchase Class C shares if,
for example, they determine that they do not wish to be subject to a front-end
sales charge and they are uncertain as to the length of time they intend to
hold their shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A and Class D shares in
all Morgan Stanley Dean Witter Multi-Class Funds, shares of FSC Funds and
shares of Morgan Stanley Dean Witter Funds for which such shares have been
exchanged will be included together with the current investment amount.
Sales personnel may receive different compensation for selling each
Class of shares. Investors should understand that the purpose of a CDSC is the
same as that of the initial sales charge in that the sales charges applicable
to each Class provide for the financing of the distribution of shares of that
Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
- -----------------------------------------------------------------------------
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
- -----------------------------------------------------------------------------
A Maximum 5.25% 0.25% No
initial sales charge
reduced for
purchases of
$25,000 and over;
shares sold without
an initial sales
charge generally
subject to a 1.0%
CDSC during first
year.
- -----------------------------------------------------------------------------
B Maximum 5.0% 1.0% B shares convert
CDSC during the first to A shares
year decreasing automatically after
to 0 after six years approximately
ten years
- -----------------------------------------------------------------------------
C 1.0% CDSC during 1.0% No
first year
- -----------------------------------------------------------------------------
D None None No
- -----------------------------------------------------------------------------
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
21
<PAGE>
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge.
In some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case of
Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets
of the Class.
The offering price of Class A shares will be the net asset value per
share next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
- ----------------------------- ----------------- ----------------
<S> <C> <C>
Less than $25,000 ........... 5.25% 5.54%
$25,000 but less
than $50,000 ............. 4.75% 4.99%
$50,000 but less
than $100,000 ............ 4.00% 4.17%
$100,000 but less
than $250,000 ............ 3.00% 3.09%
$250,000 but less
than $1 million .......... 2.00% 2.04%
$1 million and over ......... 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow
up to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a
single transaction by, among others: (a) an individual; (b) an individual, his
or her spouse and their children under the age of 21 purchasing shares for his,
her or their own accounts; (c) a trustee or other fiduciary purchasing shares
for a single trust estate or a single fiduciary account; (d) a pension,
profit-sharing or other employee benefit plan qualified or non-qualified under
Section 401 of the Internal Revenue Code; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Internal Revenue Code; (f)
employee benefit plans qualified under Section 401 of the Internal Revenue Code
of a single employer or of employers who are "affiliated persons" of each other
within the meaning of Section 2(a)(3)(c) of the Act; and for investments in
Individual Retirement Accounts of employees of a single employer through
Systematic Payroll Deduction plans; or (g) any other organized group of
persons, whether incorporated or not, provided the organization has been in
existence for at least six months and has some purpose other than the purchase
of redeemable securities of a registered investment company at a discount.
Combined Purchase Privilege. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other Morgan Stanley Dean Witter Multi-Class Funds and shares of FSC
Funds. The sales charge payable on the purchase of the Class A shares of the
Fund, the Class A shares of the other Morgan Stanley Dean Witter Multi-Class
Funds and the shares of the FSC Funds will be at their respective rates
applicable to the total amount of the combined concurrent purchases of such
shares.
22
<PAGE>
Right of Accumulation. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other Morgan Stanley Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Morgan Stanley Dean Witter Funds acquired in
exchange for those shares, and including in each case shares acquired through
reinvestment of dividends and distributions), which are held at the time of
such transaction, amounts to $25,000 or more. If such investor has a cumulative
net asset value of shares of FSC Funds and Class A and Class D shares that,
together with the current investment amount, is equal to at least $5 million
($25 million for certain qualified plans), such investor is eligible to
purchase Class D shares subject to the $1,000 minimum initial investment
requirement of that Class of the Fund. See "No Load Alternative--Class D
Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or
the shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such an
order is placed by mail. The reduced sales charge will not be granted if: (a)
such notification is not furnished at the time of the order; or (b) a review of
the records of the Selected Broker-Dealer or the Transfer Agent fails to
confirm the investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will
also be available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from DWR or other Selected Broker-Dealers. The cost of Class A
shares of the Fund or shares of other Morgan Stanley Dean Witter Funds which
were previously purchased at a price including a front-end sales charge during
the 90-day period prior to the date of receipt by the Distributor of the Letter
of Intent, or of Class A shares of the Fund or shares of other Morgan Stanley
Dean Witter Funds acquired in exchange for shares of such funds purchased
during such period at a price including a front-end sales charge, which are
still owned by the shareholder, may also be included in determining the
applicable reduction.
Additional Net Asset Value Purchase Options. In addition to investments
of $1 million or more, Class A shares also may be purchased at net asset value
by the following:
(1) trusts for which MSDW Trust (which is an affiliate of the Investment
Manager) provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory, administrative and/or brokerage services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees, mandatory redemption upon
termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section
401(a) of the Internal Revenue Code ("Qualified Retirement Plans") with at
least 200 eligible employees and for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees;
(5) investors who are clients of a Morgan Stanley Dean Witter Financial
Advisor who joined Morgan Stanley Dean Witter from another investment firm
within six months prior to the date of purchase
23
<PAGE>
of Fund shares by such investors, if the shares are being purchased with the
proceeds from a redemption of shares of an open-end proprietary mutual fund of
the Financial Advisor's previous firm which imposed either a front-end or
deferred sales charge, provided such purchase was made within sixty days after
the redemption and the proceeds of the redemption had been maintained in the
interim in cash or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares,
contact DWR or another Se-lected Broker-Dealer or consult the Statement of
Additional Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--
CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain Qualified Retirement
Plans, three years) preceding the redemption. In addition, Class B shares are
subject to an annual 12b-1 fee of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's Class B shares since the inception of the
Fund (not including reinvestments of dividends or capital gains distributions),
less the average daily aggregate net asset value of the Fund's Class B shares
redeemed since the Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may, however,
be subject to a CDSC which will be a percentage of the dollar amount of shares
redeemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, as set forth in
the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------------- ---------------------
<S> <C>
First .......................... 5.0%
Second ......................... 4.0%
Third .......................... 3.0%
Fourth ......................... 2.0%
Fifth .......................... 2.0%
Sixth .......................... 1.0%
Seventh and thereafter ......... None
</TABLE>
In the case of Class B shares of the Fund purchased on or after July 28,
1997 by Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject
to any CDSC upon redemption. However, shares redeemed earlier than three years
after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ------------------------------- ---------------------
<S> <C>
First ......................... 2.0%
Second ........................ 2.0%
Third ......................... 1.0%
Fourth and thereafter ......... None
</TABLE>
24
<PAGE>
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption; and (iii) the current
net asset value of shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of FSC Funds or of
other Morgan Stanley Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first.
In addition, the CDSC, if otherwise applicable, will be waived in the
case of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held in
a qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination
of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a
"key employee" of a "top heavy" plan, following attainment of age 59 1/2);
(B) distributions from an IRA or 403(b) Custodial Account following
attainment of age 59 1/2; or (C) a tax-free return of an excess contribution
to an IRA;
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, MSDW Services, as self-directed
investment alternatives and for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement ("Eligible Plan"), provided that either: (A)
the plan continues to be an Eligible Plan after the redemption; or (B) the
redemption is in connection with the complete termination of the plan involving
the distribution of all plan assets to participants; and
(4) certain redemptions pursuant to the Fund's Systematic Withdrawal
Plan (see "Shareholder Services -- Systematic Withdrawal Plan.")
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to engage
in gainful employment. With reference to (2) above, the term "distribution"
does not encompass a direct transfer of IRA, 403(b) Custodial Account or
retirement plan assets to a successor custodian or trustee. All waivers will be
granted only following receipt by the Distributor of confirmation of the
shareholder's entitlement.
Conversion to Class A Shares. All shares of the Fund held prior to July
28, 1997 have been designated Class B shares. Shares held before May 1, 1997
will convert to Class A shares in May, 2007. In all other instances Class B
shares will convert automatically to Class A shares, based on the relative net
asset values of the shares of the two Classes on the conversion date, which
will be approximately ten (10) years after the date of the original purchase.
The ten year period is calculated from the last day of the month in which the
shares were purchased or, in the case of Class B shares acquired through an
exchange or a series of exchanges, from the last day of the month in which the
original Class B shares were purchased, provided that shares originally
purchased before May 1, 1997 will convert to Class A shares in May, 2007. The
conversion of shares purchased on or after May 1, 1997 will take place in the
month following the tenth anniversary of the purchase. There will also be
25
<PAGE>
converted at that time such proportion of Class B shares acquired through
automatic reinvestment of dividends and distributions owned by the shareholder
as the total number of his or her Class B shares converting at the time bears
to the total number of outstanding Class B shares purchased and owned by the
shareholder. In the case of Class B shares held by a Qualified Retirement Plan
for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement, the
plan is treated as a single investor and all Class B shares will convert to
Class A shares on the conversion date of the first shares of a Morgan Stanley
Dean Witter Multi-Class Fund purchased by that plan. In the case of Class B
shares previously exchanged for shares of an "Exchange Fund" (see "Shareholder
Services--Exchange Privilege"), the period of time the shares were held in the
Exchange Fund (calculated from the last day of the month in which the Exchange
Fund shares were acquired) is excluded from the holding period for conversion.
If those shares are subsequently re-exchanged for Class B shares of a Morgan
Stanley Dean Witter Multi-Class Fund, the holding period resumes on the last
day of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares,
such certificates must be delivered to the Transfer Agent at least one week
prior to the date for conversion. Class B shares evidenced by share
certificates that are not received by the Transfer Agent at least one week
prior to any conversion date will be converted into Class A shares on the next
scheduled conversion date after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion
will have a basis equal to the shareholder's basis in the converted Class B
shares immediately prior to the conversion, and (iii) Class A shares received
on conversion will have a holding period that includes the holding period of
the converted Class B shares. The conversion feature may be suspended if the
ruling or opinion is no longer available. In such event, Class B shares would
continue to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative--Class B Shares--CDSC
Waivers," except that the references to six years in the first paragraph of
that section shall mean one year in the case of Class C shares. Class C shares
are subject to an annual 12b-1 fee of up to 1.0% of the average daily net
assets of the Class. Unlike Class B shares, Class C shares have no conversion
feature and, accordingly, an investor that purchases Class C shares will be
subject to 12b-1 fees applicable to Class C shares for an indefinite period
subject to annual approval by the Fund's Board of Trustees and regulatory
limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million ($25 million for
Qualified Retirement Plans for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement) and the following categories of investors:
(i) investors participating in the MSDW Advisors mutual fund asset allocation
program pursuant to which such persons pay an asset based fee; (ii) persons
participating in a fee-based program approved by
26
<PAGE>
the Distributor, pursuant to which such persons pay an asset based fee for
services in the nature of investment advisory or administrative services
(subject to all of the terms and conditions of such programs, referred to in
(i) and (ii) above, which may include termination fees, mandatory redemption
upon termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares); (iii) employee
benefit plans maintained by Morgan Stanley Dean Witter & Co. or any of its
subsidiaries for the benefit of certain employees of Morgan Stanley Dean Witter
& Co. and its subsidiaries; (iv) certain Unit Investment Trusts sponsored by
DWR; (v) certain other open-end investment companies whose shares are
distributed by the Distributor; (vi) investors who were shareholders of Dean
Witter Retirement Series on September 11, 1998 (with respect to additional
purchases for their former Dean Witter Retirement Series accounts); and (vii)
other categories of investors, at the discretion of the Board, as disclosed in
the then current prospectus of the Fund. Investors who require a $5 million (or
$25 million) minimum initial investment to qualify to purchase Class D shares
may satisfy that requirement by investing that amount in a single transaction
in Class D shares of the Fund and other Morgan Stanley Dean Witter Multi-Class
Funds, subject to the $1,000 minimum initial investment required for that Class
of the Fund. In addition, for the purpose of meeting the $5 million (or $25
million) minimum investment amount, holdings of Class A and Class D shares in
all Morgan Stanley Dean Witter Multi-Class Funds, shares of FSC Funds and
shares of Morgan Stanley Dean Witter Funds for which such shares have been
exchanged will be included together with the current investment amount. If a
shareholder redeems Class A shares and purchases Class D shares, such
redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act with respect to the distribution of Class A, Class B and Class C shares
of the Fund. In the case of Class A and Class C shares, the Plan provides that
the Fund will reimburse the Distributor and others for the expenses of certain
activities and services incurred by them specifically on behalf of those
shares. Reimbursements for these expenses will be made in monthly payments by
the Fund to the Distributor, which will in no event exceed amounts equal to
payments at the annual rates of 0.25% and 1.0% of the average daily net assets
of Class A and Class C, respectively. In the case of Class B shares, the Plan
provides that the Fund will pay the Distributor a fee, which is accrued daily
and paid monthly, at the annual rate of 1.0% of the lesser of: (a) the average
daily aggregate gross sales of the Fund's Class B shares since the inception of
the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the Fund's inception upon which a CDSC has been
imposed or waived, or (b) the average daily net assets of Class B. The fee is
treated by the Fund as an expense in the year it is accrued. In the case of
Class A shares, the entire amount of the fee currently represents a service fee
within the meaning of the NASD guidelines. In the case of Class B and Class C
shares, a portion of the fee payable pursuant to the Plan, equal to 0.25% of
the average daily net assets of each of these Classes, is currently
characterized as a service fee. A service fee is a payment made for personal
service and/or the maintenance of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class
C shares are paid to the Distributor for services provided and the expenses
borne by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of Morgan Stanley Dean
Witter Financial Advisors and others who engage in or support distribution of
shares or who service shareholder accounts, including overhead and telephone
expenses; printing and distribution of prospectuses and reports used in
connection with the offering of the Fund's shares to other than current
sharehold-
27
<PAGE>
ers; and preparation, printing and distribution of sales literature and
advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan in the case of Class B shares to compensate DWR and other
Selected Broker-Dealers for their opportunity costs in advancing such amounts,
which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
For the fiscal year ended September 30, 1998, Class B shares of the Fund
accrued payments under the Plan amounting to $3,886,869, which amount is equal
to 0.88% of the average daily net assets of Class B for the fiscal year. These
payments were calculated pursuant to clause (a) of the compensation formula
under the Plan. For the fiscal year ended September 30, 1998, Class A and Class
C shares of the Fund accrued payments under the Plan amounting to $18,844 and
$41,480, respectively, which amounts are equal to 0.25% and 1.00% of the
average daily net assets of Class A and Class C, respectively, for the fiscal
year.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i)
the payments made by the Fund pursuant to the Plan, and (ii) the proceeds of
CDSCs paid by investors upon the redemption of Class B shares. For example, if
$1 million in expenses in distributing Class B shares of the Fund had been
incurred and $750,000 had been received as described in (i) and (ii) above, the
excess expense would amount to $250,000. The Distributor has advised the Fund
that such excess amounts, including the carrying charge described above,
totalled $18,378,964 at September 30, 1998, which was equal to 4.41% of the net
assets of Class B on such date. Because there is no requirement under the Plan
that the Distributor be reimbursed for all distribution expenses or any
requirement that the Plan be continued from year to year, such excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made to
the Distributor under the Plan, and the proceeds of CDSCs paid by investors
upon redemption of shares, if for any reason the Plan is terminated the
Trustees will consider at that time the manner in which to treat such expenses.
Any cumulative expenses incurred, but not yet recovered through distribution
fees or CDSCs, may or may not be recovered through future distribution fees or
CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales commission credited to Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative at the time of sale may
be reimbursed in the subsequent calendar year. The Distributor has advised the
Fund that unreimbursed expenses representing a gross sales commission credited
to Morgan Stanley Dean Witter Financial Advisors and other Selected
Broker-Dealer representatives at the time of sale totalled $16,788 in the case
of Class C at December 31, 1997, which was equal to 0.72% of the net assets of
Class C on such date, and that there were no such expenses which may be
reimbursed in the subsequent year in the case of Class A on such date. No
interest or other financing charges will be incurred on any Class A or Class C
distribution expenses incurred by the Distributor under the Plan or on any
unreimbursed expenses due to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time, on each day that the New York Stock Exchange is open (or, on days
when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier
time), by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the
Class A, Class B, Class C and Class D shares will be invested together in a
single portfolio. The net asset value of each Class, however, will be
determined separately by subtracting each Class's accrued expenses and
28
<PAGE>
liabilities. The net asset value per share will not be determined on Good
Friday and on such other federal and non-federal holidays as are observed by
the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity
portfolio security listed or traded on the New York or American Stock Exchange
or other domestic or foreign stock exchange is valued at its latest sale price
on that exchange prior to the time assets are valued; if there were no sales
that day, the security is valued at the latest bid price (in cases where a
security is traded on more than one exchange, the security is valued on the
exchange designated as the primary market pursuant to procedures adopted by the
Trustees); (2) all other portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest bid price; (3) when
market quotations are not readily available, including circumstances under
which it is determined by the Investment Manager that sale or bid prices are
not reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by
and under the general supervision of the Fund's Trustees (valuation of debt
securities for which market quotations are not readily available may be based
upon current market prices of securities which are comparable in coupon, rating
and maturity or an appropriate matrix utilizing similar factors); (4) the value
of short-term debt securities which mature at a date less than sixty days
subsequent to valuation date will be determined on an amortized cost or
amortized value basis; and (5) the value of other assets will be determined in
good faith at fair value under procedures established by and under the general
supervision of the Fund's Trustees. Dividends receivable are accrued as of the
ex-dividend date. Interest income is accrued daily. Certain securities in the
Fund's portfolio may be valued by an outside pricing service approved by the
Fund's Trustees.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Automatic Investment of Dividends and Distributions. All income
dividends and capital gains distributions are automatically paid in full and
fractional shares of the applicable Class of the Fund (or, if specified by the
shareholder, in shares of any other open-end Morgan Stanley Dean Witter Fund),
unless the shareholder requests that they be paid in cash. Shares so acquired
are acquired at net asset value and are not subject to the imposition of a
front-end sales charge or a CDSC (see "Redemptions and Repurchases").
Investment of Dividends or Distributions Received in Cash. Any
shareholder who receives a cash payment representing a dividend or capital
gains distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value next determined after receipt by the
Transfer Agent, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. Shares so acquired are acquired at
net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
EasyInvestSM. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption").
Systematic Withdrawal Plan. A systematic withdrawal plan (the
"Withdrawal Plan") is available for shareholders whose shares of Morgan Stanley
Dean Witter Funds have an aggregate value of $10,000 or more. Shares of any
Fund from which redemptions will be made pursuant to the Plan must have a value
of $1,000 or more (referred to as a "SWP Fund"). The required share values are
determined on the date the shareholder establishes the
29
<PAGE>
Withdrawal Plan. The Withdrawal Plan provides for monthly, quarterly,
semi-annual or annual payments in any amount not less than $25, or in any whole
percentage of the value of the SWP Funds' shares, on an annualized basis. Any
applicable CDSC will be imposed on shares redeemed under the Withdrawal Plan
(see "Purchase of Fund shares"), except that the CDSC, if any, will be waived
on redemptions under the Withdrawal Plan of up to 12% annually of the value of
each SWP Fund account, based on the share values next determined after the
shareholder establishes the Withdrawal Plan. Redemptions for which this CDSC
waiver policy applies may be in amounts up to 1% per month, 3% per quarter, 6%
semi-annually or 12% annually. Under this CDSC waiver policy, amounts withdrawn
each period will be paid by first redeeming shares not subject to a CDSC
because the shares were purchased by the reinvestment of dividends or capital
gains distributions, the CDSC period has elapsed or some other waiver of the
CDSC applies. If shares subject to a CDSC must be redeemed, shares held for the
longest period of time will be redeemed first and continuing with shares held
the next longest period of time until shares held the shortest period of time
are redeemed. 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 CDSC) to the shareholder will be the designated monthly,
quarterly, semi-annually or annual amount.
A shareholder may suspend or terminate participation in the Withdrawal
Plan at any time. A shareholder who has suspended participation may resume
payments under the Withdrawal Plan, without requiring a new determination of
the account value for the 12% CDSC waiver. The Withdrawal Plan may be
terminated or revised at any time by the Fund.
Prior to adding an additional SWP Fund to an existing Withdrawal Plan,
the required $10,000/ $1,000 share values must be met, to be calculated on the
date the shareholder adds the additional SWP Fund. However, the addition of a
new SWP Fund will not change the account value for the 12% CDSC waiver for the
SWP Funds already participating in the Withdrawal Plan.
Withdrawal Plan payments should not be considered dividends, yields or
income. If periodic Withdrawal Plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted. Each withdrawal constitutes a
redemption of shares and any gain or loss realized must be recognized for
federal income tax purposes.
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 advisor.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative or the Transfer Agent
for further information about any of the above services.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of
any other Morgan Stanley Dean Witter Multi-Class Fund without the imposition of
any exchange fee. Shares may also be exchanged for shares of the following
funds: Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust, Morgan
Stanley Dean Witter Limited Term Municipal Trust, Morgan Stanley Dean Witter
Short-Term Bond Fund and five Morgan Stanley Dean Witter Funds which are money
market funds (the "Exchange Funds"). Class A shares may also be exchanged for
shares of Morgan Stanley Dean Witter Multi-State Municipal Series Trust and
Morgan Stanley Dean Witter Hawaii Municipal Trust, which are Morgan Stanley
Dean Witter Funds sold with a front-end sales charge ("FSC 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
30
<PAGE>
is no waiting period for exchanges of shares acquired by exchange or dividend
reinvestment.
An exchange to another Morgan Stanley Dean Witter Multi-Class Fund, any
FSC 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
Morgan Stanley Dean Witter Multi-Class Funds, FSC Funds or any Exchange Fund
that is not a money market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If
those shares are subsequently re-exchanged for shares of a Morgan Stanley Dean
Witter Multi-Class 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
Morgan Stanley Dean Witter Multi-Class Fund are reacquired. Thus, the CDSC is
based upon the time (calculated as described above) the shareholder was
invested in shares of a Morgan Stanley Dean Witter Multi-Class Fund (see
"Purchase of Fund Shares"). In the case of exchanges of Class A shares which
are subject to a CDSC, the holding period also includes the time (calculated as
described above) the shareholder was invested in shares of a FSC Fund. In the
case of shares exchanged into an Exchange Fund on or after April 23, 1990, upon
a redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the Exchange
Fund 12b-1 distribution fees incurred on or after that date which are
attributable to those shares. (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.) Class B shares of the Fund
acquired in exchange for Class B shares of another Morgan Stanley Dean Witter
Multi-Class Fund having a different CDSC schedule than that of this Fund will
be subject to the higher CDSC schedule, even if such shares are subsequently
re-exchanged for shares of the fund with the lower CDSC schedule.
Additional Information Regarding Exchanges.
Purchases and exchanges should be made for investment purposes only. A pattern
of frequent exchanges may be deemed by the Investment Manager to be abusive and
contrary to the best interests of the Fund's other shareholders and, at the
Investment Manager's discretion, may be limited by the Fund's refusal to accept
additional purchases and/or exchanges from the investor. Although the Fund does
not have any specific definition of what constitutes a pattern of frequent
exchanges, and will consider all relevant factors in determining whether a
particular situation is abusive and contrary to the best interests of the Fund
and its other shareholders, investors should be aware that the Fund and each of
the other Morgan Stanley Dean Witter Funds may in their discretion limit or
otherwise restrict the number of times this Exchange Privilege may be exercised
by any investor. Any such restriction will be made by the Fund on a prospective
basis only, upon notice to the shareholder not later than ten days following
such shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such Morgan Stanley
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 Morgan Stanley Dean Witter Financial Advisor or other
Selected Broker-Dealer representative regarding restrictions on exchange of
shares of the Fund pledged in the margin account.
31
<PAGE>
The current prospectus for each fund describes its investment
objective(s) and policies, and shareholders should obtain a copy and read it
carefully before investing. Exchanges are subject to the minimum investment
requirement of each Class of shares and any other conditions imposed by each
fund. In the case of a shareholder holding a share certificate or certificates,
no exchanges may be made until all applicable share certificates have been
received by the Transfer Agent and deposited in the shareholder's account. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares on which the shareholder has realized a
capital gain or loss. However, the ability to deduct capital losses on an
exchange may be limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. The Exchange Privilege is
only available in states where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Morgan
Stanley Dean Witter Funds (for which the Exchange Privilege is available)
pursuant to this Exchange Privilege by contacting their Morgan Stanley Dean
Witter Financial Advisor or other Selected Broker-Dealer representative (no
Exchange Privilege Authorization Form is required). Other shareholders (and
those who are clients of DWR or other Selected Broker-Dealer but who wish to
make exchanges directly by writing or telephoning the Transfer Agent) must
complete and forward to the Transfer Agent an Exchange Privilege Authorization
Form, copies of which may be obtained from the Fund, to initiate an exchange.
If the Authorization Form is used, exchanges may be made in writing or by
contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name,
mailing address, social security or other tax identification number and DWR or
other Selected Broker-Dealer account number (if any). Telephone instructions
may also be recorded. If such procedures are not employed, the Fund may be
liable for any losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her Morgan Stanley
Dean Witter Financial Advisor or other Selected Broker-Dealer representative,
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 Morgan Stanley Dean Witter Funds in the past.
Additional information on the above is available from a Morgan Stanley
Dean Witter Financial Advisor or other Selected Broker-Dealer representative or
from the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
Redemption. Shares of each Class of the Fund can be redeemed for cash at
any time at the net asset value per share next determined less the amount of
any applicable CDSC in the case of Class A, Class B or Class C shares (see
"Purchase of Fund Shares"). If shares are held in a shareholder's account
without a share certificate, a written request for redemption to the Fund's
Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption, along with
any additional documentation required by the Transfer Agent.
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<PAGE>
Repurchase. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic or telegraphic request of the shareholder. The repurchase
price is the net asset value per share next determined (see "Purchase of Fund
Shares") after such purchase order is received by DWR or another Selected
Broker-Dealer.
The CDSC, if any, will be the only fee imposed by the Fund or the
Distributor. The offer by DWR and other Selected Broker-Dealers to repurchase
shares may be suspended without notice by them at any time. In that event,
shareholders may redeem their shares through the Fund's Transfer Agent as set
forth above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances, e.g., when normal trading is not taking place on the New
York Stock Exchange. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum
time needed to verify that the check used for investment has been honored (not
more than fifteen days from the time of receipt of the check by the Transfer
Agent). Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative regarding restrictions
on redemption of shares of the Fund pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase
in shares of the Fund in the same Class from which such shares were redeemed or
repurchased, at the net asset value next determined after a reinstatement
request, together with the proceeds, is received by the Transfer Agent and
receive a pro rata credit for any CDSC paid in connection with such redemption
or repurchase.
Involuntary Redemption. The Fund reserves the right to redeem, upon
sixty days' notice and at net asset value, the shares of any shareholder (other
than shares held in an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares have a value of
less than $100 as a result of redemptions or repurchases, or such lesser amount
as may be fixed by the Board of Trustees or, in the case of an account opened
through EasyInvestsm, if after twelve months the shareholder has invested less
than $1,000 in the account. However, before the Fund redeems such shares and
sends the proceeds to the shareholder, it will notify the shareholder that the
value of the shares is less than the applicable amount and allow the
shareholder to make an additional investment in an amount which will increase
the value of the account to at least the applicable amount before the
redemption is processed. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions. The Fund declares dividends separately for
each Class of shares and intends to pay quarterly income dividends and to
distribute substantially all of the Fund's net short-term and net long-term
capital gains, if there are any, at least once each year. The Fund may,
however, determine either to distribute or to retain all or part of any net
long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in
additional shares of the same Class and automatically credited to the
shareholder's account without issuance of a share certificate unless
33
<PAGE>
the shareholder requests in writing that all dividends be paid in cash. Shares
acquired by dividend and distribution reinvestments will not be subject to any
front-end sales charge or CDSC. Class B shares acquired through dividend and
distribution reinvestments will become eligible for conversion to Class A
shares on a pro rata basis. Distributions paid on Class A and Class D shares
will be higher than for Class B and Class C shares because distribution fees
paid by Class B and Class C shares are higher (see "Shareholder
Services--Automatic Investment of Dividends and Distributions").
Taxes. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise remain
qualified as a regulated investment company under Subchapter M of the Internal
Revenue Code, it is not expected that the Fund will be required to pay any
federal income tax. Shareholders who are required to pay taxes on their income
will normally have to pay federal income taxes, and any state and 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 or short-term capital gains, are taxable to the shareholder
as ordinary dividend income regardless of whether the shareholder receives such
distributions in additional shares or in cash. Any dividends declared in the
last quarter of any calendar year which are paid in the following year prior to
February 1 will be deemed, for tax purposes, to have been received by the
shareholder in the prior year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction.
The Fund may at times make payments from sources other than income or
net capital gains. Payments from such sources would, in effect, represent a
return of a portion of each shareholder's investment. All, or a portion, of
such payments would not be taxable to shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes. Shareholders will also be notified of their proportionate share of
long-term capital gains distributions that are eligible for a reduced rate of
tax under the Taxpayer Relief Act of 1997. To avoid being subject to a 31%
federal backup withholding tax on taxable dividends, capital gains
distributions and the proceeds of redemptions and repurchases, shareholders'
taxpayer identification numbers must be furnished and certified as to their
accuracy.
Shareholders should consult their tax advisors as to the applicability
of the foregoing to their current situation.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total
return" in advertisements and sales literature. These figures are computed
separately for Class A, Class B, Class C and Class D shares. Both the yield and
the total return of the Fund are based on historical earnings and are not
intended to indicate future performance. The yield of each Class of the Fund is
computed by dividing the Class's net investment income over a 30-day period by
an average value (using the average number of shares entitled to receive
dividends and the net asset value per share at the end of the period), all in
accordance with applicable regulatory requirements. Such amount is compounded
for six months and then annualized for a twelve-month period to derive the
yield for each Class.
From time to time the Fund may quote its "total return" in
advertisements and sales literature. These figures are computed separately for
Class A, Class B, Class C and Class D shares. The total return of the Fund is
based on historical earnings and is not intended to indicate future
performance. The "aver-
34
<PAGE>
age 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 a Class of the Fund of $1,000 over periods of one, five and ten
years, or over the life of the Fund, if less than any of the foregoing. Total
return and average annual total return reflect all income earned by the Fund,
any appreciation or depreciation of the Fund's assets, all expenses incurred by
the applicable Class and all sales charges which will be incurred by
shareholders, for the stated periods. It also assumes reinvestment of all
dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return
for each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. The Fund may also
advertise the growth of hypothetical investments of $10,000, $50,000 and
$100,000 in each Class of shares of the Fund. Such calculations may or may not
reflect the deduction of any sales charge which, if reflected, would reduce the
performance quoted. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc., the S&P 500 Index and the Lehman Brothers
Government/ Corporate Bond Index).
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of the Fund are of
$0.01 par value and are equal as to earnings, assets and voting privileges
except that each Class will have exclusive voting privileges with respect to
matters relating to distribution expenses borne solely by such Class or any
other matter in which the interests of one Class differ from the interests of
any other Class. In addition, Class B shareholders will have the right to vote
on any proposed material increase in Class A's expenses, if such proposal is
submitted separately to Class A shareholders. Also, as discussed herein, Class
A, Class B and Class C bear the expenses related to the distribution of their
respective shares.
The Fund is not required to hold Annual Meetings of Shareholders and, in
ordinary circumstances, the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by the
Shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund,
requires that notice of such Fund obligations include such disclaimer, and
provides for indemnification out of the Fund's property for any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, in the opinion of Massachusetts
counsel to the Fund, the risk to Fund shareholders of personal liability is
remote.
Code of Ethics. Directors, officers and employees of MSDW Advisors, MSDW
Services and MSDW Distributors are subject to a strict Code of Ethics adopted
by those companies. The Code of Ethics is intended to ensure that the interests
of shareholders and other clients are placed ahead of any personal interest,
that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by
employees of the companies be subject to an ad-
35
<PAGE>
vance clearance process to monitor that no Morgan Stanley Dean Witter Fund is
engaged at the same time in a purchase or sale of the same security. The Code
of Ethics bans the purchase of securities in an initial public offering and
prohibits engaging in futures and options transactions and profiting on
short-term trading (that is, a purchase within 60 days of a sale or a sale
within 60 days of a purchase) of a security. In addition, investment personnel
may not purchase or sell a security for their personal account within 30 days
before or after any transaction in any Morgan Stanley Dean Witter Fund managed
by them. Any violations of the Code of Ethics are subject to sanctions,
including reprimand, demotion or suspension or termination of employment. The
Code of Ethics comports with regulatory requirements and the recommendations in
the 1994 report by the Investment Company Institute Advisory Group on Personal
Investing.
Master/Feeder Conversion. The Fund reserves the right to seek to achieve
its investment objectives by investing all of its investable assets in a
diversified, open-end management investment company having the same investment
objectives and policies and substantially the same investment restrictions as
those applicable to the Fund.
Shareholder Inquiries. All inquiries regarding the Fund should be
directed to the Fund at the telephone numbers or address set forth on the front
cover of this Prospectus.
36
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS INVESTMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
<TABLE>
<S> <C>
Aaa Fixed-income securities which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments
are protected by a large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
Aa Fixed-income securities which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade fixed-
income securities. They are rated lower than the best fixed-income securities because margins
of protection may not be as large as in Aaa securities or fluctuation of protective elements may
be of greater amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A Fixed-income securities which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa Fixed-income securities which are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such fixed-income securities lack
outstanding investment characteristics and in fact have speculative characteristics as well.
Fixed-income securities rated Aaa, Aa, A and Baa are considered investment grade.
Ba Fixed-income securities which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and principal payments
may be very moderate, and therefore not well safeguarded during both good and bad times in
the future. Uncertainty of position characterizes bonds in this class.
B Fixed-income securities which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa Fixed-income securities which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or interest.
Ca Fixed-income securities which are rated Ca present obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C Fixed-income securities which are rated C are the lowest rated class of fixed-income securities,
and issues so rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
</TABLE>
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<PAGE>
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal
fixed-income security rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and a modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
<TABLE>
<S> <C>
AAA Fixed-income securities rated "AAA" have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Fixed-income securities rated "AA" have a very strong capacity to pay interest and repay
principal and differs from the highest-rate issues only in small degree.
A Fixed-income securities rated "A" have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than fixed-income securities in higher-rated categories.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
BBB Fixed-income securities rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for fixed-income securities in this category than for
fixed-income securities in higher-rated categories.
Fixed-income securities rated AAA, AA, A and BBB are considered investment grade.
BB Fixed-income securities rated "BB" have less near-term vulnerability to default than other
speculative grade fixed-income securities. However, it faces major ongoing uncertainties or
exposures to adverse business, financial or economic conditions which could lead to
inadequate capacity or willingness to pay interest and repay principal.
B Fixed-income securities rated "B" have a greater vulnerability to default but presently have the
capacity to meet interest payments and principal repayments. Adverse business, financial or
economic conditions would likely impair capacity or willingness to pay interest and repay
principal.
CCC Fixed-income securities rated "CCC" have a current identifiable vulnerability to default, and are
dependent upon favorable business, financial and economic conditions to meet timely
payments of interest and repayments of principal. In the event of adverse business, financial
or economic conditions, they are not likely to have the capacity to pay interest and repay
principal.
CC The rating "CC" is typically applied to fixed-income securities subordinated to senior debt which
is assigned an actual or implied "CCC" rating.
C The rating "C" is typically applied to fixed-income securities subordinated to senior debt which
is assigned an actual or implied "CCC-" rating.
Cl The rating "Cl" is reserved for fixed-income securities on which no interest is being paid.
NR Indicates that no rating has been requested, that there is insufficient information on which to
base a rating or that Standard & Poor's does not rate a particular type of obligation as a matter
of policy.
Fixed-income securities rated "BB," "B," "CCC," "CC" and "C" are regarded as having
predominantly speculative characteristics with respect to capacity to pay interest and repay
principal. "BB" indicates the least degree of speculation and "C" the highest degree of
speculation. While such fixed-income securities will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or minus (-): The rating from "AA" to "CCC" may be modified by the addition of a plus
or minus sign to show relative standing within the major ratings categories.
</TABLE>
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to purchase
or sell a security. The ratings are based upon current information furnished by
the issuer or obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are
39
<PAGE>
graded into group categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Ratings are applicable to both taxable and
tax-exempt commercial paper. The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the
designation 1, 2, and 3 to indicate the relative degree of safety.
<TABLE>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is strong. However, the
relative degree of safety is not as overwhelming as for issues designated "A-1."
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying this designation are,
however, somewhat more vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations.
</TABLE>
BOND RATINGS
FITCH INVESTORS SERVICE, INC. ("FITCH")
The Fitch Bond Ratings provides a guide to investors in determining the
investment risk associated with a particular security. The rating represents
its assessment of the issuer's ability to meet the obligations of a specific
debt issue or class of debt in a timely manner. Fitch bond ratings are not
recommendations to buy, sell or hold securities since they incorporate no
information on market price or yield relative to other debt instruments.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the record of the issuer and
of any guarantor, as well as the political and economic environment that might
affect the future financial strength and credit quality of the issuer.
Bonds which have the same rating are of similar but not necessarily
identical investment quality since the limited number of rating categories
cannot fully reflect small differences in the degree of risk. Moreover, the
character of the risk factor varies from industry to industry and between
corporate, health care and municipal.
In assessing credit risk, Fitch Investors Service relies on current
information furnished by the issuer and/or guarantor and other sources which it
considers reliable. Fitch does not perform an audit of the financial statements
used in assigning a rating.
Ratings may be changed, withdrawn or suspended at any time to reflect
changes in the financial condition of the issuer, the status of the issue
relative to other debt of the issuer, or any other circumstances that Fitch
considers to have a material effect on the credit of the obligor.
<TABLE>
<S> <C>
AAA rated bonds are considered to be investment grade and of the highest credit quality. The obligor
has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
AA rated bonds are considered to be investment grade and of very high credit quality. The obligor's
ability to pay interest and repay principal, while very strong, is somewhat less than for AAA
rated securities or more subject to possible change over the term of the issue.
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
A rated bonds are considered to be investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than bonds with
higher ratings.
BBB rated bonds are considered to be investment grade and of satisfactory credit quality. The
obligor's ability to pay interest and repay principal is considered to be adequate. Adverse
changes in economic conditions and circumstances, however, are more likely to weaken this
ability than bonds with higher ratings.
BB rated bonds are considered speculative and of low investment grade. The obligor's ability to
pay interest and repay principal is not strong and is considered likely to be affected over time
by adverse economic changes.
B rated bonds are considered highly speculative. Bonds in this class are lightly protected as to
the obligor's ability to pay interest over the life of the issue and repay principal when due.
CCC rated bonds may have certain identifiable characteristics which, if not remedied, could lead to
the possibility of default in either principal or interest payments.
CC rated bonds are minimally protected. Default in payment of interest and/or principal seems
probable.
C rated bonds are in imminent default in payment of interest and/or principal.
</TABLE>
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes. Although the credit analysis is similar to Fitch's bond
rating analysis, the short-term rating places greater emphasis on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.
Fitch's short-term ratings are as follows:
<TABLE>
<S> <C>
Fitch-1+ (Exceptionally Strong Credit Quality) Issues assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
Fitch-1 (Very Strong Credit Quality) Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated Fitch-1+.
Fitch-2 (Good Credit Quality) Issues assigned this rating have a satisfactory degree of assurance for
timely payment but the margin of safety is not as great as the two higher categories.
Fitch-3 (Fair Credit Quality) Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate, however, near-term adverse change is
likely to cause these securities to be rated below investment grade.
Fitch-S (Weak Credit Quality) Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near term adverse changes in
financial and economic conditions.
D (Default) Issues assigned this rating are in actual or imminent payment default.
LOC This symbol LOC indicates that the rating is based on a letter of credit issued by a commercial
bank.
</TABLE>
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<PAGE>
LONG-TERM RATINGS
DUFF & PHELPS, INC.
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and
expertise. The projected viability of the obligor at the trough of the cycle is
a critical determination.
Each rating also takes into account the legal form of the security, (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by
several factors including relative weightings of the different security classes
in the capital structure, the overall credit strength of the issuer, and the
nature of covenant protection. Review of indenture restrictions is important to
the analysis of a company's operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once per quarter
(more frequently, if necessary).
<TABLE>
<CAPTION>
RATING SCALE DEFINITION
<S> <C>
AAA Highest credit quality. The risk factors are negligible, being only slightly more than risk-free
U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest, but may vary slightly from
AA time to time because of economic conditions.
AA-
A+ Protection factors are average but adequate. However, risk factors are more variable and
A greater in periods of economic stress.
A-
BBB+ Below average protection factors but still considered sufficient for prudent investment.
BBB Considerable variability in risk during economic cycles.
BBB-
BB+ Below investment grade but deemed likely to meet obligations when due. Present or
BB prospective financial protection factors fluctuate according to industry conditions or
BB- company fortunes. Overall quality may move up or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not be met when due.
B Financial protection factors will fluctuate widely according to economic cycles, industry
B- conditions and/or company fortunes. Potential exists for frequent changes in the quality
rating within this category or into a higher or lower quality rating grade.
CCC Well below investment grade securities. May be in default or considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends. Protection factors
are narrow and risk can be substantial with unfavorable economic/ industry conditions,
and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest
payments.
DP Preferred stock with dividend arrearages.
</TABLE>
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<PAGE>
SHORT-TERM RATINGS
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations
with maturities of under one year, including commercial paper, the uninsured
portion of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds, including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
<TABLE>
<S> <C>
A. CATEGORY 1: HIGH GRADE
Duff 1+ Highest certainty of timely payment. Short-term liquidity, including internal
operating factors and/or access to alternative sources of funds, is outstanding,
and safety is just below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk factors are minor.
Duff- High certainty of timely payment. Liquidity factors are strong and supported by
good fundamental protection factors. Risk factors are very small.
B. CATEGORY 2: GOOD GRADE
Duff 2 Good certainty of timely payment. Liquidity factors and company fundamentals
are sound. Although ongoing funding needs may enlarge total financing
requirements, access to capital markets is good. Risk factors are small.
C. CATEGORY 3: SATISFACTORY GRADE
Duff 3 Satisfactory liquidity and other protection factors qualify issue as to investment
grade. Risk factors are larger and subject to more variation. Nevertheless,
timely payment is expected.
D. CATEGORY 4: NON-INVESTMENT GRADE
Duff 4 Speculative investment characteristics. Liquidity is not sufficient to insure
against disruption in debt service. Operating factors and market access may be
subject to a high degree of variation.
E. CATEGORY 5: DEFAULT
Duff 5 Issuer failed to meet scheduled principal and/or interest payments.
</TABLE>
43
<PAGE>
Morgan Stanley Dean Witter
Income Builder Fund
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
Paul D. Vance
Vice President
Peter M. Avelar
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
MORGAN STANLEY
DEAN WITTER
INCOME BUILDER
FUND
PROSPECTUS -- NOVEMBER 25, 1998
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND Two World Trade Center,
LETTER TO THE SHAREHOLDERS September 30, 1998 New York, New York 10048
DEAR SHAREHOLDER:
The recent twelve-month period was very volatile for financial markets around
the world. Domestic equity markets peaked in the middle of July and then began
to fall as concerns regarding the impact that global financial problems might
have on the U.S. economy began to weigh heavily on market sentiment. At the
same time, interest rates continued their decline, inflation remained in check
and the dollar strengthened further.
PERFORMANCE AND PORTFOLIO
The downturn experienced by the equity market toward the end of this reporting
period was evident in the performance of Morgan Stanley Dean Witter Income
Builder Fund. During the period under review, the Fund's Class A shares
returned -- 4.67 percent, Class B shares returned -- 5.29 percent, Class C
shares returned -- 5.38 percent and Class D shares returned -- 4.46 percent.
The performance of the Fund's four share classes varies, because each class has
different expenses. At the same time, the Standard & Poor's 500 Composite Stock
Price Index (S&P 500) returned 9.06 percent and the Lipper Equity Income Funds
Index (Lipper Index) returned 1.29 percent. The accompanying chart illustrates
the growth of a hypothetical $10,000 investment in the Fund's Class B shares
from June 26, 1996 through September 30, 1998, versus similar investments in
the issues that comprise the S&P 500 and the Lipper Index.
The Fund's underperformance relative to the Lipper Index was largely due to the
Fund's lack of exposure to high-technology stocks, its underweighting in the
financial sector and its exposure to convertible securities. The Fund, for the
most part, avoids investing in high technology because these stocks generally
pay little, if any, dividends and therefore do not contribute to the Fund's
primary investment objective, that of providing shareholders with reasonable
income. During periods of strong equity market performance, the Fund's tilt
toward yield dampened performance relative to its benchmarks. However, the
income stream
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
LETTER TO THE SHAREHOLDERS September 30, 1998, continued
produced by the Fund's holdings was crucial in providing a cushion against the
extreme volatility that we saw in the markets at the end of this fiscal period.
PORTFOLIO ASSET ALLOCATION
Since its inception on June 26, 1996, Morgan Stanley Dean Witter Income Builder
Fund has maintained a target asset mix of 40 percent large-cap stocks, 30
percent convertible securities, 10 percent high-yield bonds, 10 percent
investment-grade fixed-income issues and 10 percent real estate investment
trusts (REITs).
Since inception the large-cap segment of the Fund has been nearly fully
invested. At the end of the fiscal period this segment was well diversified,
consisting of 49 stocks spread among 23 industry groups. Associates First
Capital, a spin-off from Ford, was the only new common stock added during the
period.
The convertible portion of the Fund underperformed the broader equity market
during the fiscal year, primarily due to its heavy bias toward small- and
mid-cap issues, which lagged those of large caps for most of the period. In
addition, illiquidity in the convertible market and widening credit spreads
among lower-quality issues have hurt performance in recent months. However, we
believe that these conditions have rendered the convertible market overall, and
the small-cap market in particular, attractively valued, both from a
fixed-income and an equity appreciation perspective. We remain positive about
the prospects for small caps over the long term and will continue to focus on
this sector going forward.
The fixed-income portion of the Fund is structured to provide maximum current
income while minimizing exposure to interest-rate movement. This portion of the
Fund performed as expected and helped to reduce overall portfolio volatility
during the year.
Real estate investment trusts (REITs) have performed poorly during most of
calendar 1998 as concerns over property acquisition pricing, overbuilding and
access to capital markets have caused many investors to avoid the group.
Dividend yields, however, are relatively high, with many stocks trading below
their underlying real-estate value. The Fund dedicates 10 percent of its net
assets to REITs, split equally between common stocks and convertible
securities.
LOOKING AHEAD
Going forward, we are convinced that the outlook for the economy and the
financial markets remains favorable. We believe that, in such an environment,
the Fund's broad diversification across asset classes will continue to provide
shareholders with reasonable income and, secondarily, the potential for capital
appreciation.
2
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
LETTER TO THE SHAREHOLDERS September 30, 1998, continued
We appreciate your ongoing support of Morgan Stanley Dean Witter Income Builder
Fund and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
3
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FUND PERFORMANCE September 30, 1998
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[LINE CHART]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS A,
CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B SHARES
SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES**
- -----------------------------------------------------------------
PERIOD ENDED 9/30/98
- ---------------------------
<S> <C> <C>
1 Year (5.29)%(1) (9.66)%(2)
Since Inception (6/26/96) 11.06%(1) 9.89%(2)
<CAPTION>
CLASS C SHARES++
- -----------------------------------------------------------------
PERIOD ENDED 9/30/98
- ---------------------------
<S> <C> <C>
1 Year (5.38)%(1) (6.25)%(2)
Since Inception (7/28/97) 0.09%(1) 0.09%(2)
<CAPTION>
CLASS A SHARES+
- -----------------------------------------------------------------
PERIOD ENDED 9/30/98
- ---------------------------
<S> <C> <C>
1 Year (4.67)%(1) (9.67)%(2)
Since Inception (7/28/97) 0.86%(1) (3.67)%(2)
<CAPTION>
CLASS D SHARES++
- -----------------------------------------------------------------
PERIOD ENDED 9/30/98
- ---------------------------
<S> <C>
1 Year (4.46)%(1)
Since Inception (7/28/97) 1.06%(1)
</TABLE>
- ---------------
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable sales charge. See the Fund's current prospectus
for complete details on fees and sales charges.
(3) Closing value after the deduction of a 3% contingent deferred sales charge
(CDSC), assuming a complete redemption on September 30, 1998.
(4) The Standard & Poor's 500 Stock Index (S&P 500) is a broad-based index,
the performance of which is based on the average performance of 500 widely
held common stocks. The performance of the index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(5) The Lipper Equity Income Fund Index is an equally-weighted performance
index of the largest qualifying funds (based on net assets) in the Lipper
Equity Income Funds objective. The Index, which is adjusted for capital
gains distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds in this index.
* For periods of less than one year, the fund quotes its total return on a
non-annualized basis.
** The maximum CDSC for Class B is 5.0%. The CDSC declines to 0% after six
years.
+ The maximum front-end sales charge for Class A is 5.25%.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one
year of purchase.
++ Class D shares have no sales charge.
4
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (45.4%)
Accident & Health Insurance (0.8%)
96,000 Torchmark Corp. ................................... $ 3,450,000
------------
Apparel (0.8%)
132,000 Kellwood Co. ...................................... 3,547,500
------------
Auto Parts -- Original Equipment (1.7%)
97,000 Dana Corp. ........................................ 3,619,312
78,000 Johnson Controls, Inc. ............................ 3,627,000
------------
7,246,312
------------
Building Materials (1.7%)
70,000 Armstrong World Industries, Inc. .................. 3,745,000
34,000 Vulcan Materials Co. .............................. 3,440,375
------------
7,185,375
------------
Clothing/Shoe/Accessory Chains (0.8%)
157,000 Limited (The), Inc. ............................... 3,444,187
------------
Consumer Electric/Appliances (0.8%)
76,000 Whirlpool Corp. ................................... 3,572,000
------------
Consumer Sundries (0.8%)
92,000 American Greetings Corp. (Class A) ................ 3,639,750
------------
Containers/Packaging (0.8%)
130,000 Crown Cork & Seal Co., Inc. ....................... 3,477,500
------------
Diversified Financial Services (0.7%)
33,000 Providian Financial Corp. ......................... 2,798,812
------------
Electric Utilities: East (1.7%)
92,000 New England Electric System ....................... 3,818,000
94,000 Public Service Enterprise Group, Inc. ............. 3,695,375
------------
7,513,375
------------
Electric Utilities: South (0.9%)
121,000 Houston Industries Inc. ........................... 3,766,125
------------
Finance Companies (2.4%)
55,000 Associates First Capital Corp. (Class A) .......... 3,588,750
56,000 Fannie Mae ........................................ 3,598,000
105,000 SLM Holding Corp. ................................. 3,405,936
------------
10,592,686
------------
Food Distributors (0.8%)
156,000 Supervalu, Inc. ................................... 3,636,750
------------
Home Building (0.8%)
115,000 Fleetwood Enterprises, Inc. ....................... 3,471,562
------------
Life Insurance (1.1%)
17,622 Aegon N.V. (ADR) (Netherlands) .................... 1,372,313
59,000 Jefferson-Pilot Corp. ............................. 3,569,500
------------
4,941,813
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
Major Banks (0.8%)
116,000 KeyCorp .......................................... $ 3,349,500
------------
Major Chemicals (3.3%)
42,000 Dow Chemical Co. ................................. 3,588,375
123,000 Hercules, Inc. ................................... 3,697,688
67,000 PPG Industries, Inc. ............................. 3,655,688
127,000 Rohm & Haas Co. .................................. 3,532,188
------------
14,473,939
------------
Major Pharmaceuticals (0.8%)
35,000 Schering-Plough Corp. ............................ 3,624,688
------------
Major U.S. Telecommunications (3.4%)
62,000 AT&T Corp. ....................................... 3,623,125
76,000 Bell Atlantic Corp. .............................. 3,681,250
68,000 GTE Corp. ........................................ 3,740,000
69,000 U.S. West Communications Group, Inc. ............. 3,618,188
------------
14,662,563
------------
Meat/Poultry/Fish (0.8%)
132,000 Hormel Foods Corp. ............................... 3,572,250
------------
Mid-Sized Banks (1.5%)
192,000 First Security Corp. ............................. 3,204,000
126,000 First Tennessee National Corp. ................... 3,433,500
------------
6,637,500
------------
Motor Vehicles (2.4%)
72,000 Chrysler Corp. ................................... 3,447,000
74,500 Ford Motor Co. ................................... 3,496,844
62,000 General Motors Corp. ............................. 3,390,625
------------
10,334,469
------------
Multi-Line Insurance (0.8%)
41,000 Lincoln National Corp. ........................... 3,372,250
------------
Multi-Sector Companies (0.8%)
105,000 Tenneco, Inc. .................................... 3,451,875
------------
Natural Gas -- Distribution (0.9%)
71,000 Consolidated Natural Gas Co. ..................... 3,869,500
------------
Newspapers (0.5%)
136,344 Hollinger International, Inc. (Class A) .......... 1,959,945
------------
Oil Refining/Marketing (0.8%)
75,000 Ashland, Inc. .................................... 3,468,750
------------
Other Metals/Minerals (0.9%)
280,000 Cyprus Amax Minerals Co. ......................... 3,710,000
------------
Real Estate Investment Trust (5.3%)
98,300 Boston Properties, Inc. .......................... 2,801,550
120,000 Equity One, Inc. ................................. 1,050,000
59,250 Healthcare Realty Trust, Inc. .................... 1,510,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C>
91,500 LTC Properties, Inc. ................................ $ 1,595,531
100,000 Meditrust Corp. ..................................... 1,706,250
92,377 MeriStar Hospitality Corp. .......................... 1,576,183
200,000 Mid-Atlantic Realty Trust ........................... 2,700,000
50,420 New Plan Excel Realty Trust ......................... 1,175,416
145,000 Reckson Associates Realty Corp. ..................... 3,407,500
208,800 Sunstone Hotel Investors, Inc. ...................... 1,892,250
68,800 Tanger Factory Outlet Centers, Inc. ................. 1,560,900
60,000 Trinet Corporate Realty Trust, Inc. ................. 1,957,500
------------
22,933,955
------------
Savings & Loan Associations (2.4%)
166,000 TCF Financial Corp. ................................. 3,299,250
148,000 Washington Federal, Inc. ............................ 3,700,000
102,000 Washington Mutual, Inc. ............................. 3,423,375
------------
10,422,625
------------
Smaller Banks (0.9%)
73,000 Wilmington Trust Corp. .............................. 3,723,000
------------
Steel/Iron Ore (0.8%)
150,000 USX-U.S. Steel Group, Inc. .......................... 3,581,250
------------
Tobacco (1.7%)
80,000 Philip Morris Companies, Inc. ....................... 3,685,000
120,000 UST, Inc. ........................................... 3,547,500
------------
7,232,500
------------
TOTAL COMMON STOCKS
(Identified Cost $189,888,715) ...................... 196,664,306
------------
CONVERTIBLE PREFERRED STOCKS (19.2%)
Accident & Health Insurance (0.5%)
85,000 AmerUs Life Holdings, Inc. .......................... 2,061,250
------------
Apparel (0.3%)
30,500 Warnaco Group, Inc. $3.00 ........................... 1,220,000
------------
Auto Parts (0.7%)
94,000 BTI Capital Trust $3.25 -- 144A* .................... 1,880,000
68,500 Walbro Capital Trust $2.00 .......................... 1,147,375
------------
3,027,375
------------
Books/Magazine (0.6%)
130,000 Reader's Digest Association, Inc $1.93............... 2,705,625
------------
Broadcasting (0.9%)
109,700 Metromedia International Group, Inc. $3.625.......... 2,495,675
145,000 Triathlon Broadcasting Co. $0.945 ................... 1,377,500
------------
3,873,175
------------
Business Services (0.7%)
63,000 Unisys Corp. (Series A) $3.75 ....................... 2,984,625
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Containers/Packaging (0.6%)
70,000 Sealed Air Corp. (Series A) $2.00 ................................. $ 2,528,750
------------
Finance (0.3%)
39,200 Insignia Financing, Inc. $3.25..................................... 1,496,970
------------
Investment Bankers/Brokers/Services (0.9%)
90,000 Merrill Lynch & Co., Inc. $2.39
(exchangeable into IMC Global, Inc. common stock) ................. 1,991,250
25,800 Merrill Lynch & Co., Inc. $4.087
(exchangeable into SunAmerica, Inc. common stock) ................. 1,886,625
------------
3,877,875
------------
Machinery (0.6%)
117,000 Ingersoll-Rand Co. $1.688 ......................................... 2,457,000
------------
Major U.S. Telecommunications (1.2%)
44,100 Loral Space & Commmunications Ltd. $3.00 -- 144A* (Bermuda) 1,990,012
47,000 Loral Space & Communications Ltd. (Series C) $3.00 (Bermuda) ...... 2,120,875
27,000 Qualcomm Financial Trust $2.875 ................................... 1,128,951
------------
5,239,838
------------
Movies/Entertainment (0.6%)
70,000 Premier Parks, Inc. $4.05.......................................... 2,730,000
------------
Non-U.S. Banks (1.5%)
135,000 National Australia Bank, Ltd. $1.969 (Australia) (Units)++ ........ 3,594,375
111,500 WBK Strypes Trust $3.135........................................... 3,080,187
------------
6,674,562
------------
Oil Refining/Marketing (0.7%)
200,000 Tesoro Petroleum Corp. $1.16 ...................................... 2,850,000
------------
Other Consumer Services (0.6%)
100,000 Cendant Corp. $3.75 ............................................... 2,500,000
------------
Package Goods/Cosmetics (0.9%)
72,000 Estee Lauder Co. $3.80 ............................................ 3,960,000
------------
Property -- Casualty Insurance (0.5%)
210,000 Philadelphia Consolidated Holding Co. $0.70 ....................... 2,047,500
------------
Railroads (0.8%)
75,000 Union Pacific Capital Trust $3.125 -- 144A* ....................... 3,375,000
------------
Real Estate Investment Trust (3.1%)
61,400 Camden Property Trust (Series A) $2.25 ............................ 1,542,675
182,000 FelCor Lodging Trust, Inc. (Series A) $1.95 ....................... 3,913,000
113,000 Merry Land & Investment Co., Inc. (Series C) $2.15 ................ 2,973,313
36,600 Rouse Co. (Series B) $3.00 ........................................ 1,647,000
140,000 SL Green Realty Corp. $2.00 ....................................... 3,360,000
------------
13,435,988
------------
Smaller Banks (0.9%)
145,000 CNB Capital Trust I $1.50.......................................... 3,878,750
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Steel/Iron Ore (0.7%)
165,000 USX Corp. ..................................................... $ 3,114,375
------------
Telecommunications (0.8%)
67,500 EchoStar Communications Corp. (Series C) $3.375................ 3,628,125
------------
Unregulated Power Generation (0.8%)
81,000 CalEnergy Capital Trust $3.25.................................. 3,371,625
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Identified Cost $101,063,650)................................. 83,038,408
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ----------- ------ --------
<S> <C> <C> <C> <C>
CORPORATE BONDS (33.5%)
CONVERTIBLE BONDS (12.1%)
Assisted Living Services (0.7%)
$ 1,500 ARV Assisted Living, Inc. .................... 6.75% 04/01/06 868,500
3,000 Emeritus Corp. -- 144A* ...................... 6.25 01/01/06 2,099,460
------------
2,967,960
------------
Auto Parts (2.0%)
4,000 Mark IV Industries, Inc. -- 144A* ............ 4.75 11/01/04 3,326,240
3,000 MascoTech, Inc. .............................. 4.50 12/15/03 2,553,750
2,700 Tower Automotive, Inc. -- 144A* .............. 5.00 08/01/04 2,592,000
------------
8,471,990
------------
Books/Magazine (0.1%)
640 Nelson (Thomas), Inc. ........................ 5.75 11/30/99 635,341
------------
Cable/Cellular (0.7%)
7,850 U.S. Cellular Corp. .......................... 0.00 06/15/15 2,983,157
------------
Clothing/Shoe/Accessory Chains (1.3%)
4,400 Genesco Inc. -- 144A* ........................ 5.50 04/15/05 2,549,492
3,200 Saks Holdings, Inc. .......................... 5.50 09/15/06 3,168,000
------------
5,717,492
------------
Finance (0.8%)
4,000 Financial Federal Corp. -- 144A* ............. 4.50 05/01/05 3,665,000
------------
Machinery (0.5%)
2,300 Thermo Fibertek, Inc. -- 144A* ............... 4.50 07/15/04 2,110,250
------------
Major U.S. Telecommunications (0.8%)
3,700 Bell Atlantic Financial Service -- 144A*...... 4.25 09/15/05 3,590,147
750 SA Telecommunications, Inc.
-- 144A* (a) ................................. 10.00 08/15/06 22,500
------------
3,612,647
------------
Managed Health Care (1.1%)
4,400 Concentra Managed Care, Inc. -- 144A*......... 4.50 03/15/03 2,824,272
5,400 Phymatrix Corp. .............................. 6.75 06/15/03 2,052,000
------------
4,876,272
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Medical Electronics (0.4%)
$ 2,100 ThermoTrex Corp. ............................. 3.25% 11/01/07 $1,523,508
----------
Office Equipment & Supplies (0.7%)
4,750 Danka Business Systems, PLC
(United Kingdom) ............................. 6.75 04/01/02 3,090,492
----------
Real Estate Investment Trust (1.6%)
3,800 Capstar Hotel Corp. .......................... 4.75 10/15/04 2,539,426
4,425 Capstone Capital Corp. ....................... 6.55 03/14/02 4,211,892
----------
6,751,318
----------
Services to the Health Industry (0.4%)
1,380 Pharmaceutical Marketing Services, Inc. 6.25 02/01/03 1,204,354
675 Pharmaceutical Marketing Services, Inc.
(Eurobond) ................................... 6.25 02/01/03 590,625
----------
1,794,979
----------
Shoe Manufacturing (1.0%)
2,300 Nine West Group, Inc. ........................ 5.50 07/15/03 1,520,507
4,300 Nine West Group, Inc. -- 144A* ............... 5.50 07/15/03 2,842,687
----------
4,363,194
----------
TOTAL CONVERTIBLE BONDS
(Identified Cost $64,902,503) .......................................... 52,563,600
----------
NON-CONVERTIBLE BONDS (21.4%)
Books/Magazine (0.7%)
2,200 Big Flower Press, Inc. ....................... 8.875 07/01/07 2,145,000
1,000 Hollinger International Publishing, Inc. 9.25 02/01/06 1,025,000
----------
3,170,000
----------
Broadcasting (2.0%)
3,000 JCAC Inc. .................................... 10.125 06/15/06 3,285,000
5,060 Young Broadcasting Corp. ..................... 11.75 11/15/04 5,388,900
----------
8,673,900
----------
Building Materials (0.7%)
2,850 USG Corp. (Series B) ......................... 9.25 09/15/01 3,113,824
----------
Cable/Cellular (3.8%)
12,950 Continental Cablevision, Inc. ................ 11.00 06/01/07 14,073,801
2,000 Tele-Communications, Inc. .................... 9.25 04/15/02 2,259,520
----------
16,333,321
----------
Casino/Gambling (1.0%)
4,200 Casino Magic Finance Corp. ................... 11.50 10/15/01 4,200,000
----------
Diversified Financial Services (3.6%)
14,060 Groupe Videotron Ltee (Canada) ............... 10.625 02/15/05 15,413,275
----------
Drug Store Chain (0.5%)
1,950 Thrifty PayLess Holdings, Inc. ............... 12.25 04/15/04 2,132,813
----------
Major Chemicals (1.7%)
7,000 Harris Chemical North America, Inc. .......... 10.75 10/15/03 7,245,000
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Managed Health Care (1.0%)
$ 4,000 Healthsouth Rehabilitation Corp. ............ 9.50% 04/01/01 $ 4,130,000
------------
Media Conglomerates (0.7%)
3,000 Garden State Newspapers, Inc. ............... 12.00 07/01/04 3,240,000
------------
Miscellaneous (2.3%)
6,960 Huntsman Polymers Corp. ..................... 11.75 12/01/04 7,273,200
2,900 Ivaco, Inc. (Canada) ........................ 11.50 09/15/05 2,784,000
------------
10,057,200
------------
Movies/Entertainment (0.5%)
2,000 Time Warner, Inc. ........................... 9.625 05/01/02 2,269,180
------------
Specialty Steel (1.9%)
8,000 AK Steel Corp. .............................. 10.75 04/01/04 8,320,000
------------
Textiles (1.0%)
4,300 Dan River, Inc. ............................. 10.125 12/15/03 4,450,500
------------
TOTAL NON-CONVERTIBLE BONDS
(Identified Cost $95,138,077)........................................ 92,749,013
------------
TOTAL CORPORATE BONDS
(Identified Cost $160,040,580)....................................... 145,312,613
------------
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT
1,701 The Bank of New York (dated
09/30/98; proceeds $1,701,930) (b)
(Identified Cost $1,701,694)................. 5.00 10/01/98 1,701,694
------------
TOTAL INVESTMENTS
(Identified Cost $452,694,639) (c)..................... 98.5% 426,717,021
OTHER ASSETS IN EXCESS OF LIABILITIES ................ 1.5 6,513,009
----- ------------
NET ASSETS ............................................ 100.0% $433,230,030
===== ============
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Resale is restricted to qualified institutional investors.
++ Consists of more than one class of securities traded together as a
unit; stocks with attached warrants.
(a) Non-income producing security; bond in default.
(b) Collateralized by $1,627,093 U.S. Treasury Note 6.25% due
01/31/02 valued at $1,735,727.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$24,041,088 and the aggregate gross unrealized depreciation is
$50,018,706, resulting in net unrealized depreciation of
$25,977,618.
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (identified cost $452,694,639)........ $426,717,021
Receivable for:
Interest .............................................................. 4,016,177
Investments sold ...................................................... 3,162,862
Dividends ............................................................. 753,565
Shares of beneficial interest sold .................................... 562,079
Deferred organizational expenses ......................................... 89,536
Prepaid expenses and other assets ........................................ 66,495
------------
TOTAL ASSETS ........................................................... 435,367,735
------------
LIABILITIES:
Payable for:
Investments purchased ................................................. 1,025,876
Plan of distribution fee .............................................. 357,189
Shares of beneficial interest repurchased ............................. 287,751
Investment management fee ............................................. 267,986
Dividends and distributions to shareholders ........................... 91,008
Accrued expenses and other payables ...................................... 107,895
------------
TOTAL LIABILITIES ...................................................... 2,137,705
------------
NET ASSETS ............................................................. $433,230,030
============
COMPOSITION OF NET ASSETS:
Paid-in-capital .......................................................... $434,715,783
Net unrealized depreciation .............................................. (25,977,618)
Accumulated undistributed net investment income .......................... 3,454,171
Accumulated undistributed net realized gain .............................. 21,037,694
------------
NET ASSETS ............................................................. $433,230,030
============
CLASS A SHARES:
Net Assets ............................................................... $10,073,263
Shares Outstanding (unlimited authorized, $.01 par value)................. 900,992
NET ASSET VALUE PER SHARE .............................................. $11.18
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ...................... $11.80
======
CLASS B SHARES:
Net Assets ............................................................... $416,908,604
Shares Outstanding (unlimited authorized, $.01 par value) ................ 37,280,650
NET ASSET VALUE PER SHARE .............................................. $11.18
======
CLASS C SHARES:
Net Assets ............................................................... $5,630,261
Shares Outstanding (unlimited authorized, $.01 par value) ................ 504,418
NET ASSET VALUE PER SHARE .............................................. $11.16
======
CLASS D SHARES:
Net Assets ............................................................... $617,902
Shares Outstanding (unlimited authorized, $.01 par value) ................ 55,258
NET ASSET VALUE PER SHARE .............................................. $11.18
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended September 30, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest .................................................. $ 14,163,882
Dividends (net of $2,739 foreign withholding tax) ......... 11,937,421
------------
TOTAL INCOME ............................................ 26,101,303
------------
EXPENSES
Plan of distribution fee (Class A shares) ................. 18,844
Plan of distribution fee (Class B shares) ................. 3,886,869
Plan of distribution fee (Class C shares) ................. 41,480
Investment management fee ................................. 3,387,158
Transfer agent fees and expenses .......................... 380,586
Registration fees ......................................... 165,230
Shareholder reports and notices ........................... 66,522
Professional fees ......................................... 50,805
Custodian fees ............................................ 47,954
Organizational expenses ................................... 32,715
Trustees' fees and expenses ............................... 11,998
Other ..................................................... 20,188
------------
TOTAL EXPENSES .......................................... 8,110,349
------------
NET INVESTMENT INCOME ................................... 17,990,954
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain ......................................... 21,800,391
Net change in unrealized appreciation ..................... (68,902,232)
------------
NET LOSS ................................................ (47,101,841)
------------
NET DECREASE .............................................. $(29,110,887)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997*
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................ $ 17,990,954 $ 10,365,875
Net realized gain .................................... 21,800,391 17,728,044
Net change in unrealized appreciation ................ (68,902,232) 39,732,802
------------ ------------
NET INCREASE (DECREASE) ............................ (29,110,887) 67,826,721
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares .................................... (344,600) (7,078)
Class B shares .................................... (15,186,529) (9,398,309)
Class C shares .................................... (153,463) (7,487)
Class D shares .................................... (16,323) (193)
Net realized gain
Class A shares .................................... (264,926) --
Class B shares .................................... (18,061,378) (157,191)
Class C shares .................................... (92,820) --
Class D shares .................................... (1,956) --
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS .................. (34,121,995) (9,570,258)
------------ ------------
Net increase from transactions in shares of beneficial
interest ........................................... 135,434,833 154,629,702
------------ ------------
NET INCREASE ....................................... 72,201,951 212,886,165
NET ASSETS:
Beginning of period .................................. 361,028,079 148,141,914
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$3,454,171 and $1,125,380, respectively) .......... $433,230,030 $361,028,079
============ ============
</TABLE>
- --------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Income Builder Fund (the "Fund"), formerly Dean
Witter Income Builder Fund, is registered under the Investment Company Act of
1940, as amended (the "Act"), as a diversified, open-end management investment
company. The Fund's primary investment objective is to seek reasonable income
and, as a secondary objective, growth of capital. The Fund seeks to achieve its
objective by investing primarily in income-producing equity securities,
including common and preferred stocks as well as convertible securities. The
Fund was organized as a Massachusetts business trust on March 21, 1996 and
commenced operations on June 26, 1996. On July 28, 1997, the Fund commenced
offering three additional classes of shares, with the then current shares
designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price
(in cases where securities are traded on more than one exchange, the security
is valued on the exchange designated as the primary market pursuant to
procedures adopted by the Trustees); (2) all other portfolio securities for
which over-the-counter market quotations are readily available are valued at
the latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager"), formerly Dean Witter InterCapital Inc., that sale or bid prices are
not reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by
and under the general supervision of the Trustees (valuation of debt securities
for which market quotations are not readily available may be based upon current
market prices of securities which are comparable in coupon, rating and maturity
or an appropriate matrix utilizing similar factors); (4) certain portfolio
securities may be valued by an outside pricing service approved by
15
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued
the Trustees. The pricing service may utilize 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, if available, in determining what it believes is the
fair valuation of the securities valued by such pricing service; and (5)
short-term debt securities having a maturity date of more than sixty days at
time of purchase are valued on a mark-to-market basis until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends on foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. Discounts are accreted over
the life of the respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date
such items are recognized. Distribution fees are charged directly to the
respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amounts of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
16
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued
F. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $164,000 which have been
reimbursed for the full amount thereof. Such expenses have been deferred and
are being amortized on the straight-line method over a period not to exceed
five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.75% to the net assets of the Fund determined as of the close
of each business day. Effective May 1, 1998 the Agreement was amended to reduce
the annual rate to 0.725% of the portion of daily net assets in excess of $500
million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Class B
shares since the inception of the Fund (not including reinvestment of dividend
or capital gain distributions) less the average daily aggregate net asset value
of the Class B shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or waived; or (b) the average
daily net assets of Class B; and (iii) Class C -- up to 1.0% of the average
daily net assets of Class C. In the case of Class A shares, amounts paid under
the Plan are paid to the Distributor for services provided. In the case of
Class B and Class C shares, amounts paid under the Plan are paid to the
Distributor for (1) services provided and the expenses borne by it and others
in the distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter Financial Advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; (2) printing and
distribution of prospectuses and reports used in connection with the offering
of these shares to other than current shareholders; and (3) preparation,
printing and distribution
17
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued
of sales literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan, in the case of Class B shares, to
compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment
Manager and Distributor, and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the Distributor
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. The Distributor has advised the Fund that such excess amounts,
including carrying charges, totaled $18,378,964 at September 30, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended September 30, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the year ended September 30,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B and Class C shares of $1,076,184 and $4,960, respectively
and received $99,718 in front-end sales charges from sales of the Fund's Class
A shares. The respective shareholders pay such charges which are not an expense
of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for year the ended September 30, 1998
aggregated $370,672,491 and $254,895,716, respectively.
For the year ended September 30, 1998, the Fund incurred $141,296 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
At September 30, 1998, the Fund's receivable for investments sold and payable
for investments purchased included unsettled trades with DWR of $1,671,518 and
$889,375, respectively.
18
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued
For the year ended September 30, 1998, the Fund incurred $6,600 in brokerage
commissions with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager and Distributor, for portfolio transactions executed on behalf of the
Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At September 30, 1998, the Fund
had transfer agent fees and expenses payable of approximately $5,100.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997*
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ................................................ 887,465 $ 11,197,972 84,697 $ 1,060,929
Reinvestment of dividends and distributions ......... 26,670 324,319 297 3,779
Redeemed ............................................ (94,880) (1,168,724) (3,257) (41,000)
---------- ------------ ---------- ------------
Net increase - Class A .............................. 819,255 10,353,567 81,737 1,023,708
---------- ------------ ---------- ------------
CLASS B SHARES
Sold ................................................ 14,488,236 183,541,957 16,601,412 187,858,686
Reinvestment of dividends and distributions ......... 2,214,603 27,031,378 629,815 7,297,503
Redeemed ............................................ (7,439,745) (91,648,973) (3,697,289) (42,533,458)
---------- ------------ ---------- ------------
Net increase - Class B .............................. 9,263,094 118,924,362 13,533,938 152,622,731
---------- ------------ ---------- ------------
CLASS C SHARES
Sold ................................................ 513,124 6,515,096 80,094 1,000,747
Reinvestment of dividends and distributions ......... 17,520 213,338 519 6,601
Redeemed ............................................ (103,278) (1,268,428) (3,561) (44,293)
---------- ------------ ---------- ------------
Net increase - Class C .............................. 427,366 5,460,006 77,052 963,055
---------- ------------ ---------- ------------
CLASS D SHARES
Sold ................................................ 57,284 742,379 1,633 20,015
Reinvestment of dividends and distributions ......... 492 6,014 15 193
Redeemed ............................................ (4,166) (51,495) -- --
---------- ------------ ---------- ------------
Net increase - Class D .............................. 53,610 696,898 1,648 20,208
---------- ------------ ---------- ------------
Net increase in Fund ................................ 10,563,325 $135,434,833 13,694,375 $154,629,702
========== ============ ========== ============
</TABLE>
- ---------------
* For Class A, C and D, for the period July 28, 1997 (issue date) through
September 30, 1997.
6. FEDERAL INCOME TAX STATUS
As of September 30, 1998, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences attributable to nondeductible expenses. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged and accumulated undistributed net investment income was credited
$38,752.
19
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JUNE 26, 1996*
ENDED ENDED THROUGH
SEPTEMBER 30, 1998++ SEPTEMBER 30, 1997**++ SEPTEMBER 30, 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ......... $12.81 $10.23 $10.00
------ ------ ------
Net investment income ........................ 0.50 0.46 0.08
Net realized and unrealized gain (loss) ...... (1.11) 2.54 0.23
------ ------ ------
Total from investment operations ............. (0.61) 3.00 0.31
------ ------ ------
Less dividends and distributions from:
Net investment income ....................... (0.43) (0.41) (0.08)
Net realized gain ........................... (0.59) (0.01) --
------ ------ ------
Total dividends and distributions ............ (1.02) (0.42) (0.08)
------ ------ ------
Net asset value, end of period ............... $11.18 $12.81 $10.23
====== ====== ======
TOTAL INVESTMENT RETURN+ ..................... (5.29)% 29.83% 3.10%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ..................................... 1.80%(3) 1.85% 2.25%(2)
Net investment income ........................ 3.98%(3) 4.16% 3.60%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ...... $416,909 $358,973 $148,142
Portfolio turnover rate ...................... 58% 74% 7%(1)
</TABLE>
- -------------
* Commencement of operations.
** Prior to July 28, 1997 the Fund issued one class of shares. All shares
held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
SEPTEMBER 30, 1998++ SEPTEMBER 30, 1997++
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $12.81 $12.20
------ ------
Net investment income ........................... 0.59 0.12
Net realized and unrealized gain (loss) ......... (1.12) 0.61
------ ------
Total from investment operations ................ (0.53) 0.73
------ ------
Less dividends and distributions from:
Net investment income .......................... (0.51) (0.12)
Net realized gain .............................. (0.59) --
------ ------
Total dividends and distributions ............... (1.10) (0.12)
------ ------
Net asset value, end of period .................. $11.18 $12.81
====== ======
TOTAL INVESTMENT RETURN+ ........................ (4.67)% 5.95%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.17%(3) 1.28%(2)
Net investment income ........................... 4.61%(3) 5.77%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $10,073 $1,047
Portfolio turnover rate ......................... 58% 74%
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $12.80 $12.20
------ ------
Net investment income ........................... 0.50 0.10
Net realized and unrealized gain (loss) ......... (1.12) 0.61
------ ------
Total from investment operations ................ (0.62) 0.71
------ ------
Less dividends and distributions from:
Net investment income .......................... (0.43) (0.11)
Net realized gain .............................. (0.59) --
------ ------
Total dividends and distributions ............... (1.02) (0.11)
------ ------
Net asset value, end of period .................. $11.16 $12.80
====== ======
TOTAL INVESTMENT RETURN+ ........................ (5.38)% 5.79%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.92%(3) 1.98%(2)
Net investment income ........................... 3.86%(3) 4.61%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $5,630 $987
Portfolio turnover rate ......................... 58% 74%
</TABLE>
- --------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
SEPTEMBER 30, 1998++ SEPTEMBER 30, 1997++
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $12.82 $12.20
------ ------
Net investment income ........................... 0.64 0.12
Net realized and unrealized gain (loss) ......... (1.15) 0.62
------ ------
Total from investment operations ................ (0.51) 0.74
------ ------
Less dividends and distributions from:
Net investment income .......................... (0.54) (0.12)
Net realized gain .............................. (0.59) --
------ ------
Total dividends and distributions ............... (1.13) (0.12)
------ ------
Net asset value, end of period .................. $11.18 $12.82
====== ======
TOTAL INVESTMENT RETURN+ ........................ (4.46)% 5.98%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 0.92%(3) 0.96%(2)
Net investment income ........................... 4.86%(3) 5.41%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $618 $21
Portfolio turnover rate ......................... 58% 74%
</TABLE>
- --------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Income
Builder Fund (the "Fund"), formerly Dean Witter Income Builder, at September
30, 1998, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at September 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 6, 1998
- -------------------------------------------------------------------------------
1998 FEDERAL TAX NOTICE (unaudited)
During the year ended September 30, 1998, the Fund paid to its shareholders
$0.06 per share from long-term capital gains. Of this $0.06 distribution, $0.04
is taxable as 28% rate gain and $0.02 is taxable as 20% rate gain. For such
period, 39.97% of the income paid qualified for the dividends received
deduction available to corporations.
- -------------------------------------------------------------------------------
23
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Paul D. Vance
Vice President
Peter M. Avelar
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus
of the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
MORGAN STANLEY
DEAN WITTER
INCOME BUILDER
FUND
[GRAPHIC]
ANNUAL REPORT
SEPTEMBER 30, 1998
<PAGE>
PROSPECTUS
MARCH 31, 1998
TCW/DW Income and Growth Fund (the "Fund") is an open-end, non-diversified
management investment company, whose investment objective is to generate high
total return by providing a high level of current income and the potential for
capital appreciation. The Fund seeks to achieve its investment objective by
investing primarily in convertible securities, fixed-income securities and
common stocks. The Fund will invest at least 50% of its total assets in a
combination of equity securities and fixed-income securities with equity
components.
THE FUND MAY INVEST WITHOUT LIMITATION IN CONVERTIBLE AND FIXED-INCOME
SECURITIES RATED BELOW INVESTMENT GRADE (COMMONLY KNOWN AS "JUNK BONDS"),
although the Fund will only invest in convertible and fixed-income securities
rated at least B by either Moody's Investor's Service, Inc. or Standard & Poor's
Corporation or, if not rated, determined to be of comparable quality.
INVESTMENTS OF THIS TYPE ARE SUBJECT TO GREATER RISK, INCLUDING THE RISK OF
DEFAULT, THAN HIGHER RATED SECURITIES, AND ARE CONSIDERED TO BE SPECULATIVE WITH
REGARD TO THE PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. INVESTORS SHOULD
CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND. (SEE
"INVESTMENT OBJECTIVE AND POLICIES.")
The Fund offers four classes of shares (each, a "Class"), each with a different
combination of sales charges, ongoing fees and other features. The different
distribution arrangements permit an investor to choose the method of purchasing
shares that the investor believes is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares and other
relevant circumstances. (See "Purchase of Fund Shares -- Alternative Purchase
Arrangements.")
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated March 31, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
TABLE OF CONTENTS
Prospectus Summary /2
Summary of Fund Expenses /5
Financial Highlights /7
The Fund and its Management /10
Investment Objective and Policies /11
Risk Considerations /12
Investment Restrictions /18
Purchase of Fund Shares /18
Shareholder Services /29
Repurchases and Redemptions /31
Dividends, Distributions and Taxes /32
Performance Information /33
Additional Information /34
Appendix /35
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.
TCW/DW INCOME AND GROWTH FUND
Two World Trade Center
New York, New York 10048 (212) 392-2550 or
(800) 869-NEWS (toll free)
Dean Witter Distributors Inc.
Distributor
<PAGE>
<TABLE>
<CAPTION>
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------------------------
<S> <C>
THE The Fund is organized as a Massachusetts business trust, and is an open-end,
FUND non-diversified management investment company investing primarily in
convertible securities, fixed-income securities and common stocks.
- ------------------------------------------------------------------------------------------------
SHARES Shares of beneficial interest with $0.01 par value (see page 34). The Fund
OFFERED offers four Classes of shares, each with a different combination of sales
charges, ongoing fees and other features (see pages 18-26).
- ------------------------------------------------------------------------------------------------
MINIMUM The minimum initial investment for each Class is $1,000 ($100 if the account
PURCHASE is opened through EasyInvest-SM-). Class D shares are only available to
persons investing $5 million ($25 million for certain qualified plans) or more
and to certain other limited categories of investors. For the purpose of
meeting the minimum $5 million (or $25 million) investment for Class D shares,
and subject to the $1,000 minimum initial investment for each Class of the
Fund, an investor's existing holdings of Class A shares and concurrent
investments in Class D shares of the Fund and other multiple class funds for
which Dean Witter Services Company Inc. serves as manager and TCW Funds
Management, Inc. serves as investment adviser will be aggregated. The minimum
subsequent investment is $100 (see page 18).
- ------------------------------------------------------------------------------------------------
INVESTMENT The investment objective of the Fund is to generate high total return by
OBJECTIVE providing a high level of current income and the potential for capital
appreciation.
- ------------------------------------------------------------------------------------------------
MANAGER Dean Witter Services Company Inc. (the "Manager"), a wholly-owned subsidiary
of Dean Witter InterCapital Inc. ("InterCapital"), is the Fund's Manager. The
Manager also serves as Manager to ten other investment companies which are
advised by TCW Funds Management, Inc. (the "TCW/DW Funds"). The Manager and
InterCapital serve in various investment management, advisory, management and
administrative capacities to a total of 101 investment companies and other
portfolios with assets of approximately $110 billion at February 28, 1998 (see
page 10).
- ------------------------------------------------------------------------------------------------
ADVISER TCW Funds Management, Inc. (the "Adviser") is the Fund's investment adviser.
In addition to the Fund, the Adviser serves as investment adviser to ten other
TCW/DW Funds. As of February 28, 1998, the Adviser and its affiliates had over
$50 billion under management or committed to management in various fiduciary
or advisory capacities, primarily from institutional investors (see page 10).
- ------------------------------------------------------------------------------------------------
MANAGEMENT The Manager receives a monthly fee at the annual rate of 0.45% of daily net
AND ADVISORY assets, scaled down on assets over $500 million. The Adviser receives a
FEES monthly fee at an annual rate of 0.30% of daily net assets, scaled down on
assets over $500 million (see page 10).
- ------------------------------------------------------------------------------------------------
DISTRIBUTOR AND Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a
DISTRIBUTION distribution plan pursuant to Rule 12b-1 under the Investment Company Act (the
FEE "12b-1 Plan") with respect to the distribution fees paid by the Class A, Class
B and Class C shares of the Fund to the Distributor. The entire 12b-1 fee
payable by Class A and a portion of the 12b-1 fee payable by each of Class B
and Class C equal to 0.20% of the average daily net assets of Class B and
0.25% of the average daily net assets of Class C are currently each
characterized as a service fee within the meaning of the National Association
of Securities Dealers, Inc. guidelines. The remaining portion of the 12b-1
fee, if any, is characterized as an asset-based sales charge (see pages 18 and
27).
- ------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
ALTERNATIVE Four classes of shares are offered:
PURCHASE
ARRANGEMENTS o Class A shares are offered with a front-end sales charge, starting at 4.25%
and reduced for larger purchases. Investments of $1 million or more (and
investments by certain other limited categories of investors) are not subject
to any sales charge at the time of purchase but a contingent deferred sales
charge ("CDSC") of 1.0% may be imposed on redemptions within one year of
purchase. The Fund is authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the Fund's Class A shares
and servicing shareholder accounts pursuant to the Fund's 12b-1 Plan.
Reimbursement may in no event exceed an amount equal to payments at an annual
rate of 0.25% of average daily net assets of the Class (see pages 18, 22 and
27).
o Class B shares are offered without a front-end sales charge, but will in
most cases be subject to a CDSC (scaled down from 5.0% to 1.0%) if redeemed
within six years after purchase. The CDSC will be imposed on any redemption of
shares if after such redemption the aggregate current value of a Class B
account with the Fund falls below the aggregate amount of the investor's
purchase payments made during the six years preceding the redemption. A
different CDSC schedule applies to investments by certain qualified plans.
Class B shares are also subject to a 12b-1 fee assessed at the annual rate of
0.75% of the average daily net assets of Class B. Shares of the Fund held
prior to July 28, 1997 which were acquired in exchange for shares of TCW/DW
Funds sold with a CDSC, including shares acquired through reinvestment of
dividends and distributions thereon, have been designated Class B shares.
Shares held before May 1, 1997 that have been designated Class B shares will
convert to Class A shares in May, 2007. In all other instances, Class B shares
convert to Class A shares approximately ten years after the date of the
original purchase (see pages 18, 24 and 27).
o Class C shares are offered without a front-end sales charge, but will in
most cases be subject to a CDSC of 1.0% if redeemed within one year after
purchase. The Fund is authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the Fund's Class C shares
and servicing shareholder accounts pursuant to the Fund's 12b-1 Plan.
Reimbursement may in no event exceed an amount equal to payments at an annual
rate of 0.75% of average daily net assets of the Class. All shares of the Fund
held prior to July 28, 1997 (other than shares which were acquired in exchange
for shares of TCW/DW Funds offered with a CDSC and shares acquired through
reinvestment of dividends and distributions thereon) have been designated
Class C shares. Shares held before July 28, 1997 that have been designated
Class C shares are not subject to the 1.0% CDSC (see pages 26 and 27).
o Class D shares are offered only to investors meeting an initial investment
minimum of $5 million ($25 million for certain qualified plans) and to certain
other limited categories of investors. Class D shares are offered without a
front-end sales charge or CDSC and are not subject to any 12b-1 fee (see pages
26 and 27).
- ------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
DIVIDENDS Income dividends are paid quarterly. Capital gains, if any, will be
AND CAPITAL distributed at least annually. The Fund may, however, determine to retain all
GAINS or part of any net long-term capital gains in any year for reinvestment.
DISTRIBUTIONS Dividends and capital gains distributions are automatically reinvested in
additional shares of the same Class at net asset value unless the shareholder
elects to receive cash (see page 32). Shares acquired by dividend and
distribution reinvestment will not be subject to any sales charge or CDSC (see
pages 29 and 32).
- ------------------------------------------------------------------------------------------------
REDEMPTION Shares are redeemable by the shareholder at net asset value less any
applicable CDSC on Class A, Class B or Class C shares. An account may be
redeemed involuntarily if the total value of the account is less than $100 or,
if the account was opened through EasyInvest-SM-, if after twelve months the
shareholder has invested less than $1,000 in the account (see page 31).
- ------------------------------------------------------------------------------------------------
RISK The net asset value of the Fund's shares will fluctuate with changes in the
CONSIDERATIONS market value of the Fund's portfolio securities. The value of the Fund's
convertible and fixed-income portfolio securities generally increase or
decrease due to changes in prevailing interest rates. Generally, a rise in
interest rates will result in a decrease in value, while a drop in interest
rates will result in an increase in value. The high yield, high risk
fixed-income securities in which the Fund may invest are subject to greater
risk of loss of income and principal than higher rated, lower yielding
fixed-income securities. The prices of high yield, high risk securities have
been found to be less sensitive to changes in prevailing interest rates than
higher rated investments, but are likely to be more sensitive to adverse
economic changes or individual corporate developments. The Fund 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. As a result, a relatively high percentage of the Fund's assets may be
invested in a limited number of issuers. However, the Fund intends to continue
to qualify as a regulated investment company under the federal income tax laws
and, as such, is subject to the diversification requirements of the Internal
Revenue Code. The Fund may invest up to 25% of its total assets in non-dollar
denominated foreign securities, which may entail special risks (see page 11).
The Fund also may engage in options and futures transactions and may purchase
securities on a when-issued, delayed delivery or "when, as and if issued"
basis, which involve certain additional risks (see page 12).
- ------------------------------------------------------------------------------------------------
</TABLE>
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT
OF ADDITIONAL INFORMATION.
4
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
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 based on the
expenses and fees for the fiscal year ended January 31, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price)............................................ 4.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments............... None None None None
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds)............ None(2) 5.00%(3) 1.00%(4) None
Redemption Fees.............................................. None None None None
Exchange Fee................................................. None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------
Management and Advisory Fees................................. 0.75% 0.75% 0.75% 0.75%
12b-1 Fees (5) (6)........................................... 0.25% 0.75% 0.75% None
Other Expenses............................................... 0.51% 0.51% 0.51% 0.51%
Total Fund Operating Expenses (7)............................ 1.51% 2.01% 2.01% 1.26%
</TABLE>
- ------------
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund Shares --
Initial Sales Charge Alternative -- Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on redemptions
made within one year after purchase, except for certain specific
circumstances (see "Purchase of Fund Shares -- Initial Sales Charge
Alternative -- Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares -- Level Load Alternative -- Class C Shares").
Shares of the Fund held prior to July 28, 1997 that have been designated
Class C shares are not subject to the 1.00% CDSC.
(5) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1 fee
payable by Class A and a portion of the 12b-1 fee payable by each of Class
B and Class C equal to 0.20% of the average daily net assets of Class B and
0.25% of the average daily net assets of Class C are currently each
characterized as a service fee within the meaning of National Association
of Securities Dealers, Inc. ("NASD") guidelines and are payments made for
personal service and/or maintenance of shareholder accounts. The remainder
of the 12b-1 fee, if any, is an asset-based sales charge, and is a
distribution fee paid to the Distributor to compensate it for the services
provided and the expenses borne by the Distributor and others in the
distribution of the Fund's shares (see "Purchase of Fund Shares -- Plan of
Distribution").
(6) Upon conversion of Class B shares to Class A shares, such shares will be
subject to the lower 12b-1 fee applicable to Class A shares. No sales
charge is imposed at the time of conversion of Class B shares to Class A
shares. Class C shares do not have a conversion feature and, therefore, are
subject to an ongoing 0.75% distribution fee (see "Purchase of Fund Shares
-- Alternative Purchase Arrangements").
(7) There were no outstanding shares of Class A, Class B or Class D prior to
July 28, 1997. Accordingly, "Total Fund Operating Expenses," as shown above
with respect to those Classes, are estimates based upon the sum of 12b-1
Fees, Management Fees and estimated "Other Expenses."
5
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the
end of each time period:
Class A................................................... $57 $88 $121 $215
Class B................................................... $70 $93 $128 $234
Class C................................................... $30 $63 $108 $234
Class D................................................... $13 $40 $ 69 $152
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A................................................... $57 $88 $121 $215
Class B................................................... $20 $63 $108 $234
Class C................................................... $20 $63 $108 $234
Class D................................................... $13 $40 $ 69 $152
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares -- Plan of Distribution"
and "Repurchases and Redemptions" in this Prospectus.
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
6
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements and 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 PERIOD
MARCH 31,
1993*
FOR THE YEAR ENDED JANUARY 31, THROUGH
------------------------------------------------------- JANUARY 31,
1998**++ 1997 1996 1995 1994
---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................... $ 11.42 $ 11.13 $ 9.77 $ 10.98 $ 10.00
---------- ---------- ---------- ---------- ---------
Net investment income............... 0.57 0.60 0.59 0.59 0.45
Net realized and unrealized gain
(loss)............................. 0.96 0.84 1.37 (1.20) 1.02
---------- ---------- ---------- ---------- ---------
Total from investment operations...... 1.53 1.44 1.96 (0.61) 1.47
---------- ---------- ---------- ---------- ---------
Less dividends and distributions from:
Net investment income............... (0.60) (0.60) (0.60) (0.55) (0.39)
Net realized gain................... (0.74) (0.55) -- (0.05) (0.10)
---------- ---------- ---------- ---------- ---------
Total dividends and distributions..... (1.34) (1.15) (0.60) (0.60) (0.49)
---------- ---------- ---------- ---------- ---------
Net asset value, end of period........ $ 11.61 $ 11.42 $ 11.13 $ 9.77 $ 10.98
========== ========== ========== ========== =========
TOTAL INVESTMENT RETURN+................ 14.03% 13.46% 20.52% (5.59)% 15.06%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................. 2.01% 2.02% 2.21% 2.04% 1.57%(2)(3)
Net investment income................. 4.84% 5.19% 5.41% 5.83% 5.62%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands............................ $54,863 $60,941 $57,631 $55,335 $64,370
Portfolio turnover rate............... 96% 102% 79% 88% 84%(1)
Average commission rate paid.......... $0.0169 $0.0540 -- -- --
</TABLE>
- ------------
* COMMENCEMENT OF OPERATIONS.
** PRIOR TO JULY 28, 1997, THE FUND ISSUED ONE CLASS OF SHARES. ALL SHARES OF
THE FUND HELD PRIOR TO THAT DATE, OTHER THAN SHARES WHICH WERE ACQUIRED IN
EXCHANGE FOR SHARES OF FUNDS FOR WHICH DEAN WITTER SERVICES COMPANY INC.
SERVES AS MANAGER AND TCW FUNDS MANAGEMENT, INC. SERVES AS ADVISER ("TCW/DW
FUNDS") OFFERED WITH A CONTINGENT DEFERRED SALES CHARGE ("CDSC") AND SHARES
ACQUIRED THROUGH REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS THEREON, HAVE
BEEN DESIGNATED CLASS C SHARES. SHARES HELD PRIOR TO JULY 28, 1997 WHICH
WERE ACQUIRED IN EXCHANGE FOR SHARES OF A TCW/DW FUND SOLD WITH A CDSC,
INCLUDING SHARES ACQUIRED THROUGH REINVESTMENT OF DIVIDENDS AND
DISTRIBUTIONS THEREON, HAVE BEEN DESIGNATED CLASS B SHARES.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE MANAGER AND INVESTMENT ADVISER HAD NOT REIMBURSED ALL EXPENSES AND
WAIVED THE MANAGEMENT FEE, THE ABOVE ANNUALIZED EXPENSE AND NET INVESTMENT
INCOME RATIOS WOULD HAVE BEEN 2.00% AND 5.18%, RESPECTIVELY.
7
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JANUARY 31,
1998++
--------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $ 11.81
-------
Net investment income................................... 0.31
Net realized and unrealized gain........................ 0.38
-------
Total from investment operations.......................... 0.69
-------
Less dividends and distributions from:
Net investment income................................... (0.33)
Net realized gain....................................... (0.57)
-------
Total dividends and distributions......................... (0.90)
-------
Net asset value, end of period............................ $ 11.60
=======
TOTAL INVESTMENT RETURN+.................................... 6.03%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................. 1.54%(2)
Net investment income..................................... 5.04%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................... $28
Portfolio turnover rate................................... 96%
Average commission rate paid.............................. $0.0169
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $ 11.81
-------
Net investment income................................... 0.28
Net realized and unrealized gain........................ 0.38
-------
Total from investment operations.......................... 0.66
-------
Less dividends and distributions from:
Net investment income................................... (0.30)
Net realized gain....................................... (0.57)
-------
Total dividends and distributions......................... (0.87)
-------
Net asset value, end of period............................ $ 11.60
=======
TOTAL INVESTMENT RETURN+.................................... 5.80%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................. 2.02%(2)
Net investment income..................................... 4.58%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................... $6,597
Portfolio turnover rate................................... 96%
Average commission rate paid.............................. $0.0169
</TABLE>
- ------------
* THE DATE THE SHARES WERE FIRST ISSUED. CLASS B PARTICIPANTS WHO HELD SHARES
PRIOR TO JULY 28, 1997 SHOULD REFER TO THE FINANCIAL HIGHLIGHTS OF CLASS C
TO OBTAIN THE HISTORICAL PER SHARE AND RATIO INFORMATION OF THEIR SHARES.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JANUARY 31,
1998++
--------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $ 11.81
-------
Net investment income..................................... 0.32
Net realized and unrealized gain.......................... 0.39
-------
Total from investment operations.......................... 0.71
-------
Less dividends and distributions from:
Net investment income................................... (0.34)
Net realized gain....................................... (0.57)
-------
Total dividends and distributions......................... (0.91)
-------
Net asset value, end of period............................ $ 11.61
=======
TOTAL INVESTMENT RETURN+.................................... 6.21%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................. 1.27%(2)
Net investment income..................................... 5.33%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................... $11
Portfolio turnover rate................................... 96%
Average commission rate paid.............................. $0.0169
</TABLE>
- ------------
* THE DATE THE SHARES WERE FIRST ISSUED.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
9
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
TCW/DW Income and Growth Fund (the "Fund") is an open-end, non-diversified
management investment company. The Fund is a trust of the type commonly known as
a "Massachusetts business trust" and was organized under the laws of
Massachusetts on November 23, 1992.
Dean Witter Services Company Inc. (the "Manager"), whose address is Two
World Trade Center, New York, New York 10048, is the Fund's Manager. The Manager
is a wholly-owned subsidiary of Dean Witter InterCapital Inc. ("InterCapital").
InterCapital is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., a
preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses -- securities, asset
management and credit services.
The Manager acts as manager to ten other TCW/DW Funds. The Manager and
InterCapital act in various investment management, advisory, management and
administrative capacities to a total of 101 investment companies, 28 of which
are listed on the New York Stock Exchange, with combined assets of approximately
$105.8 billion as of February 28, 1998. InterCapital also manages and advises
portfolios of pension plans, other institutions and individuals which aggregated
approximately $4.1 billion at such date.
The Fund has retained the Manager to manage its business affairs, supervise
its overall day-to-day operations (other than providing investment advice) and
provide all administrative services.
TCW Funds Management, Inc. (the "Adviser"), whose address is 865 South
Figueroa Street, Suite 1800, Los Angeles, California 90017, is the Fund's
investment adviser. The Adviser was organized in 1987 as a wholly-owned
subsidiary of The TCW Group, Inc. ("TCW"), whose subsidiaries, including Trust
Company of the West and TCW Asset Management Company, provide a variety of
trust, investment management and investment advisory services. Robert A. Day,
who is Chairman of the Board of Directors of TCW, may be deemed to be a control
person of the Adviser by virtue of the aggregate ownership by Mr. Day and his
family of more than 25% of the outstanding voting stock of The TCW Group, Inc.
The Adviser serves as investment adviser to ten other TCW/DW Funds in addition
to the Fund. As of February 28, 1998, the Adviser and its affiliated companies
had over $50 billion under management or committed to management, primarily from
institutional investors.
The Fund has retained the Adviser to invest the Fund's assets.
The Fund's Trustees review the various services provided by the Manager and
the Adviser 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 Manager, the Fund pays the Manager
monthly compensation calculated daily by applying the annual rate of 0.45% to
the Fund's net assets up to $500 million, scaled down to 0.42% on assets over
$500 million. As compensation for its investment advisory services, the Fund
pays the Adviser monthly compensation calculated daily by applying an annual
rate of 0.30% to the Fund's net assets up to $500 million, scaled down to 0.28%
on assets over $500 million. For the fiscal year ended January 31, 1998, the
Fund accrued total compensation to the Manager and the Adviser amounting to
0.45% and 0.30%, respectively, of the Fund's average daily net assets and total
expenses of Class C amounted to 2.01% of the average daily net assets of Class
C. Shares of Class A, Class B and Class D were first issued on July 28, 1997.
The expenses of the Fund include: the fees of the Manager and the Adviser; the
fee pursuant to the Plan of Distribution (see "Purchase of Fund Shares"); taxes;
transfer agent, custodian and auditing fees; certain legal fees; and printing
and other expenses relating to the Fund's operations which are not expressly
assumed by the Manager or the Adviser under their respective Agreements with the
Fund.
10
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to generate high total return by
providing a high level of current income and the potential for capital
appreciation. This objective is fundamental and may not be changed without
shareholder approval. There is no assurance that the objective will be achieved.
The Fund seeks to achieve its investment objective by investing, in
descending order of preference under current market conditions, at least 65% of
its total assets in any or all of the following types of securities: (1) bonds
or preferred stock convertible into common stock ("convertible securities");
(2) other fixed-income securities, including bonds, notes, debentures and
preferred stocks; (3) common stocks; and (4) U.S. Government securities
(securities issued or guaranteed by the United States or its agencies or
instrumentalities).
The Fund will invest at least 50% of its total assets in a combination of
equity securities and fixed-income securities with equity components such as
convertible securities and warrants. In addition, all fixed-income securities
without an equity component in which the Fund invests will have a weighted
average life or a maturity date of ten years or less.
The Fund may invest in convertible securities and other fixed-income
securities rated below investment grade. Securities below investment grade are
the equivalent of high yield, high risk bonds. Investment grade is generally
considered to be debt securities rated BBB or higher by Standard & Poor's
Corporation ("S&P") or Baa or higher by Moody's Investors Service, Inc.
("Moody's"). (Convertible and other fixed-income securities rated BBB by S&P or
Baa by Moody's, which generally are regarded as having an adequate capacity to
pay interest and repay principal, have speculative characteristics.) However,
the Fund will only invest in convertible and other fixed-income securities that
are rated at least B by either S&P or Moody's or, if not rated, determined to be
of comparable quality by the Adviser. The Fund will not invest in fixed-income
securities that are in default in payment of principal or interest. A
description of fixed-income securities ratings is contained in the Appendix to
this Prospectus.
PORTFOLIO CHARACTERISTICS
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or based on a specified formula.
Convertible securities rank senior to common stocks in a corporation's capital
structure and, therefore, entail less risk than the corporation's common stock.
The value of a convertible security is a function of its "investment value" (its
value as if it did not have a conversion privilege), and its "conversion value"
(the security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, may sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
FOREIGN SECURITIES. The Fund may invest in securities of foreign companies.
The Fund may invest in Eurodollar convertible securities, which are fixed-income
securities of a U.S. or foreign issuer that are issued in U.S. dollars outside
the United States and are convertible into or exchangeable for equity securities
of the same or a different issuer. Interest and dividends on Eurodollar
securities are payable in U.S. dollars outside of the United States. The Fund
may invest without limitation in Eurodollar convertible securities that are
11
<PAGE>
convertible into or exchangeable for U.S. or foreign equity securities listed,
or represented by American Depository Receipts listed, on a U.S. stock exchange.
The Fund's investments in other Eurodollar convertible securities which are
exchangeable for unlisted foreign equity securities are subject to the Fund's
overall policy limiting its investment in illiquid securities to 15% or less of
its net assets.
The Fund will not invest more than 25% of the value of its total assets, at
the time of purchase, in non-dollar denominated foreign securities (other than
securities of Canadian issuers registered under the Securities Exchange Act of
1934 or American Depository Receipts, on which there is no such limit). The
Fund's investments in unlisted foreign securities are subject to the Fund's
overall policy limiting its investment in illiquid securities to 15% or less of
its net assets. 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. Costs may be incurred in
connection with conversions between various currencies held by the Fund. The
Fund currently does not intend to invest more than 25% of its total assets in
the securities of issuers in any one country outside the United States. For a
discussion of the risks of foreign securities, see "Risk Considerations," below.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in the
market value of the Fund's portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market and political factors affecting the creditworthiness of the underlying
issuers, as well as changes in prevailing interest rates, none of which can be
predicted. A decline in prevailing interest rates will generally increase the
value of fixed-income securities, while an increase in rates usually reduces the
value of those securities. The Fund's yield also will vary based on the yield of
the Fund's portfolio securities.
HIGH YIELD, HIGH RISK SECURITIES. Because of the ability of the Fund to
invest in certain high yield, high risk convertible and fixed-income securities,
the Adviser must take into account the special nature of such securities and
certain special considerations in assessing the risks associated with such
investments. Although the growth of the high yield securities market in the
1980s had paralleled a long economic expansion, recently many issuers have been
affected by adverse economic and market conditions. It should be recognized that
an economic downturn or increase in interest rates is likely to have a negative
effect on the high yield bond market and on the value of the high yield
securities held by the Fund, as well as on the ability of the securities'
issuers to repay principal and interest on their borrowings.
The prices of high yield securities have been found to be less sensitive to
changes in prevailing interest rates than higher-rated investments, but are
likely to be more sensitive to adverse economic changes or individual corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. If the issuer of a fixed-income security owned by the Fund
defaults, the Fund may incur additional expenses to seek recovery. In addition,
periods of economic uncertainty and change can be expected to result in an
increased volatility of market prices of high yield securities and a concomitant
volatility in the net asset value of a share of the Fund.
The secondary market for high yield securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse effect
on the market prices of certain securities. The limited liquidity of the market
may also adversely affect the ability of the Fund's Trustees to arrive at a fair
value for certain high yield securities at certain times and could make it
difficult for the Fund to sell certain securities. In addition, new laws and
potential new laws may have an adverse effect upon the value of high yield
securities and a concomitant negative impact upon the net asset value of a share
of the Fund.
For a discussion of the risks of the Fund's status as a non-diversified
investment company, see "Other
12
<PAGE>
Investment Policies," below. For a discussion of warrants and stock rights, see
"Warrants and Stock Rights," below. For a discussion of the risks of options and
futures transactions, see "Options and Futures Transactions," below.
During the fiscal year ended January 31, 1998, the monthly dollar weighted
average ratings of the debt obligations held by the Fund, expressed as a
percentage of the Fund's total debt investments, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL DEBT
RATINGS INVESTMENTS
------- -----------
<S> <C>
AAA/Aaa.............................. 2.0%
AA/Aa................................ 1.9%
A/A.................................. 8.4%
BBB/Baa.............................. 7.8%
BB/Ba................................ 15.2%
B/B.................................. 37.8%
CCC/Caa.............................. 0.0%
CC/Ca................................ 0.0%
C/C.................................. 0.0%
D.................................... 0.0%
Unrated.............................. 26.9%
</TABLE>
FOREIGN SECURITIES. Foreign securities investments may be affected by
changes in currency rates or exchange control regulations, changes in
governmental administration or economic or monetary policy (in the United States
and abroad) or changed circumstances in dealings between nations. Fluctuations
in the relative rates of exchange between the currencies of different nations
will affect the value of the Fund's investments denominated in foreign currency.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's assets denominated in that currency
and thereby impact upon the Fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of the Fund's trades effected in such markets. As such, the
inability to dispose of portfolio securities due to settlement delays could
result in losses to the Fund due to subsequent declines in value of such
securities and the inability of the Fund to make intended security purchases due
to settlement problems could result in a failure of the Fund to make potentially
advantageous investments. To the extent the Fund purchases Eurodollar
certificates of deposit issued by foreign branches of domestic United States
banks, consideration will be given to their domestic marketability, the lower
reserve requirements normally mandated for overseas banking operations, the
possible impact of interruptions in the flow of international currency
transactions and future international political and economic developments which
might adversely affect the payment of principal or interest.
The risks of other investment techniques which may be utilized by the Fund
are described under "Other Investment Policies" and "Options and Futures
Transactions" below.
13
<PAGE>
WARRANTS AND STOCK RIGHTS
The Fund may invest up to 5% of the value of its net assets in warrants,
including not more than 2% in warrants not listed on either the New York or
American Stock Exchange. The Fund may also invest up to 5% of the value of its
net assets in stock rights. Warrants are, in effect, an option to purchase
equity securities at a specific price, generally valid for a specific period of
time, and have no voting rights, pay no dividends and have no rights with
respect to the corporations issuing them. The Fund may acquire warrants and
stock rights attached to other securities without reference to the foregoing
limitations.
OTHER INVESTMENT POLICIES
While the Fund invests primarily in the types of securities described above,
under ordinary circumstances it may invest up to 35% of its total assets in
money market instruments, which are short-term (maturities of up to thirteen
months) fixed-income securities issued by private and governmental institutions.
Money market instruments in which the Fund may invest are securities issued or
guaranteed by the U.S. Government or its agencies; obligations of banks subject
to regulation by the U.S. Government and having total assets of $1 billion or
more; Eurodollar certificates of deposit; obligations of savings banks and
savings and loan associations having total assets of $1 billion or more; fully
insured certificates of deposit; and commercial paper rated within the two
highest grades by Moody's or S&P or, if not rated, issued by a company having an
outstanding debt issue rated AAA by S&P or Aaa by Moody's.
There may be periods during which, in the opinion of the Adviser, market
conditions warrant reduction of some or all of the Fund's securities holdings.
During such periods, the Fund may adopt a temporary "defensive" posture in which
greater than 35% of its total assets is invested in money market instruments or
cash.
The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940, as amended (the "Act"), and, as such, is not
limited by the Act in the proportion of its assets that it may invest in the
obligations of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" under Subchapter
M of the Internal Revenue Code. See "Dividends, Distributions and Taxes." In
order to qualify, among other requirements, the Fund will limit its investments
so that at the close of each quarter of the taxable year, (i) not more than 25%
of the market value of the Fund's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of the market value
of its total assets not more than 5% will be invested in the securities of a
single issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. To the extent that a relatively high percentage
of the Fund's assets may be invested in the obligations of a limited number of
issuers, the Fund's portfolio securities may be more susceptible to any single
economic, political or regulatory occurrence than the portfolio securities of a
diversified investment company. The limitations described in this paragraph are
not fundamental policies and may be revised to the extent applicable Federal
income tax requirements are revised.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, including the risks of default or
bankruptcy of the selling financial institution, the Fund follows procedures
designed to minimize those risks. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions and maintaining adequate collateralization.
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.
14
<PAGE>
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. The Fund may
also sell securities on a "when, as and if issued" basis provided that the
issuance of the security will result automatically from the exchange or
conversion of a security owned by the Fund at the time of the sale.
PRIVATE PLACEMENTS. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
such securities may have an adverse effect on their marketability, and may
prevent the Fund from disposing of them promptly at reasonable prices. The Fund
may have to bear the expense of registering such securities for resale and the
risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Adviser, pursuant to
procedures adopted by the Trustees of the Fund, will make a determination as to
the liquidity of each restricted security purchased by the Fund. If a restricted
security is determined to be "liquid," such security will not be included within
the category "illiquid securities," which under current policy may not exceed
15% of the Fund's net assets. However, investing in Rule 144A securities could
have the effect of increasing the level of Fund illiquidity to the extent the
Fund, at a particular period in time, may be unable to find qualified
institutional buyers in purchasing such securities.
INVESTMENT IN OTHER INVESTMENT VEHICLES. Under the Investment Company Act
of 1940, as amended, the Fund generally may invest up to 10% of its total assets
in the aggregate in shares of other investment companies and up to 5% of its
total assets in any one investment company. The Fund may not own more than 3% of
the voting stock of any investment company. In addition, the Fund may invest in
real estate investment trusts, which pool investors' funds for investments
primarily in commercial real estate properties. Investment in other investment
companies may be the sole or most practical means by which the Fund may
participate in certain securities markets, and investment in real estate
investment trusts may be the most practical available means for the Fund to
invest in the real estate industry (the Fund is prohibited from investing in
real estate directly). As a shareholder in an investment company or real estate
investment trust, the Fund would bear its ratable share of that entity's
expenses, including its advisory and administration fees. At the same time the
Fund would continue to pay its own investment management fees and other
expenses, as a result of which the Fund and its shareholders in effect will be
absorbing duplicate levels of fees with respect to investments in other
investment companies and in real estate investment trusts.
15
<PAGE>
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive their
full value at maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at a
constant rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received on interest-paying securities if prevailing interest rates
rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payments in cash on the security
during the year.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on portfolio
securities and on the U.S. dollar which are or may in the future be listed on
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. OTC
options are purchased from or sold (written) to dealers or financial
institutions which have entered into direct agreements with the Fund. The Fund
is permitted to write covered call options on portfolio securities and the U.S.
dollar, without limit, in order to aid it in achieving its investment objective.
The Fund may also write covered put options; however, 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.
The Fund may purchase listed and OTC call and put options on securities and
stock indexes in amounts equalling up to 5% of its total assets. The Fund may
purchase call options to close out a covered call position or to protect against
an increase in the price of a security it anticipates purchasing. 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.
The Fund may also purchase and sell interest rate and stock index futures
contracts ("futures contracts") that are traded on U.S. commodity exchanges on
such underlying securities as U.S. Treasury bonds, notes, and bills and GNMA
Certificates ("interest rate" futures) and such indexes as the S&P 500 Index and
the New York Stock Exchange Composite Index ("stock index" futures) and the
Moody's Investment-Grade Corporation Bond Index ("bond index" futures). The Fund
will purchase or sell interest rate futures contracts and bond index futures
contracts for the purpose of hedging its fixed-income portfolio (or anticipated
portfolio) against changes in prevailing interest rates and to alter the Fund's
asset allocation in fixed-income securities. The Fund will purchase or sell
stock index futures contracts for the purpose of hedging its equity portfolio
(or anticipated portfolio) against changes in their prices.
The Fund also 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.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
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
16
<PAGE>
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 may generally only be closed out by entering into a
closing purchase transaction with the purchasing dealer. Also, 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 Adviser 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 will 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 dollar cash prices of the Fund's portfolio
securities and their denominated currencies. See the Statement of Additional
Information for a further discussion of such risks.
YEAR 2000. The management services provided to the Fund by the Manager, the
investment advisory services provided to the Fund by the Adviser and the
services provided to shareholders by the Distributor and the Transfer Agent
depend on the smooth functioning of their computer systems. Many computer
software systems in use today cannot recognize the year 2000, but revert to 1900
or some other date, due to the manner in which dates were encoded and
calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Manager, the Adviser, the
Distributor and the Transfer Agent have been actively working on necessary
changes to their own computer systems to prepare for the year 2000 and expect
that their systems will be adapted before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time. In
addition, it is possible that the markets for securities in which the Fund
invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Adviser with a view to
achieving the Fund's investment objective. Robert M. Hanisee, Mark Attanasio,
Kevin A. Hunter and Melissa Weiler, Managing Directors of the Adviser, are the
primary portfolio managers of the Fund. Messrs. Hanisee and Hunter and Ms.
Weiler have been primary portfolio managers of the Fund since April, 1995 and
Mr. Attanasio has been a portfolio manager of the Fund since March, 1996.
Messrs. Hanisee and Hunter have been portfolio managers with affiliates of The
TCW Group, Inc. for over five years. Mr. Attanasio has been a portfolio manager
with the TCW Group Inc. and affiliates thereof since April, 1995. Prior thereto
he was Co-Chief Executive Officer and Chief Portfolio Strategist of Crescent
Corporation (April, 1991-April 1995). Ms. Weiler has been a portfolio manager
with affiliates of The TCW Group, Inc. since April, 1995, and prior thereto was
a Vice President and Portfolio Manager of Crescent Capital Corporation, an
Investment Adviser, with which she had been affiliated since February 1992.
In determining which securities to purchase for the Fund or hold in the
Fund's portfolio, the Adviser
17
<PAGE>
will rely on information from various sources, including research, analysis and
appraisals of brokers and dealers, including Dean Witter Reynolds Inc. ("DWR"),
Morgan Stanley & Co. Incorporated and other broker-dealer affiliates of the
Manager, and others regarding economic developments and interest rate trends,
and the Adviser's own analysis of factors it deems relevant.
Orders for transactions in portfolio securities and commodities are placed
for the Fund with a number of brokers and dealers, including DWR, Morgan Stanley
& Co. Incorporated and other brokers and dealers that are affiliates of the
Manager or Adviser. The Fund may incur brokerage commissions on transactions
conducted through such affiliates. Under normal circumstances it is not
anticipated that the portfolio trading will result in the Fund's portfolio
turnover rate exceeding 150% in any one year. The Fund will incur brokerage
costs commensurate with its portfolio turnover rate, and thus, a higher level
(over 100%) of portfolio transactions will increase the Fund's overall brokerage
expenses. Short term gains and losses may result from such portfolio
transactions.
Except as specifically noted, all investment policies and practices
discussed above are not fundamental policies of the Fund and, as such, may be
changed without shareholder approval.
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. This restriction does not apply to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities.
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 does not apply to
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities.
In addition, as a non-fundamental policy, the Fund may not, as to 75% of its
total assets, purchase more than 10% of the voting securities of any issuer.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a continuous
basis. Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Manager, shares of
the Fund are distributed by the Distributor and offered by DWR and others (which
may include TCW Brokerage Services, an affiliate of the Adviser) who have
entered into agreements with the Distributor ("Selected Broker-Dealers"). The
principal executive office of the Distributor is located at Two World Trade
Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares are
sold to investors with an initial sales charge that declines to zero for larger
purchases; however, Class A shares sold without an
18
<PAGE>
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except for certain specific
circumstances. Class B shares are sold without an initial sales charge but are
subject to a CDSC (scaled down from 5.0% to 1.0%) payable upon most redemptions
within six years after purchase. (Class B shares purchased by certain qualified
plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed within
three years after purchase.) Class C shares are sold without an initial sales
charge but are subject to a CDSC of 1.0% on most redemptions made within one
year after purchase. Class D shares are sold without an initial sales charge or
CDSC and are available only to investors meeting an initial investment minimum
of $5 million ($25 million for certain qualified plans), and to certain other
limited categories of investors. At the discretion of the Board of Trustees of
the Fund, Class A shares may be sold to categories of investors in addition to
those set forth in this prospectus at net asset value without a front-end sales
charge, and Class D shares may be sold to certain other categories of investors,
in each case as may be described in the then current prospectus of the Fund. See
"Alternative Purchase Arrangements -- Selecting a Particular Class" for a
discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25 million
for certain qualified plans) or more and to certain other limited categories of
investors. For the purpose of meeting the minimum $5 million (or $25 million)
initial investment for Class D shares, and subject to the $1,000 minimum initial
investment for each Class of the Fund, an investor's existing holdings of Class
A shares and concurrent investments in Class D shares of the Fund and other
TCW/DW Funds which are multiple class funds ("TCW/DW Multi-Class Funds") will be
aggregated. Subsequent purchases of $100 or more may be made by sending a check,
payable to TCW/DW Income and Growth Fund, directly to Morgan Stanley Dean Witter
Trust FSB (the "Transfer Agent" or "MSDW Trust") at P.O. Box 1040, Jersey City,
NJ 07303, or by contacting an account executive of DWR or another Selected
Broker-Dealer. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A, Class B, Class C or Class D shares. If no
Class is specified, the Transfer Agent will not process the transaction until
the proper Class is identified. The minimum initial purchase in the case of
investments through EasyInvest-SM-, an automatic purchase plan (see "Shareholder
Services"), is $100, provided that the schedule of automatic investments will
result in investments totalling at least $1,000 within the first twelve months.
The minimum initial investment in the case of an "Education IRA" is $500, if the
Distributor has reason to believe that additional investments will increase the
investment in the account to $1,000 within three years. In the case of
investments pursuant to (i) Systematic Payroll Deduction Plans (including
Individual Retirement Plans), (ii) the InterCapital mutual fund asset allocation
program and (iii) fee-based programs approved by the Distributor, pursuant to
which participants pay an asset based fee for services in the nature of
investment advisory, administrative and/or brokerage services, the Fund, in its
discretion, may accept investments without regard to any minimum amounts which
would otherwise be required, provided, in the case of Systematic Payroll
Deduction Plans, that the Distributor 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 three
business day settlement basis; that is, payment is due on the third business day
(settlement date) after the order is placed with the Distributor. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive income dividends
and capital gains distributions if their order is received by the close of
business
19
<PAGE>
on the day prior to the record date for such dividends and distributions.
Sales personnel of a Selected Broker-Dealer are compensated for selling
shares of the Fund by the Distributor or any of its affiliates and/or the
Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive various types of non-cash compensation as special
sales incentives, including trips, educational and/or business seminars and
merchandise. The Fund and the Distributor reserve the right to reject any
purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their needs.
The general public is offered three Classes of shares: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales charges
and rate of expenses to which they are subject. A fourth Class of shares, Class
D shares, is offered only to limited categories of investors (see "No Load
Alternative -- Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class A,
Class B and Class C shares bear the expenses of the ongoing shareholder service
fees, Class B and Class C shares bear the expenses of the ongoing distribution
fees and Class A, Class B and Class C shares which are redeemed subject to a
CDSC bear the expense of the additional incremental distribution costs resulting
from the CDSC applicable to shares of those Classes. The ongoing distribution
fees that are imposed on Class A, Class B and Class C shares will be imposed
directly against those Classes and not against all assets of the Fund and,
accordingly, such charges against one Class will not affect the net asset value
of any other Class or have any impact on investors choosing another sales charge
option. See "Plan of Distribution" and "Repurchases and Redemptions."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances. Class A
shares are also subject to a 12b-1 fee of up to 0.25% of the average daily net
assets of the Class. See "Initial Sales Charge Alternative -- Class A Shares."
CLASS B SHARES. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed
within three years after purchase.) This CDSC may be waived for certain
redemptions. Class B shares are also subject to an annual 12b-1 fee of 0.75% of
the average daily net assets of Class B. The Class B shares' distribution fee
will cause that Class to have higher expenses and pay lower dividends than Class
A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative -- Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 0.75% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause
20
<PAGE>
that Class to have higher expenses and pay lower dividends than Class A or Class
D shares. See "Level Load Alternative -- Class C Shares."
CLASS D SHARES. Class D shares are available only to limited categories of
investors (see "No Load Alternative -- Class D Shares" below). Class D shares
are sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative -- Class D Shares."
SELECTING A PARTICULAR CLASS. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 0.75% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example, they
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A shares in all TCW/DW
Multi-Class Funds, and holdings of shares of "Exchange Funds" (see "Shareholder
Services -- Exchange Privilege") for which Class A shares have been exchanged,
will be included together with the current investment amount.
Sales personnel may receive different compensation for selling each Class of
shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
- -------------------------------------------------------
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
- -------------------------------------------------------
A Maximum 4.25% 0.25% No
initial sales
charge reduced
for purchases of
$25,000 and over;
shares sold
without an
initial sales
charge generally
subject to a 1.0%
CDSC during first
year.
- -------------------------------------------------------
B Maximum 5.0% CDSC 0.75% B shares
during the first convert to A
year decreasing shares
to 0 after six automatically
years after
approximately
ten years
- -------------------------------------------------------
C 1.0% CDSC during 0.75% No
first year
- -------------------------------------------------------
D None None No
- -------------------------------------------------------
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value,"
21
<PAGE>
"Dividends, Distributions and Taxes" and "Shareholder Services -- Exchange
Privilege" for other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE --
CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative -- Class B Shares -- CDSC Waivers," except that the references to
six years in the first paragraph of that section shall mean one year in the case
of Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets of
the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
-----------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
- ------------------------- ---------------- -----------------
<S> <C> <C>
Less than $25,000........ 4.25% 4.44%
$25,000 but less
than $50,000............ 4.00% 4.17%
$50,000 but less
than $100,000........... 3.50% 3.63%
$100,000 but less
than $250,000........... 2.75% 2.83%
$250,000 but less
than $1 million......... 1.75% 1.78%
$1 million and over...... 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his, her or
their own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit plans
qualified under Section 401 of the Internal Revenue Code of a single employer or
of employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(c) of the Act; and for investments in Individual Retirement
Accounts of employees of a single employer through Systematic Payroll Deduction
plans; or (g) any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six months and has
some purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other TCW/DW Multi-Class Funds. The sales charge payable on the
purchase of the Class A shares of the Fund and the Class A shares of the other
TCW/DW Multi-Class Funds will be at their respective rates applicable to the
total amount of the combined concurrent purchases of such shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund
22
<PAGE>
and other TCW/DW Multi-Class Funds previously purchased at a price including a
front-end sales charge (including shares of the Fund, other TCW/DW Multi-Class
Funds or "Exchange Funds" (see "Shareholder Services -- Exchange Privilege")
acquired in exchange for those shares, and including in each case shares
acquired through reinvestment of dividends and distributions), which are held at
the time of such transaction, amounts to $25,000 or more. If such investor has a
cumulative net asset value of Class A and Class D shares that, together with the
current investment amount, is equal to at least $5 million ($25 million for
certain qualified plans), such investor is eligible to purchase Class D shares
subject to the $1,000 minimum initial investment requirement of that Class of
the Fund. See "No Load Alternative -- Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm the
investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from DWR or other Selected Broker-Dealers. The cost of Class A shares of the
Fund or Class A shares of other TCW/DW Multi-Class Funds which were previously
purchased at a price including a front-end sales charge during the 90-day period
prior to the date of receipt by the Distributor of the Letter of Intent, or of
Class A shares of the Fund or other TCW/DW Multi-Class Funds or shares of
"Exchange Funds" (see "Shareholder Services -- Exchange Privilege") acquired in
exchange for Class A shares of such funds purchased during such period at a
price including a front-end sales charge, which are still owned by the
shareholder, may also be included in determining the applicable reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value by
the following:
(1) trusts for which MSDW Trust (an affiliate of the Manager) provides
discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory or administrative services (such
investments are subject to all of the terms and conditions of such programs,
which may include termination fees, mandatory redemption upon termination and
such other circumstances as specified in the programs' agreements, and
restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section
401(a) of the Internal Revenue Code ("Qualified Retirement Plans") with at
least 200 eligible employees and for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(5) investors who are clients of a Dean Witter account executive who joined
Dean Witter from another investment firm within six months prior to the date of
purchase of Fund shares by such investors, if the shares are being purchased
with the proceeds from a redemption of shares of an open-end proprietary mutual
fund of the account executive's previous firm which imposed either a front-end
or deferred sales charge, provided such purchase was made within sixty days
after the redemption and the proceeds of the redemption had been maintained in
the interim in cash or a money market fund; and
23
<PAGE>
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE --
CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain Qualified Retirement
Plans, three years) preceding the redemption. In addition, Class B shares are
subject to an annual 12b-1 fee of 0.75% of the average daily net assets of
Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may, however,
be subject to a CDSC which will be a percentage of the dollar amount of shares
redeemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, as set forth in
the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
<S> <C>
First.......................... 5.0%
Second......................... 4.0%
Third.......................... 3.0%
Fourth......................... 2.0%
Fifth.......................... 2.0%
Sixth.......................... 1.0%
Seventh and thereafter......... None
</TABLE>
In the case of Class B shares purchased on or after July 28, 1997 by
Qualified Retirement Plans for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject to
any CDSC upon redemption. However, shares redeemed earlier than three years
after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
<S> <C>
First.......................... 2.0%
Second......................... 2.0%
Third.......................... 1.0%
Fourth and thereafter.......... None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or, in
the case of shares held by certain Qualified Retirement Plans, three years)
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain employer-
sponsored benefit plans, three years) prior to the redemption; and (iii) the
current net asset value of shares purchased through reinvestment of dividends or
distributions. Moreover, in determining whether a CDSC is applicable it will be
assumed that amounts described in (i), (ii) and (iii) above (in that order) are
redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (b) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
24
<PAGE>
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a
"key employee" of a "top heavy" plan, following attainment of age 59 1/2);
(b) distributions from an IRA or 403(b) Custodial Account following attainment
of age 59 1/2; or (c) a tax-free return of an excess contribution to an IRA;
and
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Manager or its parent, Dean Witter InterCapital Inc., as self- directed
investment alternatives and for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement ("Eligible Plan"), provided that either: (a)
the plan continues to be an Eligible Plan after the redemption; or (b) the
redemption is in connection with the complete termination of the plan involving
the distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
CONVERSION TO CLASS A SHARES. Shares of the Fund held prior to July 28,
1997 which were acquired in exchange for shares of TCW/DW Funds sold with a
CDSC, including shares acquired through reinvestment of dividends and
distributions thereon, have been designated Class B shares. Shares held before
May 1, 1997 that have been designated Class B shares will convert to Class A
shares in May, 2007. In all other instances Class B shares will convert
automatically to Class A shares, based on the relative net asset values of the
shares of the two Classes on the conversion date, which will be approximately
ten (10) years after the date of the original purchase. The ten year period is
calculated from the last day of the month in which the shares were purchased or,
in the case of Class B shares acquired through an exchange or a series of
exchanges, from the last day of the month in which the original Class B shares
were purchased, provided that shares originally purchased before May 1, 1997
will convert to Class A shares in May, 2007. The conversion of shares purchased
on or after May 1, 1997 will take place in the month following the tenth
anniversary of the purchase. There will also be converted at that time such
proportion of Class B shares acquired through automatic reinvestment of
dividends and distributions owned by the shareholder as the total number of his
or her Class B shares converting at the time bears to the total number of
outstanding Class B shares purchased and owned by the shareholder. In the case
of Class B shares held by a Qualified Retirement Plan for which MSDW Trust
serves as Trustee or DWR's Retirement Plan Services serves as recordkeeper
pursuant to a written Recordkeeping Services Agreement, the plan is treated as a
single investor and all Class B shares will convert to Class A shares on the
conversion date of the first shares of a TCW/DW Multi-Class Fund purchased by
that plan. In the case of Class B shares previously exchanged for shares of an
"Exchange Fund" (see "Shareholder Services -- Exchange Privilege"), the period
of time the shares were held in the Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired) is excluded from
the holding period for conversion. If those shares are subsequently re-exchanged
for Class B shares of a TCW/DW Multi-Class Fund, the holding period resumes on
the last day of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date
25
<PAGE>
for conversion. Class B shares evidenced by share certificates that are not
received by the Transfer Agent at least one week prior to any conversion date
will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion, and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The conversion feature may be suspended if the ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE -- CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative -- Class B Shares --
CDSC Waivers," except that the references to six years in the first paragraph of
that section shall mean one year in the case of Class C shares. Class C shares
are subject to an annual 12b-1 fee of up to 0.75% of the average daily net
assets of the Class. Unlike Class B shares, Class C shares have no conversion
feature and, accordingly, an investor that purchases Class C shares will be
subject to 12b-1 fees applicable to Class C shares for an indefinite period
subject to annual approval by the Fund's Board of Trustees and regulatory
limitations. All shares of the Fund held prior to July 28, 1997 (other than
shares which were acquired in exchange for shares of TCW/DW Funds sold with a
CDSC and shares acquired through reinvestment of dividends and distributions
thereon) have been designated Class C shares. Shares held before July 28, 1997
that have been designated Class C shares are not subject to the 1.0% CDSC.
NO LOAD ALTERNATIVE -- CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million ($25 million for
Qualified Retirement Plans for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement) and the following categories of investors:
(i) investors participating in the InterCapital mutual fund asset allocation
program pursuant to which such persons pay an asset based fee; (ii) persons
participating in a fee-based program approved by the Distributor, pursuant to
which such persons pay an asset based fee for services in the nature of
investment advisory or administrative services (subject to all of the terms and
conditions of such programs referred to in (i) and (ii) above, which may
include termination fees, mandatory redemption upon termination and such other
circumstances as specified in the programs' agreements, and restrictions on
transferability of Fund shares); (iii) certain Unit Investment Trusts sponsored
by DWR; (iv) certain other open-end investment companies whose shares are
distributed by the Distributor; and (v) other categories of investors, at the
discretion of the Board, as disclosed in the then current prospectus of the
Fund. Investors who require a $5 million (or $25 million) minimum initial
investment to qualify to purchase Class D shares may satisfy that requirement
by investing that amount in a single transaction in Class D shares of the Fund
and other TCW/DW Multi-Class Funds, subject to the $1,000 minimum initial
investment required for that Class of the Fund. In addition, for the purpose of
meeting the $5 million (or $25 million) minimum investment amount, holdings of
Class A shares in all TCW/DW Multi-Class Funds, and holdings of shares of
"Exchange Funds" (see "Shareholder Services -- Exchange Privilege") for which
Class A shares have been exchanged, will be included together with the
26
<PAGE>
current investment amount. If a shareholder redeems Class A shares and
purchases Class D shares, such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act with respect to the distribution of Class A, Class B and Class C shares of
the Fund. In the case of Class A and Class C shares, the Plan provides that the
Fund will reimburse the Distributor and others for the expenses of certain
activities and services incurred by them specifically on behalf of those shares.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed amounts equal to payments at
the annual rates of 0.25% and 0.75% of the average daily net assets of Class A
and Class C, respectively. In the case of Class B shares, the Plan provides that
the Fund will pay the Distributor a fee, which is accrued daily and paid
monthly, at the annual rate of 0.75% of the average daily net assets of Class B.
The fee is treated by the Fund as an expense in the year it is accrued. In the
case of Class A shares, the entire amount of the fee currently represents a
service fee within the meaning of the NASD guidelines. In the case of Class B
and Class C shares, a portion of the fee payable pursuant to the Plan, equal to
0.20% and 0.25% of the average daily net assets of each of these Classes,
respectively, is currently characterized as a service fee. A service fee is a
payment made for personal service and/or the maintenance of shareholder
accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses borne
by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of DWR's account executives
and others who engage in or support distribution of shares or who service
shareholder accounts, including overhead and telephone expenses; printing and
distribution of prospectuses and reports used in connection with the offering of
the Fund's shares to other than current shareholders; and preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan in the case of Class B
shares to compensate DWR and other Selected Broker-Dealers for their opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses.
For the fiscal year ended January 31, 1998, Class C shares of the Fund
accrued payments under the Plan amounting to $437,111, which amount is equal to
0.75% of the average daily net assets of Class C for the fiscal year. All shares
held prior to July 28, 1997 (other than shares which were acquired in exchange
for shares of TCW/DW Fund sold with a CDSC, including shares acquired through
reinvestment of dividends and distributions thereon which have been designated
Class B shares) have been designated Class C shares. For the fiscal period July
28, 1997 through January 31, 1998, the Class A and Class B shares of the Fund
accrued payments under the Plan amounting to $23 and $21,976, respectively,
which amounts on an annualized basis are equal to 0.25% and 0.75% of the average
daily net assets of Class A and Class B, respectively, for such period.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i) the
payments made by the Fund pursuant to the Plan, and (ii) the proceeds of CDSCs
paid by investors upon the redemption of Class B shares. For example, if $1
million in expenses in distributing Class B shares of the Fund had been incurred
and $750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that such
excess amounts, including the carrying charge described above totalled $55,344
for Class B at January 31, 1998 which was equal to 0.84% of the net assets of
Class B on such date. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses or any requirement that
the Plan be continued from year to year, such excess amount does not constitute
a liability of the Fund. Although there is no legal obligation for the Fund to
pay expenses incurred in excess of payments made to
27
<PAGE>
the Distributor under the Plan, and the proceeds of CDSCs paid by investors upon
redemption of shares, if for any reason the Plan is terminated the Trustees will
consider at that time the manner in which to treat such expenses. Any cumulative
expenses incurred, but not yet recovered through distribution fees or CDSCs, may
or may not be recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 0.75% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the Fund
through payments in any subsequent year, except that expenses representing a
gross sales commission credited to account executives at the time of sale may be
reimbursed in the subsequent calendar year. The Distributor has advised the Fund
that unreimbursed expenses representing a gross sales commission credited to
account executives at the time of sale totalled $8,405 in the case of Class C at
December 31, 1997, which amount was equal to 0.02% of the net assets of Class C
on such dates, and that there were no such expenses which may be reimbursed in
the subsequent year in the Class A and Class C on such date. No interest or
other financing charges will be incurred on any Class A or Class C distribution
expenses incurred by the Distributor under the Plan or on any unreimbursed
expenses due to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), on each day that the New York Stock Exchange is
open by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the Class
A, Class B, Class C and Class D shares will be invested together in a single
portfolio. The net asset value of each Class, however, will be determined
separately by subtracting each Class's accrued expenses and liabilities. The net
asset value per share will not be determined on Good Friday and on such other
federal and non-federal holidays as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
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 pursuant to procedures adopted by the Trustees); 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 Adviser 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 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 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 may utilize
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.
28
<PAGE>
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the shareholder,
in shares of any other open-end TCW/DW Fund), unless the shareholder requests
that they be paid in cash. Shares so acquired are acquired at net asset value
and are not subject to the imposition of a front-end sales charge or a CDSC (see
"Repurchases and Redemptions").
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share 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. Shares so acquired are acquired at
net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Repurchases and Redemptions").
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 or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund (see "Purchase of Fund Shares" and "Repurchases and Redemptions --
Involuntary Redemption").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Only shareholders
having accounts in which no share certificates have been issued will be
permitted to enroll in the Withdrawal Plan. Any applicable CDSC will be imposed
on shares redeemed under the Withdrawal Plan (see "Purchase of Fund Shares").
Therefore, any shareholder participating in the Withdrawal Plan will have
sufficient shares redeemed from his or her account so that the proceeds (net of
any applicable CDSC) to the shareholder will be the designated monthly or
quarterly amount. Withdrawal plan payments should not be considered as
dividends, yields or income. If periodic withdrawal plan payments continuously
exceed net investment income and net capital gains, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted. Each
withdrawal constitutes a redemption of shares and any gain or loss realized must
be recognized for federal income tax purposes.
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
Shares of each Class may be exchanged for shares of the same Class of any
other TCW/DW Multi-Class Fund without the imposition of any exchange fee. Shares
may also be exchanged for shares of TCW/DW North American Government Income
Trust and for shares of five money market funds for which InterCapital serves as
investment manager: Dean Witter Liquid Asset Fund Inc., Dean Witter U.S.
Government Money Market Trust, Dean Witter Tax-Free Daily Income Trust, Dean
Witter California Tax-Free Daily Income Trust and Dean Witter New York Municipal
Money Market Trust (the foregoing six
29
<PAGE>
funds are hereinafter collectively referred to as "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 TCW/DW Multi-Class Fund or any Exchange Fund that is
not a money market fund is on the basis of the next calculated net asset value
per share of each fund after the exchange order is received. When exchanging
into a money market fund from the Fund, shares of the Fund are redeemed out of
the Fund at their next calculated net asset value and the proceeds of the
redemption are used to purchase shares of the money market fund at their net
asset value determined the following business day. Subsequent exchanges between
any of the money market funds and any of the TCW/DW Multi-Class Funds or any
Exchange Fund that is not a money market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If those
shares are subsequently re-exchanged for shares of a TCW/DW Multi-Class 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 TCW/DW Multi-Class Fund are
reacquired. Thus, the CDSC is based upon the time (calculated as described
above) the shareholder was invested in shares of a TCW/DW Multi-Class Fund (see
"Purchase of Fund Shares"). In the case of shares 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 which are attributable to those
shares. (Exchange Fund 12b-1 distribution fees are described in the prospectuses
for those funds.)
ADDITIONAL INFORMATION REGARDING EXCHANGES. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Manager to be abusive and contrary to the best interests of the
Fund's other shareholders and, at the 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, each of the other TCW/DW Funds and each of the money market
funds may in their discretion limit or otherwise restrict the number of times
this Exchange Privilege may be exercised by any investor. Any such restriction
will be made by the Fund on a prospective basis only, upon notice to the
shareholder not later than ten days following such shareholder's most recent
exchange. Also, the Exchange Privilege may be terminated or revised at any time
by the Fund and/or any of such TCW/DW Funds or money market 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 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 of
each Class of shares and any other conditions imposed by each fund. In the case
of a shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the shareholder's account. An
30
<PAGE>
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 funds for
which the Exchange Privilege is available pursuant to this Exchange Privilege by
contacting their DWR or other Selected Broker-Dealer account executive (no
Exchange Privilege Authorization Form is required). Other shareholders (and
those shareholders who are clients of DWR or other Selected Broker-Dealers but
who wish to make exchanges directly by writing or telephoning the Transfer
Agent) must complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Transfer Agent, to
initiate an exchange. If the Authorization Form is used, exchanges may be made
in writing or by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange instructions
communicated over the telephone are genuine. The procedures 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 will 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 in the past with
other funds managed by the Manager.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Broker-Dealer account executive or
the Transfer Agent.
REPURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------
REPURCHASES. 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") after such
repurchase order is received by DWR or other Selected Broker-Dealer reduced by
any applicable CDSC. The CDSC, if any, will be the only fee imposed by the Fund
or the Distributor. The offer by DWR and other Selected Broker-Dealers to
repurchase shares from shareholders may be suspended by them at any time. In
that event, shareholders may redeem their shares through the Fund's Transfer
Agent as set forth below under "Redemptions."
REDEMPTIONS. Shares of each Class of the Fund can be redeemed for cash at
any time at net asset value per share next determined, less the amount of any
applicable CDSC in the case of Class A, Class B or Class C shares (see "Purchase
of Fund Shares"). If shares are held in a shareholder's account at the Transfer
Agent without a share certificate, a written request for
31
<PAGE>
redemption must be sent to the Fund's Transfer Agent at P.O. Box 983, Jersey
City, NJ 07303. 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.
PAYMENT FOR SHARES REPURCHASED OR REDEEMED. 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 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund in the same Class from which such shares were redeemed or
repurchased, at their 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, on 60 days' notice, to
redeem, at their net asset value, the shares of any shareholder (other than
shares held in an individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares due to redemptions
by the shareholder have a value of less than $100 or such lesser amount as may
be fixed by the Trustees or, in the case of an account offered through
EasyInvest, if after twelve months the shareholder has invested less than $1,000
in the account. However, before the Fund redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder that the value of
the shares is less than the applicable amount and allow the shareholder 60 days
to make an additional investment in an amount which will increase the value of
the account to at least the applicable amount before the redemption is
processed. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends separately for
each Class of shares and intends to pay quarterly income dividends and to
distribute net short-term and net long-term capital gains, if any, at least once
each year. The Fund may, however, determine either to distribute or to retain
all or part of any net long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
shares of the same Class and automatically credited to the shareholder's account
without issuance of a share certificate unless the shareholder requests in
writing that all dividends and/or distributions be paid in cash. Shares acquired
by dividend and distribution reinvestments will not be subject to any front-end
sales charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. Distributions paid on Class A and Class D shares will be higher than
for Class B and Class C shares because distribution fees paid by Class B and
Class C shares are higher. (See "Shareholder Services -- Automatic Investment of
Dividends and Distributions.")
TAXES. Because the Fund intends to distribute all of its net investment
income and capital gains to shareholders and otherwise continue to qualify as a
regulated
32
<PAGE>
investment company under Subchapter M of the Internal Revenue Code, it is not
expected that the Fund will be required to pay any federal income tax.
Shareholders who are required to pay taxes on their income will normally have to
pay federal income taxes, and any state income taxes, on the dividends and
distributions they receive from the Fund. Such dividends and distributions, to
the extent that they are derived from net investment income or short-term
capital gains, are taxable to the shareholder as ordinary income regardless of
whether the shareholder receives such payments 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 calendar 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. Capital gains distributions are not eligible for
the corporate dividends received deduction.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources would, in effect, represent a return
of a portion of each shareholder's investment. All, or a portion, of such
payments would not be taxable to shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes.
Shareholders will also be notified of their proportionate share of capital gains
distributions that are eligible for a reduced rate of tax under the Taxpayer
Relief Act of 1997. To avoid being subject to a 31% federal backup withholding
tax on taxable dividends, capital gains distributions and the proceeds of
redemptions and repurchases, shareholders' taxpayer identification numbers must
be furnished and certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. These figures are computed separately
for Class A, Class B, Class C and Class D shares. Both the yield and the total
return of the Fund are based on historical earnings and are not intended to
indicate future performance. The yield of each Class of the Fund is computed by
dividing the Class's net investment income over a 30-day period by an average
value (using the average number of shares entitled to receive dividends and the
net asset value per share at the end of the period), all in accordance with
applicable regulatory requirements. Such amount is compounded for six months and
then annualized for a twelve-month period to derive the Fund's yield for each
Class.
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 a Class of the Fund of $1,000 over periods of one, five
and ten years, as well as over the life of the Fund, if less than any of the
foregoing. Average annual total return reflects all income earned by the Fund,
any appreciation or depreciation of the Fund's assets and all expenses incurred
by the applicable Class and all sales charges, which would be incurred by
shareholders, for the stated periods. It also assumes reinvestment of all
dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average, and
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any 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 each Class of
shares of the Fund. The Fund
33
<PAGE>
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 except that
each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other matter
in which the interests of one Class differ from the interests of any other
Class. In addition, Class B shareholders will have the right to vote on any
proposed material increase in Class A's expenses, if such proposal is submitted
separately to Class A shareholders. Also, as discussed herein, Class A, Class B
and Class C bear the expenses related to the distribution of their respective
shares.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. Under
certain circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right under certain circumstances to remove Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
limited 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.
CODE OF ETHICS. The Adviser is subject to a Code of Ethics with respect to
investment transactions in which the Adviser's officers, directors and certain
other persons have a beneficial interest to avoid any actual or potential
conflict or abuse of their fiduciary position. The Code of Ethics, as it
pertains to the TCW/DW Funds, contains several restrictions and procedures
designed to eliminate conflicts of interest including: (a) pre-clearance of
personal investment transactions to ensure that personal transactions by
employees are not being conducted at the same time as the Adviser's clients;
(b) quarterly reporting of personal securities transactions; (c) a prohibition
against personally acquiring securities in an initial public offering, entering
into uncovered short sales and writing uncovered options; (d) a seven day
"black-out period" prior to or subsequent to a TCW/DW Fund transaction during
which portfolio managers are prohibited from making certain transactions in
securities which are being purchased or sold by a TCW/DW Fund; (e) a
prohibition, with respect to certain investment personnel, from profiting in
the purchase and sale, or sale and purchase, of the same (or equivalent)
securities within 60 calendar days; and (f) a prohibition against acquiring any
security which is subject to firm wide or, if applicable, a department
restriction of the Adviser. The Code of Ethics provides that exemptive relief
may be given from certain of its requirements, upon application. The Adviser's
Code of Ethics complies with regulatory requirements and, insofar as it relates
to persons associated with registered investment companies, the 1994 Report of
the Advisory Group on Personal Investing of the Investment Company Institute.
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.
34
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
Aaa Fixed-income securities which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa Fixed-income securities which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they comprise
what are generally known as high grade fixed-income securities. They
are rated lower than the best fixed-income securities because margins
of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Fixed-income securities which are rated A possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Fixed-income securities which are rated Baa are considered as medium
grade obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
fixed-income securities lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Fixed-income securities rated Aaa, Aa, A and Baa are considered
investment grade.
Ba Fixed-income securities which are rated Ba are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may
be very moderate, and therefore not well safeguarded during both good
and bad times in the future. Uncertainty of position characterizes
bonds in this class.
B Fixed-income securities which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa Fixed-income securities which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger
with respect to principal or interest.
Ca Fixed-income securities which are rated Ca present obligations which
are speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C Fixed-income securities which are rated C are the lowest rated class
of fixed-income securities, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal
fixed-income security rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and a modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
35
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
AAA Fixed-income securities rated "AAA" have the highest rating assigned
by Standard & Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA Fixed-income securities rated "AA" have a very strong capacity to pay
interest and repay principal and differs from the highest-rated issues
only in small degree.
A Fixed-income securities rated "A" have a strong capacity to pay
interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances and
economic conditions than fixed-income securities in higher-rated
categories.
BBB Fixed-income securities rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for fixed-income
securities in this category than for fixed-income securities in
higher-rated categories.
Fixed-income securities rated AAA, AA, A and BBB are considered
investment grade.
BB Fixed-income securities rated "BB" have less near-term vulnerability
to default than other speculative grade fixed-income securities.
However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to
inadequate capacity or willingness to pay interest and repay
principal.
B Fixed-income securities rated "B" have a greater vulnerability to
default but presently has the capacity to meet interest payments and
principal repayments Adverse business, financial or economic
conditions would likely impair capacity or willingness to pay interest
and repay principal.
36
<PAGE>
CCC Fixed-income securities rated "CCC" have a current identifiable
vulnerability to default, and is dependent upon favorable business,
financial and economic conditions to meet timely payments of interest
and repayments of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC The rating "CC" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or implied
"CCC" rating.
C The rating "C" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or implied
"CCC-" rating.
CI The rating "CI" is reserved for fixed-income securities on which no
interest is being paid.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
Fixed-income securities rated "BB", "B", "CCC", "CC" and "C" are
regarded as having predominantly speculative characteristics with
respect to capacity to pay interest and repay principal. "BB"
indicates the least degree of speculation and "C" the highest degree
of speculation. While such fixed-income securities will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
Plus (+) or minus (-): The rating from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing with
the major ratings categories.
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by S&P from other sources it considers reliable. The ratings
may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Ratings are applicable to both taxable and tax-exempt commercial paper. The
categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
1, 2, and 3 to indicate the relative degree of safety.
A-1 indicates that the degree of safety regarding timely payment is very
strong.
A-2 indicates capacity for timely payment on issues with this designation
is strong. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations
carrying this designation are, however, somewhat more vulnerable to
the adverse effects of changes in circumstances than obligations
carrying the higher designations.
37
<PAGE>
TCW/DW Income and
Growth Fund
Two World Trade Center
New York, New York 10048
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and
General Counsel
Robert M. Hanisee
Vice President
Kevin A. Hunter
Vice President
Mark Attanasio
Vice President
Melissa Weiler
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
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
MANAGER
Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
TCW/DW
INCOME AND
GROWTH FUND
[LOGO]
PROSPECTUS
MARCH 31, 1998
<PAGE>
[ANNUAL REPORT FOR TCW/DW INCOME & GROWTH FUND DATED 1/31/99]
[TO BE FILED BY AMENDMENT]
<PAGE>
TCW/DW Income & Growth Fund Two World Trade Center, New York, New York 10048
Letter to the Shareholders July 31, 1998
DEAR SHAREHOLDER:
During the six-month period ended July 31, 1998, U.S. interest rates fell
because of lower projected real GDP growth and the Asian financial crisis,
which helped to push U.S. commodity prices significantly lower, placing further
downward pressure on inflation. However, the TCW/DW Income and Growth Fund's
advisor, TCW Funds Management, Inc. (TCW), remains concerned about accelerating
wage rates and the overall increase in service sector prices. If the Asian
economies begin to stabilize, the downward trend in inflation and interest
rates could come to an end.
Investor concerns regarding Asia, in addition to weakening U.S. corporate
profits, adversely affected small- and mid-cap issues during the period;
however, many large caps posted significant gains. Convertible securities
posted mixed results as the benefit of lower interest rates was somewhat offset
by the poor equity performance of the small- and mid-cap companies that
represent a significant portion of the convertible universe.
PERFORMANCE
For the six months ended July 31, 1998, TCW/DW Income and Growth Fund's Class C
shares produced a total return of 3.18 percent compared to 15.18 percent for
the Standard & Poor's Composite Stock Price Index (S&P 500), 2.81 percent for
the Lehman Brothers Government/Corporate Bond Index and 1.65 percent for the
Lipper Flexible Income Fund Average. For the same period, the Fund's Class A, B
and D shares had total returns of 3.50 percent, 3.19 percent and 3.56 percent,
respectively. The performance of the Fund's four share classes varies because
of differing expenses.
CONVERTIBLE SECURITIES
During the first half of 1998, the convertible portion of the Fund benefited
from its holdings in media, health care and retailing, and from its
underweighting in technology and energy. In the media area, AT&T's
<PAGE>
TCW/DW Income & Growth Fund
Letter to the Shareholders July 31, 1998, continued
acquisition of Telecommunications Inc. helped to drive the stock prices of
cable companies to record levels. The Fund's holdings in Telecommunications
Inc., Mediaone, Cox Communications and Time Warner all appreciated
significantly. In addition, the Fund's holdings in the radio industry, such as
Chancellor Broadcasting and Clear Channel Communications, also did well. In the
health care sector, the Fund's positions in Elan, Omnicare, and Sepracor
contributed positively to performance. The retail sector, driven by robust
consumer spending over the past several months, was the strongest-performing
sector. Some of the best performance was generated by retailers holding
dominant positions within their niches, such as Costco, Home Depot, Staples and
Rite Aid -- all of which were represented in the Fund during the period under
review.
The positive performance of the Fund's convertible holdings in media and
retailing were somewhat offset by declines in Cendant, Motorola and the
assisted-living industry. Cendant's stock declined when accounting problems
were found at its recently acquired holding CUC International. While the
problems are serious, TCW believes they are now reflected in Cendant's
valuation leading them to retain the position. Cendant is a high-quality credit
with $1.3 billion in cash, and the company generates significant free cash
flow. However, TCW liquidated the Fund's position in Motorola, because the
problems at this company appear relatively long-term in nature. TCW also
continues to believe in the long-term growth of the assisted-living industry
and accordingly added slightly to the Fund's position in Sunrise Assisted
Living.
During the period under review, TCW liquidated the Fund's positions in Omnicom,
Sandoz, Chancellor Broadcasting, Staples and Cisco, because these convertibles
appreciated significantly. The proceeds have been reallocated to more defensive
convertibles, primarily in consumer staples and capital goods.
During the last few quarters, TCW has viewed both the new issue and secondary
markets as expensive, but in the second quarter of 1998 this pattern began to
reverse itself. As investors became more cautious about the prospects for the
financial markets, they demanded more reasonable terms on new issues. This
trend, which was most evident near the end of the second quarter, resulted in
several deals being priced very attractively. In the secondary market, hedge
funds were unable to guard against widening spreads and sold some of their
positions. As losses became magnified by leverage, these funds were forced to
sell securities quickly, which placed further downward pressure on the prices
of many convertibles.
The convertible new-issue market was very active during the first half of 1998.
In total, 103 new issues with a net value of $26.5 billion came to market.
These figures significantly exceeded the 66 issues with a net value of $11.7
billion that were brought to market in the first half of 1997. The robust
demand
<PAGE>
TCW/DW Income & Growth Fund
Letter to the Shareholders July 31, 1998, continued
from investors for convertibles kept terms relatively aggressive, particularly
for speculative issuers. As a result, the Fund participated in only about one
of every five new issues brought to market.
HIGH-YIELD BONDS
The volatility in the Asian financial markets and heightened concerns over U.S.
economic growth resulted in a "flight to quality" by bond investors. Surging
demand for U.S. Treasury bonds and investors' expectations that the Fed would
leave rates unchanged at its June 30 meeting resulted in a Treasury market
rally. However, this did not carry over to the high-yield market whose issues
underperformed Treasuries during the period. This uncoupling of the
investment-grade and below-investment-grade fixed-income markets was more
deeply rooted than simply the high-yield market's traditional lag to movements
in interest rates. High-yield investors' potential enthusiasm over lower rates
was tempered by the prospects of an uptick in default rates and the
corresponding increase in credit losses in their portfolios. Thus, lower-rated
issues fared the worst during the period.
New issuance in the high-yield market continues to exceed all previously
achieved levels -- the $56.4 billion issued in the second quarter brought
first-half issuance to $106 billion. The amount of high-yield debt issued in
the first half of 1998 far exceeds that of any year prior to 1997, and the
market is on track to significantly outpace 1997's primary issuance of $126
billion. However, during the second quarter the bottom-tier component of new
issuance eased somewhat. New high-yield offerings rated single-B and below fell
from 75.4 percent of total new issuance in the first quarter to 66.3 percent in
the second quarter. This drop is due in part to the slowdown in mutual fund
cash inflows from $9.0 billion in the first quarter to $4.2 billion in the
second, because mutual funds tend to be the largest purchasers of speculative
high-yield issues.
LOOKING AHEAD
With the equity market volatile, household exposure to the market at high
levels and no end in sight to the Asian crisis, TCW believes it is best to
remain cautious. TCW will continue to follow the course charted at the
beginning of the year by realizing profits on convertible positions that have
appreciated significantly and investing the proceeds in more-defensive issues.
While TCW remains tentative regarding technology and energy convertibles, they
believe valuations are attractive and have begun to add positions selectively
in these sectors. The high-yield portion of the Fund remains positioned to earn
high current income while minimizing the incidence of credit loss in any
economic environment. TCW will continue to focus on bonds issued by companies
projected to easily meet their fixed-charge obligations going forward, with
plenty of cushion to endure unforeseen sector or macroeconomic
<PAGE>
TCW/DW Income & Growth Fund
Letter to the Shareholders July 31, 1998, continued
downturns. TCW believes that their research-driven process emphasizing
superior, upper-tier credits will continue to provide attractive returns as the
economy runs its full cyclical course.
We appreciate your ongoing support of TCW/DW Income and Growth Fund and look
forward to continuing to serve your investment needs.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
TCW/DW Income & Growth Fund
Portfolio of Investments July 31, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS (31.9%)
Aerospace (1.1%)
$ 345 Hexcel Corp. ......................... 7.00% 08/01/03 $ 373,414
285 Morgan Stanley Group, Inc.+
(exchangeable into Boeing Co. common
stock)............................... 0.00 09/30/00 289,888
----------
663,302
----------
Auto Parts (1.2%)
300 Magna International, Inc. - 144A*
(Canada)............................. 4.875 02/15/05 330,750
345 Tower Automotive, Inc. - 144A*........ 5.00 08/01/04 381,639
----------
712,389
----------
Biotechnology (0.5%)
65 Centocor, Inc. ....................... 4.75 02/15/05 63,622
255 Centocor, Inc. - 144A*................ 4.75 02/15/05 249,594
----------
313,216
----------
Business Services (1.0%)
330 COREStaff, Inc. ...................... 2.94 08/15/04 308,501
295 Interim Services, Inc. ............... 4.50 06/01/05 290,852
----------
599,353
----------
Cable & Telecommunications (0.3%)
190 Tele-Communications International,
Inc. ................................ 4.50 02/15/06 191,900
----------
Commercial Services (0.5%)
300 CUC International, Inc. - 144A*....... 3.00 02/15/02 279,534
----------
Computer Software (0.6%)
745 Network Associates, Inc. - 144A*...... 0.00 02/13/18 350,813
----------
Drugs (3.7%)
810 Athena Neurosciences, Inc. - 144A*.... 4.75 11/15/04 1,006,854
400 Dura Pharmaceuticals, Inc. ........... 3.50 07/15/02 344,000
430 Sepracor, Inc. - 144A*................ 6.25 02/15/05 584,306
260 Morgan Stanley Group, Inc.+
(exchangeable into Johnson & Johnson
Co. common stock).................... 2.00 03/29/02 320,289
----------
2,255,449
----------
Electronics - Semiconductors (0.5%)
245 Analog Devices, Inc. ................. 3.50 12/01/00 282,245
----------
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW Income & Growth Fund
Portfolio of Investments July 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Entertainment (2.3%)
$ 180 Action Performance
Companies - 144A*.................... 4.75% 04/01/05 $ 165,127
1,120 Clear Channel Communications, Inc. ... 2.625 04/01/03 1,233,277
----------
1,398,404
----------
Financial (0.9%)
540 Swiss Life Finance Ltd. - 144A*....... 2.00 05/20/05 542,700
----------
Healthcare Services (5.5%)
490 Alternative Living Services, Inc. .... 5.25 12/15/02 567,655
300 Assisted Living Concepts, Inc. ....... 6.00 11/01/02 276,000
360 Assisted Living Concepts,
Inc. - 144A*......................... 5.625 05/01/03 307,451
650 Concentra Managed Care,
Inc. - 144A*......................... 4.50 03/15/03 553,923
545 Omnicare, Inc. - 144A*................ 5.00 12/01/07 656,044
275 Quadramed Corp. - 144A*............... 5.25 05/01/05 297,905
280 Quintiles Transportational
Corp. - 144A*........................ 4.25 05/31/00 341,905
100 Sunrise Assisted Living, Inc. ........ 5.50 06/15/02 104,482
200 Sunrise Assisted Living,
Inc. - 144A*......................... 5.50 06/15/02 208,964
----------
3,314,329
----------
Insurance (0.6%)
285 American International Group, Inc. ... 2.25 07/30/04 370,500
----------
Leisure (0.6%)
570 News America Holdings, Inc. .......... 0.00 03/11/13 332,230
----------
Leisure Time (0.4%)
255 Speedway Motorsports, Inc. ........... 5.75 09/30/03 263,407
----------
Miscellaneous (0.5%)
290 Level One Communications, Inc. ....... 4.00 09/01/04 309,372
----------
Pollution Control (3.8%)
295 Thermo Electron Corp. - 144A*......... 4.25 01/01/03 275,683
1,000 U.S. Filter Corp. .................... 4.50 12/15/01 1,003,960
775 Waste Management, Inc. ............... 4.00 02/01/02 1,024,945
----------
2,304,588
----------
Real Estate Investment Trust (0.7%)
135 LTC Properties, Inc. ................. 8.25 07/01/01 139,891
370 Security Capital U.S.
Realty - 144A*....................... 2.00 05/22/03 297,850
----------
437,741
----------
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW Income & Growth Fund
Portfolio of Investments July 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail (2.1%)
$ 270 Charming Shoppes, Inc. ............... 7.50% 07/15/06 $ 251,370
1,045 Costco Companies, Inc. - 144A*........ 0.00 08/19/17 741,752
155 Home Depot, Inc. ..................... 3.25 10/01/01 285,775
----------
1,278,897
----------
Technology (2.1%)
265 Adaptec, Inc. - 144A*................. 4.75 02/01/04 200,594
115 Adaptec, Inc. ........................ 4.75 02/01/04 87,050
360 Merrill Lynch & Co., Inc. ............ 0.00 02/02/05 398,700
525 Safeguard Scientifics, Inc. - 144A*... 6.00 02/01/06 588,657
----------
1,275,001
----------
Telecommunications (2.5%)
440 Bell Atlantic Finance
Service - 144A*...................... 5.75 04/01/03 455,620
275 Comverse Technology, Inc. - 144A*..... 4.50 07/01/05 281,314
195 MRV Communications Inc. - 144A*....... 5.00 06/15/03 189,150
415 Premiere Technologies, Inc. - 144A*... 5.75 07/01/04 286,155
280 SmarTalk TeleServices, Inc. - 144A*... 5.75 09/15/04 239,663
80 SmarTalk TeleServices, Inc. .......... 5.75 09/15/04 68,475
----------
1,520,377
----------
Transportation (0.5%)
250 Blue Bird Body Co. (Shares B)......... 10.75 11/15/06 272,500
----------
TOTAL CONVERTIBLE BONDS
(Identified Cost $18,272,713)............................ 19,268,247
----------
CORPORATE BONDS (49.5%)
Aerospace (0.3%)
150 Wyman-Gordon Co. ..................... 8.00 12/15/07 153,000
----------
Auto Parts (0.8%)
225 Eagle Picher Industries, Inc. ........ 9.375 03/01/08 227,813
200 Hayes Wheels International, Inc. ..... 11.00 07/15/06 225,000
----------
452,813
----------
Banks (0.3%)
75 Chevy Chase Savings Bank.............. 9.25 12/01/05 76,313
125 Chevy Chase Savings Bank, F.S.B....... 9.25 12/01/08 126,875
----------
203,188
----------
Broadcast Media (0.9%)
100 JCAC, Inc. ........................... 10.125 06/15/06 109,750
145 Outdoor Communications, Inc. ......... 9.25 08/15/07 150,800
275 STC Broadcasting, Inc. ............... 11.00 03/15/07 304,563
----------
565,113
----------
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW Income & Growth Fund
Portfolio of Investments July 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Building Materials (1.4%)
$ 225 American Standard Co. ................ 7.375% 02/01/08 $ 222,750
100 MDC Holdings, Inc. ................... 8.375 02/01/08 101,375
350 Nortek Inc. - 144A*................... 8.875 08/01/08 352,625
150 Standard Pacific Corp. (Series A)..... 8.00 02/15/08 149,625
----------
826,375
----------
Business Services (1.5%)
631 American Pad & Paper Co. ............. 13.00 11/15/05 353,360
150 Federal Data Corp. ................... 10.125 08/01/05 154,500
100 Pierce Leahy Command Co. - 144A*...... 8.125 05/15/08 99,000
300 Rental Service Corp. - 144A*.......... 9.00 05/15/08 303,000
----------
909,860
----------
Business Services - Distributors
(1.8%)
75 American Business Information, Inc. -
144A*................................ 9.50 06/15/08 76,500
100 Anthony Crane Rentals - 144A*......... 10.375 08/01/08 100,250
150 Coinmach Corp. (Series D)............. 11.75 11/15/05 165,750
350 Iron Mountain, Inc. .................. 10.125 10/01/06 380,624
350 Safety-Kleen Services - 144A*......... 9.25 06/01/08 362,250
----------
1,085,374
----------
Cable & Telecommunications (0.9%)
200 Adelphia Communications Corp.
(Series B)........................... 9.25 10/01/02 207,500
100 Adelphia Communications Corp.
(Series B)........................... 8.375 02/01/08 101,000
60 Paging Network, Inc. ................. 10.125 08/01/07 63,450
150 Paging Network, Inc. ................. 10.00 10/15/08 158,625
----------
530,575
----------
Cable/Cellular (1.5%)
75 Century Communications................ 9.50 03/01/05 81,750
75 Century Communications................ 8.75 10/01/07 80,250
150 Classic Cable, Inc. - 144A*........... 9.875 08/01/08 156,750
70 Comcast Cellular Holdings, Inc.
(Series B)........................... 9.50 05/01/07 74,200
25 CSC Holdings, Inc. ................... 9.875 05/15/06 27,313
300 CSC Holdings, Inc. ................... 7.25 07/15/08 297,909
50 CSC Holdings, Inc. (Series B)......... 8.125 08/15/09 52,700
125 CSC Holdings, Inc. ................... 7.625 07/15/18 124,473
----------
895,345
----------
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW Income & Growth Fund
Portfolio of Investments July 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chemicals (0.8%)
$ 60 Geo Specialty Chemicals - 144A*....... 10.125% 08/01/08 $ 61,200
100 Polymer Group Inc. - 144A*............ 8.75 03/01/08 101,500
300 Texas Petrochemicals Corp. ........... 11.125 07/01/06 322,500
----------
485,200
----------
Commercial Services (1.4%)
150 Intermedia Communications, Inc.
(Series B)........................... 8.50 01/15/08 152,250
250 MasTec, Inc. (Series B)............... 7.75 02/01/08 243,750
415 NEXTLINK Communications, Inc. ........ 9.625 10/01/07 431,600
----------
827,600
----------
Communications Equipment (0.8%)
175 Globalstar L.P./Capital Corp. ........ 11.25 06/15/04 161,875
325 Globalstar L.P./Capital Corp. ........ 10.75 11/01/04 295,750
----------
457,625
----------
Consumer - Noncyclical (3.1%)
225 Boyds Collection Ltd. - 144A*......... 9.00 05/15/08 225,000
190 Cott Corp. (Canada)................... 9.375 07/01/05 195,225
175 Holmes Products Corp. (Series B)...... 9.875 11/15/07 178,063
300 Home Interiors & Gift - 144A*......... 10.125 06/01/08 312,000
475 International Home Foods, Inc. ....... 10.375 11/01/06 523,687
100 Revlon Consumer Products, Inc. ....... 8.125 02/01/06 101,250
300 Revlon Consumer Products, Inc. ....... 8.625 02/01/08 306,749
----------
1,841,974
----------
Containers (1.3%)
275 Huntsman Packaging Corp. ............. 9.125 10/01/07 280,500
275 Plastic Containers, Inc. (Series B)... 10.00 12/15/06 296,312
225 U.S. Can Corp. ....................... 10.125 10/15/06 233,438
----------
810,250
----------
Energy (0.5%)
150 National Energy Group, Inc.
(Series D)........................... 10.75 11/01/06 134,250
154 Transamerican Energy (Series B)....... 11.50 06/15/02 140,525
----------
274,775
----------
Entertainment (0.3%)
150 Six Flags Entertainment Corp. ........ 8.875 04/01/06 155,250
----------
Entertainment/Gaming (1.6%)
200 Boyd Gaming Corp. .................... 9.25 10/01/03 211,000
115 Grand Casinos, Inc. .................. 10.125 12/01/03 125,925
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW Income & Growth Fund
Portfolio of Investments July 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 450 Hard Rock Hotel Inc. - 144A*.......... 9.25% 04/01/05 $ 464,063
175 Hollywood Park (Series B)............. 9.50 08/01/07 178,500
----------
979,488
----------
Finance - Leasing (1.1%)
290 Williams Scotsman, Inc. .............. 9.875 06/01/07 300,150
295 Xerox Credit Corp. ................... 2.875 07/01/02 355,000
----------
655,150
----------
Financial Services (1.8%)
300 Forest City Enterprises, Inc. ........ 8.50 03/15/08 303,000
700 GS Escrow Corp - 144A*................ 7.125 08/01/05 699,125
65 Nationwide Credit, Inc. - 144A*....... 10.25 01/15/08 65,163
----------
1,067,288
----------
Food Services (1.2%)
325 Fred Meyer, Inc. ..................... 7.45 03/01/08 327,191
85 Jitney-Jungle Stores of America,
Inc. ................................ 12.00 03/01/06 96,688
300 Jitney-Jungle Stores of America,
Inc. ................................ 10.375 09/15/07 325,500
----------
749,379
----------
Forest Products, Paper & Packaging
(1.4%)
125 Paperboard Industrial International,
Inc. ................................ 8.375 09/15/07 125,313
225 Riverwood International Corp. ........ 10.625 08/01/07 236,250
435 Tembec Finance Corp. ................. 9.875 09/30/05 461,100
----------
822,663
----------
Health Equipment & Services (0.4%)
225 Prime Medical Services Inc. .......... 8.75 04/01/08 220,500
----------
Health Services (0.6%)
385 Integrated Health Services
(Series A)........................... 9.50 09/15/07 394,625
----------
Healthcare (0.7%)
360 Dade International, Inc. (Series B)... 11.125 05/01/06 404,100
----------
Hospital Management & Health
Maintenance Organizations (0.2%)
100 Rural Metro Corp. .................... 7.875 03/15/08 95,000
----------
Industrials (0.8%)
440 Diamond Offshore Drilling, Inc. ...... 3.75 02/15/07 463,967
----------
Lodging (3.2%)
500 HMC Acquisition Properties
(Series B)........................... 9.00 12/15/07 552,734
900 HMH Properties, Inc. (Series B)....... 7.875 08/01/08 896,624
75 Signature Resorts, Inc. .............. 9.25 05/15/06 75,000
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW Income & Growth Fund
Portfolio of Investments July 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 75 Signature Resorts, Inc. .............. 9.75% 10/01/07 $ 72,375
400 Starwood Hotels & Resorts............. 7.375 11/15/15 372,632
----------
1,969,365
----------
Manufacturing (4.5%)
200 Ametek Inc. - 144A*................... 7.20 07/15/08 199,296
215 BE Aerospace, Inc. (Series B)......... 8.00 03/01/08 217,150
335 Communications & Power Industries,
Inc. (Series B)...................... 12.00 08/01/05 375,200
275 Doskocil Manufacturing Co., Inc. ..... 10.125 09/15/07 287,375
50 Foamex L.P. .......................... 9.875 06/15/07 54,125
60 GSI Group Inc. ....................... 10.25 11/01/07 63,000
100 International Wire Group (Series B)... 11.75 06/01/05 109,750
500 Jordan Telecom Products (Series B).... 9.875 08/01/07 512,499
150 Morris Materials Handling - 144A*..... 9.50 04/01/08 136,500
350 Packaged Ice, Inc. ................... 9.75 02/01/05 360,500
200 Telecommunication Techniques
Co. - 144A*.......................... 9.75 05/15/08 206,500
175 Viasystems, Inc. - 144A*.............. 9.75 06/01/07 168,875
----------
2,690,770
----------
Media Group (2.5%)
500 Adams Outdoor Advertising, L.P. ...... 10.75 03/15/06 549,999
50 Chancellor Media Corp. ............... 9.375 10/01/04 52,688
850 Chancellor Media Corp. (Series B)..... 8.125 12/15/07 861,687
25 Outdoor Systems, Inc. ................ 8.875 06/15/07 26,688
----------
1,491,062
----------
Metals & Mining (1.5%)
300 Geneva Steel Co. ..................... 11.125 03/15/01 276,000
300 Metal Management, Inc. - 144A*........ 10.00 05/15/08 292,500
200 P&L Coal Holdings Corp. - 144A*....... 8.875 05/15/08 207,750
150 Wheeling-Pittsburg Corp. ............. 9.25 11/15/07 153,750
----------
930,000
----------
Oil International - Exploration &
Production (0.5%)
275 Magnum Hunter Resources, Inc. ........ 10.00 06/01/07 280,500
----------
Paper & Forest Products (0.5%)
300 Stone Container Corp. ................ 10.75 10/01/02 319,125
----------
Publishing (1.5%)
175 American Media Operations, Inc. ...... 11.625 11/15/04 187,250
425 Garden State Newspapers (Series B).... 8.75 10/01/09 435,625
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW Income & Growth Fund
Portfolio of Investments July 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 50 Primedia, Inc. ....................... 7.625% 04/01/08 $ 49,250
250 Von Hoffman Press, Inc. - 144A*....... 10.375 05/15/07 261,875
----------
934,000
----------
Restaurants (0.6%)
225 American Restaurant Group,
Inc. - 144A*......................... 11.50 02/15/03 225,000
150 Perkins Family Restaurant, L.P.
(Series B)........................... 10.125 12/15/07 159,563
----------
384,563
----------
Retail (2.5%)
100 Cole National Group, Inc. ............ 8.625 08/15/07 103,000
100 Finlay Fine Jewelry Corp. ............ 8.375 05/01/08 101,500
346 Guitar Center Management.............. 11.00 07/01/06 381,465
100 Leslie's Poolmart..................... 10.375 07/15/04 105,000
600 Michaels Stores, Inc. ................ 10.875 06/15/06 662,999
200 Zale Corp. (Series B)................. 8.50 10/01/07 207,000
----------
1,560,964
----------
Semiconductors (0.5%)
370 ST Microelectronics N.V. (France)..... 0.00 06/10/08 306,175
----------
Telecommunications (2.0%)
150 Intermedia Communications, Inc.
(Series B)........................... 8.875 11/01/07 154,875
200 Level 3 Communications, Inc. ......... 9.125 05/01/08 199,250
825 Verio Inc. - 144A*.................... 10.375 04/01/05 866,250
----------
1,220,375
----------
Textiles - Apparel (0.4%)
50 Globe Manufacturing Corp. - 144A*..... 10.00 08/01/08 50,375
175 Westpoint Stevens, Inc. - 144A*....... 7.875 06/15/08 178,938
----------
229,313
----------
Transportation (1.1%)
75 Atlas Air, Inc. ...................... 10.75 08/01/05 80,625
550 Moran Transportation Co. ............. 11.75 07/15/04 607,750
----------
688,375
----------
Utilities (0.8%)
180 Cal Energy Co., Inc. ................. 9.50 09/15/06 194,400
75 Cal Energy Co., Inc. ................. 7.63 10/15/07 74,990
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW Income & Growth Fund
Portfolio of Investments July 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 100 Niagara Mohawk Power (Series F)....... 7.625% 10/01/05 $ 101,515
125 Niagara Mohawk Power (Series G)....... 7.75 10/01/08 128,726
----------
499,631
----------
TOTAL CORPORATE BONDS (Identified Cost $29,701,228)....... 29,830,695
----------
NUMBER OF
SHARES
- ---------
CONVERTIBLE PREFERRED STOCKS (17.0%)
Aerospace (0.4%)
14,700 Cooper Industries, Inc. $0.81.............................. 220,500
----------
Banks (1.7%)
10,500 CNB Capital Trust $1.50.................................... 288,750
4,000 St. George Bank Ltd. $4.50 - 144A*......................... 195,000
18,000 WBK Trust (STRYPES) $3.35.................................. 554,625
----------
1,038,375
----------
Cable & Telecommunications (3.8%)
17,400 Houston Industries, Inc. $3.22............................. 1,361,550
5,900 Mediaone Group Inc. $2.25.................................. 600,694
5,200 Mediaone Group Inc. $3.63.................................. 302,900
----------
2,265,144
----------
Commercial Services (0.4%)
6,600 Vanstar Financing Trust $3.375 - 144A*..................... 242,629
----------
Consumer Services (1.6%)
4,100 Cendant Corp. $0.65........................................ 111,725
25,800 Cendant Corp. $3.75........................................ 848,175
----------
959,900
----------
Equipment (0.7%)
8,000 United Rentals Trust $3.25 - 144A*......................... 400,000
----------
Financial Services (0.7%)
11,300 Merrill Lynch & Co., Inc. $3.12 (STRYPES) (exchangeable
into Cox Cable Communications Inc. common stock).......... 465,424
----------
Foods & Beverages (0.5%)
6,400 Suiza Capital Trust II. $2.75 - 144A*...................... 290,822
----------
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW Income & Growth Fund
Portfolio of Investments July 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C>
Hotels (0.4%)
4,900 Host Marriott Financial Trust $3.375 - 144A*............... $ 244,814
----------
Insurance (1.0%)
10,200 AmerUs Life Holdings, Inc. $2.21........................... 315,567
2,800 Life Re Capital Trust II $3.96............................. 209,825
9,500 Philadelphia Consolidated Holding Co. $0.70................ 91,438
----------
616,830
----------
Medical Services (0.5%)
6,000 Laboratory Corp. of America (Series A) $4.25............... 315,000
----------
Oil & Gas Products (0.5%)
4,200 Occidental Petroleum Corp. (Series A) $3.00
(exchangeable into Canadian Occidental Petroleum common
stock).................................................... 280,875
----------
Packaging & Bottling (0.5%)
6,500 Sealed Air Corp. (Series A) $2.00.......................... 290,063
----------
Pollution Control (0.2%)
3,800 Laidlaw One, Inc. (Canada) $1.22........................... 133,000
----------
Publishing (0.6%)
12,500 Readers Digest Association, Inc. $1.93..................... 337,500
----------
Railroads (0.9%)
12,000 Union Pacific Capital Trust $3.125 - 144A*................. 545,256
----------
Restaurants (0.5%)
5,400 Apple South Inc. $3.50 - 144A*............................. 282,150
----------
Retail (1.0%)
7,600 Dollar General (STRYPES) $3.35............................. 305,900
5,200 Kmart Financing I $3.875................................... 322,400
----------
628,300
----------
Technology (1.1%)
6,600 Morgan Stanley Group, Inc. $3.99+
(exchangeable into Cisco Systems Inc. common stock)....... 671,055
----------
TOTAL CONVERTIBLE PREFERRED STOCKS (Identified Cost
$9,108,846)................................................ 10,227,637
----------
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW Income & Growth Fund
Portfolio of Investments July 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
WARRANT (a) (0.0%)
Entertainment/Gaming
4,685 Fitzgeralds Gaming Corp. - 144A* (Identified
Cost $21,083).................................. 12/19/98 $ 9,370
-----------
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
SHORT-TERM INVESTMENT (2.4%)
REPURCHASE AGREEMENT
$ 1,440 The Bank of New York 5.50% due 08/03/98 (dated 07/31/98;
proceeds $1,440,988) (b) (Identified Cost $1,440,328)..... 1,440,328
-----------
TOTAL INVESTMENTS (Identified Cost $58,544,198) (c)........
LIABILITIES IN EXCESS OF OTHER ASSETS............. (0.8) (455,839)
----- -----------
NET ASSETS......................................... 100.0% $60,320,438
----- ===========
100.8% 60,776,277
</TABLE>
AMOUNT IN
THOUSANDS
- ---------
STRYPES Structured yield product exchangeable for stock.
* Resale is restricted to qualified institutional investors.
+ Issuer is an affiliate of the Fund's Manager, Morgan Stanley Dean
Witter Services Company Inc.
(a) Non-income producing security.
(b) Collateralized by $1,138,381 U.S. Treasury Bond 11.125% due 08/15/03
valued at $1,469,134.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$3,930,056 and the aggregate gross unrealized depreciation is
$1,697,977, resulting in net unrealized appreciation of $2,232,079.
See Notes to Financial Statements
<PAGE>
TCW/DW Income and Growth Fund
Financial Statements
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1998 (unaudited)
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $58,544,198).............................. $60,776,277
Receivable for:
Investments sold........................................ 1,335,724
Interest................................................ 915,760
Dividends............................................... 29,826
Shares of beneficial interest sold...................... 16,791
Prepaid expenses and other assets........................... 35,579
-----------
TOTAL ASSETS............................................ 63,109,957
-----------
LIABILITIES:
Payable for:
Investments purchased................................... 2,617,294
Plan of distribution fee................................ 39,148
Shares of beneficial interest repurchased............... 38,952
Management fee.......................................... 23,509
Investment advisory fee................................. 15,673
Accrued expenses and other payables......................... 54,943
-----------
TOTAL LIABILITIES....................................... 2,789,519
-----------
NET ASSETS.............................................. $60,320,438
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $54,955,631
Net unrealized appreciation................................. 2,232,079
Accumulated undistributed net investment income............. 310,394
Accumulated undistributed net realized gain................. 2,822,334
-----------
NET ASSETS.............................................. $60,320,438
===========
CLASS A SHARES:
Net Assets.................................................. $62,993
Shares Outstanding (unlimited authorized, $.01 par value)... 5,477
NET ASSET VALUE PER SHARE............................... $11.50
===========
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 4.44% of net asset value)........ $12.01
===========
CLASS B SHARES:
Net Assets.................................................. $7,894,339
Shares Outstanding (unlimited authorized, $.01 par value)... 686,564
NET ASSET VALUE PER SHARE............................... $11.50
===========
CLASS C SHARES:
Net Assets.................................................. $52,352,093
Shares Outstanding (unlimited authorized, $.01 par value)... 4,549,528
NET ASSET VALUE PER SHARE............................... $11.51
===========
CLASS D SHARES:
Net Assets.................................................. $11,013
Shares Outstanding (unlimited authorized, $.01 par value)... 957
NET ASSET VALUE PER SHARE............................... $11.51
===========
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW Income and Growth Fund
Financial Statements, continued
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the six months ended July 31, 1998 (unaudited)
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.................................................... $ 1,786,783
Dividends................................................... 252,811
-----------
TOTAL INCOME............................................ 2,039,594
-----------
EXPENSES
Investment advisory fee..................................... 231,632
Plan of distribution fee (Class A shares)................... 41
Plan of distribution fee (Class B shares)................... 26,676
Plan of distribution fee (Class C shares)................... 200,171
Registration fees........................................... 73,637
Transfer agent fees and expenses............................ 28,916
Shareholder reports and notices............................. 24,140
Professional fees........................................... 20,742
Trustees' fees and expenses................................. 15,952
Custodian fees.............................................. 12,548
Organizational expenses..................................... 6,325
Other....................................................... 7,701
-----------
TOTAL EXPENSES.......................................... 648,481
-----------
NET INVESTMENT INCOME................................... 1,391,113
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 2,826,909
Net change in unrealized appreciation....................... (2,245,984)
-----------
NET GAIN................................................ 580,925
-----------
NET INCREASE................................................ $ 1,972,038
===========
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW Income and Growth Fund
Financial Statements, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JULY 31, ENDED
1998 JANUARY 31, 1998*
- ---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 1,391,113 $ 2,953,221
Net realized gain.................................... 2,826,909 4,031,439
Net change in unrealized appreciation................ (2,245,984) 950,969
----------- -----------
NET INCREASE..................................... 1,972,038 7,935,629
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares................................... (1,113) (582)
Class B shares................................... (159,344) (144,769)
Class C shares................................... (1,192,722) (2,979,361)
Class D shares................................... (280) (290)
Net realized gain
Class A shares................................... (1,085) (1,133)
Class B shares................................... (139,454) (298,812)
Class C shares................................... (954,908) (3,495,390)
Class D shares................................... (196) (491)
----------- -----------
TOTAL DIVIDENDS AND DISTRIBUTIONS................ (2,449,102) (6,920,828)
----------- -----------
Net decrease from transactions in shares of
beneficial interest................................. (700,817) (457,056)
----------- -----------
NET INCREASE (DECREASE).......................... (1,177,881) 557,745
NET ASSETS:
Beginning of period.................................. 61,498,319 60,940,574
----------- -----------
END OF PERIOD
(Including undistributed net investment income of
$310,394 and $272,740, respectively)............. $60,320,438 $61,498,319
=========== ===========
</TABLE>
- --------------
* Class A, Class B and Class D shares were issued July 28, 1997.
See Notes to Financial Statements
<PAGE>
TCW/DW Income and Growth Fund
Notes to Financial Statements July 31, 1998 (unaudited)
1. ORGANIZATIONAL AND ACCOUNTING POLICIES
TCW/DW Income and Growth Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The Fund's investment objective is to generate
high total return by providing a high level of current income and the potential
for capital appreciation. The Fund seeks to achieve its objective by investing
in bonds or preferred stock convertible into common stock, other fixed income
securities, common stocks and U.S. Government securities. The Fund was
organized as a Massachusetts business trust on November 23, 1992 and commenced
operations on March 31, 1993. On July 28, 1997, the Fund commenced offering
three additional classes of shares, with the then current shares, other than
shares which were acquired in exchange for shares of Funds for which Morgan
Stanley Dean Witter Services Company Inc. serves as Manager and TCW Funds
Management, Inc. serves as Adviser ("TCW/DW Funds") offered with a contingent
deferred sales charge ("CDSC") and shares acquired through reinvestment of
dividends and distributions thereon, designated Class C shares. Shares held
prior to July 28, 1997 which were acquired in exchange for shares of a TCW/DW
Fund sold with a CDSC, including shares acquired through reinvestment of
dividends and distributions thereon, have been designated Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price
(in cases where securities are traded on more than one exchange, the securities
are valued on the exchange designated as the primary market pursuant to
procedures adopted by the Trustees);
<PAGE>
TCW/DW Income and Growth Fund
Notes to Financial Statements July 31, 1998 (unaudited) continued
(2) all other portfolio securities for which over-the-counter market quotations
are readily available are valued at the latest available bid price prior to the
time of valuation; (3) when market quotations are not readily available,
including circumstances under which it is determined by TCW Funds Management,
Inc. (the "Adviser") that sale or bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Trustees (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); (4) certain portfolio securities may be valued by
an outside pricing service approved by the Trustees. The pricing service may
utilize 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, if available, in
determining what it believes is the fair valuation of the securities valued by
such pricing service; (5) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Dividend
income and other distributions are recorded on the ex-dividend date. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date
such items are recognized. Distribution fees are charged directly to the
respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are
<PAGE>
TCW/DW Income and Growth Fund
Notes to Financial Statements July 31, 1998 (unaudited) continued
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- Morgan Stanley Dean Witter Advisors Inc.,
formerly Dean Witter InterCapital Inc., an affiliate of Morgan Stanley Dean
Witter Services Company Inc. (the "Manager") paid the organizational expenses
of the Fund in the amount of approximately $206,000 of which $200,000 have been
reimbursed. Such expenses were fully amortized as of March 30, 1998.
2. MANAGEMENT AGREEMENT
Pursuant to a Management Agreement, the Fund pays the Manager a management fee,
accrued daily and payable monthly, by applying the following annual rates to
the net assets of the Fund determined as of the close of each business day:
0.45% to the portion of daily net assets not exceeding $500 million and 0.42%
to the portion of the daily net assets exceeding $500 million.
Under the terms of the Management Agreement, the Manager maintains certain of
the Fund's books and records and furnishes, at its own expense, office space,
facilities, equipment, clerical, bookkeeping and certain legal services and
pays the salaries of all personnel, including officers of the Fund who are
employees of the Manager. The Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, the Fund pays the Adviser an
advisory fee, accrued daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined as of the close of each
business day: 0.30% to the portion of daily net assets not exceeding $500
million and 0.28% to the portion of the daily net assets exceeding $500
million.
Under the terms of the Investment Advisory Agreement, the Fund has retained the
Adviser to invest the Fund's assets, including placing orders for the purchase
and sale of portfolio securities. The
<PAGE>
TCW/DW Income and Growth Fund
Notes to Financial Statements July 31, 1998 (unaudited) continued
Adviser obtains and evaluates such information and advice relating to the
economy, securities markets, and specific securities as it considers necessary
or useful to continuously manage the assets of the Fund in a manner consistent
with its investment objective. In addition, the Adviser pays the salaries of
all personnel, including officers of the Fund, who are employees of the
Adviser.
4. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The
Plan provides that the Fund will pay the Distributor a fee which is accrued
daily and paid monthly at the following annual rates: (i) Class A -- up to
0.25% of the average daily net assets of Class A; (ii) Class B -- 0.75% of the
average daily net assets of Class B, and (iii) Class C -- up to 0.75% of the
average daily net assets of Class C. In the case of Class A shares, amounts
paid under the Plan are paid to the Distributor for services provided. In the
case of Class B and Class C shares, amounts paid under the Plan are paid to the
Distributor for services provided and the expenses borne by it and others in
the distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter Financial Advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; printing and distribution
of prospectuses and reports used in connection with the offering of these
shares to other than current shareholders; and the preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan, in the case of Class B
shares, to compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Manager and Distributor, and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the Distributor
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses.
<PAGE>
TCW/DW Income and Growth Fund
Notes to Financial Statements July 31, 1998 (unaudited) continued
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $131,714 at July 31, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 0.75% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the six months ended July 31, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.19% and
0.73%, respectively.
The Distributor has informed the Fund that for the six months ended July 31,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $23,479, and $2,205,
respectively and received $637 in front-end sales charges from sales of the
Fund's Class A shares. The respective shareholders pay such charges which are
not an expense of the Fund.
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the six months ended July 31, 1998
aggregated $38,745,006 and $33,697,396, respectively.
Included in the aforementioned sales of portfolio securities are sales of
Morgan Stanley Group Inc., an affiliate of the Manager, of $57,813, as well as
realized gain of $2,625. The Fund's interest and dividend income included
$2,585 and $13,167, respectively, from Morgan Stanley Group, Inc. securities.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Manager and
Distributor, is the Fund's transfer agent.
<PAGE>
TCW/DW Income and Growth Fund
Notes to Financial Statements July 31, 1998 (unaudited) continued
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JULY 31, 1998 JANUARY 31, 1998+*
---------------------- -------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 4,891 $ 58,330 2,751 $ 33,065
Reinvestment of dividends and distributions................. 190 2,198 142 1,614
Redeemed.................................................... (2,005) (23,937) (492) (5,989)
-------- ----------- ---------- ------------
Net increase - Class A...................................... 3,076 36,591 2,401 28,690
-------- ----------- ---------- ------------
CLASS B SHARES
Sold........................................................ 253,687 3,019,869 209,588 2,492,309
Reinvestment of dividends and distributions................. 21,281 247,761 32,187 368,173
Redeemed.................................................... (157,093) (1,861,851) (89,344) (1,054,299)
-------- ----------- ---------- ------------
Net increase - Class B...................................... 117,875 1,405,779 152,431 1,806,183
-------- ----------- ---------- ------------
CLASS C SHARES
Sold........................................................ 199,227 2,368,848 912,536 10,493,055
Reinvestment of dividends and distributions................. 156,431 1,825,107 485,664 5,548,520
Redeemed.................................................... (533,009) (6,337,618) (1,590,764) (18,344,299)
-------- ----------- ---------- ------------
Net decrease - Class C...................................... (177,351) (2,143,663) (192,564) (2,302,724)
-------- ----------- ---------- ------------
CLASS D SHARES
Sold........................................................ -- -- 848 10,014
Reinvestment of dividends and distributions................. 41 476 68 781
-------- ----------- ---------- ------------
Net increase - Class D...................................... 41 476 916 10,795
-------- ----------- ---------- ------------
Net decrease in Fund........................................ (56,359) $ (700,817) (36,816) $ (457,056)
======== =========== ========== ============
</TABLE>
- --------------
+ On July 28, 1997, 416,258, shares representing $4,916,004 were transferred to
Class B.
* For Class A, B and D shares, for the period July 28, 1997 (issue date)
through January 31, 1998.
<PAGE>
TCW/DW Income and Growth Fund
Financial Highlights
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED JANUARY 31, MARCH 31, 1993*
MONTHS ENDED -------------------------------------- THROUGH
JULY 31, 1998++ 1998**++ 1997 1996 1995 JANUARY 31, 1994
- ------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $11.61 $11.42 $11.13 $ 9.77 $10.98 $10.00
------ ------ ------ ------ ------ ------
Net investment income......................... 0.27 0.57 0.60 0.59 0.59 0.45
Net realized and unrealized gain (loss)....... 0.10 0.96 0.84 1.37 (1.20) 1.02
------ ------ ------ ------ ------ ------
Total from investment operations.............. 0.37 1.53 1.44 1.96 (0.61) 1.47
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income........................ (0.26) (0.60) (0.60) (0.60) (0.55) (0.39)
Net realized gain............................ (0.21) (0.74) (0.55) -- (0.05) (0.10)
------ ------ ------ ------ ------ ------
Total dividends and distributions............. (0.47) (1.34) (1.15) (0.60) (0.60) (0.49)
------ ------ ------ ------ ------ ------
Net asset value, end of period................ $11.51 $11.61 $11.42 $11.13 $ 9.77 $10.98
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+...................... 3.18%(1) 14.03% 13.46% 20.52% (5.59)% 15.06%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses...................................... 2.10%(2) 2.01% 2.02% 2.21% 2.04% 1.57%(2)(3)
Net investment income......................... 4.50%(2) 4.84% 5.19% 5.41% 5.83% 5.62%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands....... $52,352 $54,863 $60,941 $57,631 $55,335 $64,370
Portfolio turnover rate....................... 58%(1) 96% 102% 79% 88% 84%(1)
</TABLE>
- --------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date, other than shares which were acquired in
exchange for shares of Funds for which Morgan Stanley Dean Witter Services
Company Inc. serves as Manager and TCW Funds Management, Inc. serves as
Adviser ("TCW/DW Funds") offered with a contingent deferred sales charge
("CDSC") and shares acquired through reinvestment of dividends and
distributions thereon, have been designated Class C shares. Shares held
prior to July 28, 1997 which were acquired in exchange for shares of a
TCW/DW Fund sold with a CDSC, including shares acquired through
reinvestment of dividends and distributions thereon, have been designated
Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Manager and Investment Adviser had not reimbursed all expenses and
waived the management fee, the above annualized expense and net investment
income ratios would have been 2.00% and 5.18%, respectively.
See Notes to Financial Statements
<PAGE>
TCW/DW Income and Growth Fund
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
JULY 31, 1998++ JANUARY 31, 1998++
- --------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $11.60 $11.81
------ ------
Net investment income....................................... 0.30 0.30
Net realized and unrealized gain............................ 0.11 0.39
------ ------
Total from investment operations............................ 0.41 0.69
------ ------
Less dividends and distributions from:
Net investment income...................................... (0.30) (0.33)
Net realized gain.......................................... (0.21) (0.57)
------ ------
Total dividends and distributions........................... (0.51) (0.90)
------ ------
Net asset value, end of period.............................. $11.50 $11.60
====== ======
TOTAL INVESTMENT RETURN+.................................... 3.50%(1) 6.03%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.58%(2) 1.54%(2)
Net investment income....................................... 5.11%(2) 5.04%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $63 $28
Portfolio turnover rate..................................... 58%(1) 96%
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $11.60 $11.81
------ ------
Net investment income....................................... 0.27 0.28
Net realized and unrealized gain............................ 0.10 0.38
------ ------
Total from investment operations............................ 0.37 0.66
------ ------
Less dividends and distributions from:
Net investment income...................................... (0.26) (0.30)
Net realized gain.......................................... (0.21) (0.57)
------ ------
Total dividends and distributions........................... (0.47) (0.87)
------ ------
Net asset value, end of period.............................. $11.50 $11.60
====== ======
TOTAL INVESTMENT RETURN+.................................... 3.19%(1) 5.80%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 2.12%(2) 2.02%(2)
Net investment income....................................... 4.50%(2) 4.58%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $7,894 $6,597
Portfolio turnover rate..................................... 58%(1) 96%
</TABLE>
- ---------------------
* The date the shares were first issued. Class B participants who held shares
prior to July 28, 1997 should refer to the Financial Highlights of Class C
to obtain the historical per share data and ratio information of their
shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
<PAGE>
TCW/DW Income and Growth Fund
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
JULY 31, 1998 JANUARY 31, 1998++
- -------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $11.61 $11.81
------ ------
Net investment income....................................... 0.31 0.32
Net realized and unrealized gain............................ 0.10 0.39
------ ------
Total from investment operations............................ 0.41 0.71
------ ------
Less dividends and distributions from:
Net investment income...................................... (0.30) (0.34)
Net realized gain.......................................... (0.21) (0.57)
------ ------
Total dividends and distributions........................... (0.51) (0.91)
------ ------
Net asset value, end of period.............................. $11.51 $11.61
====== ======
TOTAL INVESTMENT RETURN+.................................... 3.56%(1) 6.21%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.37%(2) 1.27%(2)
Net investment income....................................... 5.24%(2) 5.33%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $11 $11
Portfolio turnover rate..................................... 58%(1) 96%
</TABLE>
- ---------------------
* The date the shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
<PAGE>
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and
General Counsel
Robert M. Hanisee
Vice President
Kevin A. Hunter
Vice President
Mark L. Attanasio
Vice President
Melissa V. Weiler
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Morgan Stanely Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
The financial statements included herein have been taken from the records
of the Fund without examination by the independent accountants and
accordingly they do not express an opinion thereon.
This report is submitted for the general information of shareholders
of the Fund. For more detailed information about the Fund, its officers
and trustees, fees, expenses and other pertinent information, please see
the prospectus of the Fund.
This report is not authorized for distribution to prospective investors
in the Fund unless preceded or accompanied by an effective prospectus.
TCW/DW
INCOME AND
GROWTH FUND
SEMIANNUAL REPORT
JULY 31, 1998
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the shares of Morgan
Stanley Dean Witter Income Builder Fund ("Income Builder") to be issued
pursuant to an Agreement and Plan of Reorganization, dated February 25, 1999,
between Income Builder and TCW/DW Income and Growth Fund ("Income and Growth"),
in connection with the acquisition by Income Builder of substantially all of
the assets, subject to stated liabilities, of Income and Growth. This Statement
of Additional Information does not constitute a prospectus. This Statement of
Additional Information does not include all information that a shareholder
should consider before voting on the proposals contained in the Proxy Statement
and Prospectus, and, therefore, should be read in conjunction with the related
Proxy Statement and Prospectus, dated March , 1999. A copy of the Proxy
Statement and Prospectus may be obtained without charge by mailing a written
request to Income Builder at Two World Trade Center, New York, New York 10048
or by calling Morgan Stanley Dean Witter Trust FSB at (800) 869-NEWS (TOLL
FREE). Please retain this document for future reference.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS MARCH , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION ......................................... B-3
ADDITIONAL INFORMATION ABOUT INCOME BUILDER .......... B-3
FINANCIAL STATEMENTS ................................. B-4
</TABLE>
B-2
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in the Proxy Statement and Prospectus dated March , 1999
(the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus has
been sent to Income and Growth shareholders in connection with the solicitation
of proxies by the Board of Trustees of Income and Growth to be voted at the
Special Meeting of Shareholders of Income and Growth to be held on June 8,
1999. This Statement of Additional Information incorporates by reference the
Statement of Additional Information of Income Builder dated November 25, 1998
and the Statement of Additional Information of Income and Growth dated March
31, 1998.
ADDITIONAL INFORMATION ABOUT INCOME BUILDER
INVESTMENT OBJECTIVES AND POLICIES
For additional information about Income Builder's investment objectives
and policies, see "Investment Practices and Policies" and "Investment
Restrictions" in Income Builder's Statement of Additional Information.
MANAGEMENT
For additional information about the Board of Trustees, officers and
management personnel of Income Builder, see "The Fund and its Management" and
"Trustees and Officers" in Income Builder's Statement of Additional
Information.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about Income Builder's investment manager, see
"The Fund and its Management" in Income Builder's Statement of Additional
Information. For additional information about Income Builder's independent
auditors, see "Independent Accountants" in Income Builder's Statement of
Additional Information. For additional information about other services
provided to Income Builder, see "Custodian and Transfer Agent" and "Shareholder
Services" in Income Builder's Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
For additional information about brokerage allocation practices, see
"Portfolio Transactions and Brokerage" in Income Builder's Statement of
Additional Information.
DESCRIPTION OF FUND SHARES
For additional information about the voting rights and other
characteristics of the shares of Income Builder, see "Description of Shares" in
Income Builder's Statement of Additional Information.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about the purchase and redemption of Income
Builder's shares and the determination of net asset value, see "Purchase of
Fund Shares," "Redemptions and Repurchases," "Financial Statements -- October
31, Income and Growth" and "Shareholder Services" in Income Builder's Statement
of Additional Information.
B-3
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
For additional information about Income Builder's policies regarding
dividends and distributions and tax matters affecting Income Builder and its
shareholders, see "Dividends, Distributions and Taxes" in Income Builder's
Statement of Additional Information.
DISTRIBUTION OF SHARES
For additional information about Income Builder's distributor and the
distribution agreement between Income Builder and its distributor, see
"Purchase of Fund Shares" in Income Builder's Statement of Additional
Information.
PERFORMANCE DATA
For additional information about Income Builder's performance data, see
"Performance Information" in Income Builder's Statement of Additional
Information.
FINANCIAL STATEMENTS
Income Builder's most recent audited financial statements are set forth in
Income Builder's Annual Report for the fiscal year ended September 30, 1998, a
copy of which is incorporated by reference in the Proxy Statement and
Prospectus. Income and Growth's most recent audited financial statements are
set forth in Income and Growth's Annual Report for the fiscal year ended
January 31, 1999, which is incorporated by reference to the Proxy Statement and
Prospectus.
B-4
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN
WITTER TCW/DW INCOME
INCOME BUILDER FUND AND GROWTH FUND COMBINED
------------------------- ------------------- ------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS (40.2%)
ACCIDENT & HEALTH INSURANCE (0.7%)
Torchmark Corp. .............................. 96,000 $ 3,450,000 -- -- 96,000 $ 3,450,000
----------- -- ------ -----------
APPAREL (0.7%)
Kellwood Co. ................................. 132,000 3,547,500 -- -- 132,000 3,547,500
----------- -- -----------
AUTO PARTS -- ORIGINAL EQUIPMENT (1.5%)
Dana Corp. ................................... 97,000 3,619,312 -- -- 97,000 3,619,312
Johnson Controls, Inc. ....................... 78,000 3,627,000 -- -- 78,000 3,627,000
----------- -- -----------
7,246,312 -- 7,246,312
----------- -- -----------
BUILDING MATERIALS (1.5%)
Armstrong World Industries, Inc. ............. 70,000 3,745,000 -- -- 70,000 3,745,000
Vulcan Materials Co. ......................... 34,000 3,440,375 -- -- 34,000 3,440,375
----------- -- -----------
7,185,375 -- 7,185,375
----------- -- -----------
CLOTHING/SHOE/ACCESSORY CHAINS (0.7%)
Limited (The), Inc. .......................... 157,000 3,444,187 -- -- 157,000 3,444,187
----------- -- -----------
CONSUMER ELECTRIC/APPLIANCES (0.7%)
Whirlpool Corp. .............................. 76,000 3,572,000 -- -- 76,000 3,572,000
----------- -- -----------
CONSUMER SUNDRIES (0.7%)
American Greetings Corp. (Class A) ........... 92,000 3,639,750 -- -- 92,000 3,639,750
----------- -- -----------
CONTAINERS/PACKAGING (0.7%)
Crown Cork & Seal Co., Inc. .................. 130,000 3,477,500 -- -- 130,000 3,477,500
----------- -- -----------
DIVERSIFIED FINANCIAL SERVICES (0.6%)
Providian Financial Corp. .................... 33,000 2,798,812 -- -- 33,000 2,798,812
----------- -- -----------
ELECTRIC UTILITIES: EAST (1.5%)
New England Electric System .................. 92,000 3,818,000 -- -- 92,000 3,818,000
Public Service Enterprise Group, Inc. ........ 94,000 3,695,375 -- -- 94,000 3,695,375
----------- -- -----------
7,513,375 -- 7,513,375
----------- -- -----------
ELECTRIC UTILITIES: SOUTH (0.8%)
Houston Industries Inc. ...................... 121,000 3,766,125 -- -- 121,000 3,766,125
----------- -- -----------
FINANCE COMPANIES (2.2%)
Associates First Capital Corp. (Class A) ..... 55,000 3,588,750 -- -- 55,000 3,588,750
Fannie Mae ................................... 56,000 3,598,000 -- -- 56,000 3,598,000
SLM Holding Corp. ............................ 105,000 3,405,936 -- -- 105,000 3,405,936
----------- -- -----------
10,592,686 -- 10,592,686
----------- -- -----------
FOOD DISTRIBUTORS (0.7%)
Supervalu, Inc. .............................. 156,000 3,636,750 -- -- 156,000 3,636,750
----------- -- -----------
HOME BUILDING (0.7%)
Fleetwood Enterprises, Inc. .................. 115,000 3,471,562 -- -- 115,000 3,471,562
----------- -- -----------
LIFE INSURANCE (1.0%)
Aegon N.V. (ADR) (Netherlands) ............... 17,622 1,372,313 -- -- 17,622 1,372,313
Jefferson-Pilot Corp. ........................ 59,000 3,569,500 -- -- 59,000 3,569,500
----------- -- -----------
4,941,813 -- 4,941,813
----------- -- -----------
MAJOR BANKS (0.7%)
KeyCorp ...................................... 116,000 3,349,500 -- -- 116,000 3,349,500
----------- -- -----------
</TABLE>
1
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN
WITTER TCW/DW INCOME
INCOME BUILDER FUND AND GROWTH FUND COMBINED
------------------------- ------------------- ------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
MAJOR CHEMICALS (3.0%)
Dow Chemical Co. ............................ 42,000 $ 3,588,375 -- -- 42,000 $ 3,588,375
Hercules, Inc. .............................. 123,000 3,697,688 -- -- 123,000 3,697,688
PPG Industries, Inc. ........................ 67,000 3,655,688 -- -- 67,000 3,655,688
Rohm & Haas Co. ............................. 127,000 3,532,188 -- -- 127,000 3,532,188
----------- -- -----------
14,473,939 -- 14,473,939
----------- -- -----------
MAJOR PHARMACEUTICALS (0.7%)
Schering-Plough Corp. ....................... 35,000 3,624,688 -- -- 35,000 3,624,688
----------- -- -----------
MAJOR U.S. TELECOMMUNICATIONS (3.0%)
AT&T Corp. .................................. 62,000 3,623,125 -- -- 62,000 3,623,125
Bell Atlantic Corp. ......................... 76,000 3,681,250 -- -- 76,000 3,681,250
GTE Corp. ................................... 68,000 3,740,000 -- -- 68,000 3,740,000
U.S. West Communications Group, Inc. ........ 69,000 3,618,188 -- -- 69,000 3,618,188
----------- -- -----------
14,662,563 -- 14,662,563
----------- -- -----------
MEAT/POULTRY/FISH (0.7%)
Hormel Foods Corp. .......................... 132,000 3,572,250 -- -- 132,000 3,572,250
----------- -- -----------
MID-SIZED BANKS (1.4%)
First Security Corp. ........................ 192,000 3,204,000 -- -- 192,000 3,204,000
First Tennessee National Corp. .............. 126,000 3,433,500 -- -- 126,000 3,433,500
----------- -- -----------
6,637,500 -- 6,637,500
----------- -- -----------
MOTOR VEHICLES (2.1%)
Chrysler Corp. .............................. 72,000 3,447,000 -- -- 72,000 3,447,000
Ford Motor Co. .............................. 74,500 3,496,844 -- -- 74,500 3,496,844
General Motors Corp. ........................ 62,000 3,390,625 -- -- 62,000 3,390,625
----------- -- -----------
10,334,469 -- 10,334,469
----------- -- -----------
MULTI-LINE INSURANCE (0.7%)
Lincoln National Corp. ...................... 41,000 3,372,250 -- -- 41,000 3,372,250
----------- -- -----------
MULTI-SECTOR COMPANIES (0.7%)
Tenneco, Inc. ............................... 105,000 3,451,875 -- -- 105,000 3,451,875
----------- -- -----------
NATURAL GAS -- DISTRIBUTION (0.8%)
Consolidated Natural Gas Co. ................ 71,000 3,869,500 -- -- 71,000 3,869,500
----------- -- -----------
NEWSPAPERS (0.4%)
Hollinger International, Inc. (Class A) ..... 136,344 1,959,945 -- -- 136,344 1,959,945
----------- -- -----------
OIL REFINING/MARKETING (0.7%)
Ashland, Inc. ............................... 75,000 3,468,750 -- -- 75,000 3,468,750
----------- -- -----------
OTHER METALS/MINERALS (0.8%)
Cyprus Amax Minerals Co. .................... 280,000 3,710,000 -- -- 280,000 3,710,000
----------- -- -----------
REAL ESTATE INVESTMENT TRUST (4.7%)
Boston Properties, Inc. ..................... 98,300 2,801,550 -- -- 98,300 2,801,550
Equity One, Inc. ............................ 120,000 1,050,000 -- -- 120,000 1,050,000
Healthcare Realty Trust, Inc. ............... 59,250 1,510,875 -- -- 59,250 1,510,875
LTC Properties, Inc. ........................ 91,500 1,595,531 -- -- 91,500 1,595,531
Meditrust Corp. ............................. 100,000 1,706,250 -- -- 100,000 1,706,250
MeriStar Hospitality Corp. .................. 92,377 1,576,183 -- -- 92,377 1,576,183
Mid-Atlantic Realty Trust ................... 200,000 2,700,000 -- -- 200,000 2,700,000
New Plan Excel Realty Trust ................. 50,420 1,175,416 -- -- 50,420 1,175,416
Reckson Associates Realty Corp. ............. 145,000 3,407,500 -- -- 145,000 3,407,500
Sunstone Hotel Investors, Inc. .............. 208,800 1,892,250 -- -- 208,800 1,892,250
Tanger Factory Outlet Centers, Inc. ......... 68,800 1,560,900 -- -- 68,800 1,560,900
Trinet Corporate Reality Trust, Inc. ........ 60,000 1,957,500 -- -- 60,000 1,957,500
----------- -- -----------
22,933,955 -- 22,933,955
----------- -- -----------
</TABLE>
2
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER TCW/DW INCOME
INCOME BUILDER FUND AND GROWTH FUND COMBINED
-------------------------- ------------------------ -------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- -------------- ----------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
SAVINGS & LOAN ASSOCIATIONS (2.1%)
TCF Financial Corp. ............................. 166,000 $ 3,299,250 -- -- 166,000 $ 3,299,250
Washington Federal, Inc. ........................ 148,000 3,700,000 -- -- 148,000 3,700,000
Washington Mutual, Inc. ......................... 102,000 3,423,375 -- -- 102,000 3,423,375
------------ -- ------------
10,422,625 -- 10,422,625
------------ -- ------------
SMALLER BANKS (0.8%)
Wilmington Trust Corp. .......................... 73,000 3,723,000 -- -- 73,000 3,723,000
------------ -- ------------
STEEL/IRON ORE (0.7%)
USX-U.S. Steel Group, Inc. ...................... 150,000 3,581,250 -- -- 150,000 3,581,250
------------ -- ------------
TOBACCO (1.5%)
Philip Morris Companies, Inc. ................... 80,000 3,685,000 -- -- 80,000 3,685,000
UST, Inc. ....................................... 120,000 3,547,500 -- -- 120,000 3,547,500
------------ -- ------------
7,232,500 -- 7,232,500
------------ -- ------------
TOTAL COMMON STOCKS
(Identified Cost $189,888,715, $0 and
$189,888,715, respectively) .................... 196,664,306 -- 196,664,306
------------ -- ------------
CONVERTIBLE PREFERRED STOCKS (19.0%)
ACCIDENT & HEALTH INSURANCE (0.5%)
AmerUs Life Holdings, Inc. ...................... 85,000 2,061,250 11,200 $ 271,600 96,200 2,332,850
------------ ---------- ------------
AEROSPACE (0.0%)
Cooper Industries, Inc. $0.81 ................... -- -- 14,700 189,263 14,700 189,263
------------ ---------- ------------
APPAREL (0.3%)
Warnaco Group, Inc. $3.00 ....................... 30,500 1,220,000 -- -- 30,500 1,220,000
------------ ---------- ------------
AUTO PARTS (0.6%)
BTI Capital Trust $3.25 -- 144A* ................ 94,000 1,880,000 -- -- 94,000 1,880,000
Walbro Capital Trust $2.00 ...................... 68,500 1,147,375 -- -- 68,500 1,147,375
------------ ---------- ------------
3,027,375 -- 3,027,375
------------ ---------- ------------
BOOKS/MAGAZINE (0.6%)
Reader's Digest Association, Inc $1.93 .......... 130,000 2,705,625 15,200 316,350 145,200 3,021,975
------------ ---------- ------------
BROADCASTING (0.8%)
Metromedia International Group, Inc. $3.625 ..... 109,700 2,495,675 -- -- 109,700 2,495,675
Triathlon Broadcasting Co. $0.945 ............... 145,000 1,377,500 -- -- 145,000 1,377,500
------------ ---------- ------------
3,873,175 -- 3,873,175
------------ ---------- ------------
BUSINESS SERVICES (0.6%)
Unisys Corp. (Series A) $3.75 ................... 63,000 2,984,625 -- -- 63,000 2,984,625
------------ ---------- ------------
CABLE & TELECOMMUNICATIONS (0.4%)
Houston Industries, Inc. $3.22 .................. -- -- 17,400 1,327,838 17,400 1,327,838
Mediaone Group Inc. $2.25 ....................... -- -- 5,900 553,863 5,900 553,863
Mediaone Group Inc. $3.63 ....................... -- -- 5,200 290,550 5,200 290,550
------------ ---------- ------------
-- 2,172,251 2,172,251
------------ ---------- ------------
COMMERCIAL SERVICES (0.0%)
Vanstar Financing Trust $3.375 -- 144A* ......... -- -- 6,000 134,715 6,000 134,715
------------ ---------- ------------
CONTAINERS/PACKAGING (0.6%)
Sealed Air Corp. (Series A) $2.00 ............... 70,000 2,528,750 7,200 260,100 77,200 2,788,850
------------ ---------- ------------
EQUIPMENT (0.1%)
United Rental Trust $3.25 --144A* .............. -- -- 9,600 345,600 9,600 345,600
------------ ---------- ------------
FINANCE (0.3%)
Insignia Financing, Inc. $3.25 .................. 39,200 1,496,970 -- -- 39,200 1,496,970
------------ ---------- ------------
</TABLE>
3
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN
WITTER TCW/DW INCOME
INCOME BUILDER FUND AND GROWTH FUND COMBINED
------------------------- ---------------------- -----------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
FOODS & BEVERAGES (0.1%)
Suiza Capital Trust II $2.75 -- 144A* .............. -- -- 1,000 $ 33,617 1,000 $ 33,617
Suiza Foods Corp. -- 144A* ......................... -- -- 6,400 215,149 6,400 215,149
-- -------- ----------
-- 248,766 248,766
-- -------- ----------
HOTELS (0.1%)
Host Marriott Financial Trust $3.375 ............... -- -- 5,300 215,888 5,300 215,888
Host Marriott Financial Trust $3.375 -- 144A* ...... -- -- 4,900 199,594 4,900 199,594
-- -------- ----------
-- 415,482 415,482
-- -------- ----------
INVESTMENT BANKERS/BROKERS/SERVICES (0.9%)
Merrill Lynch & Co., Inc. $2.39
(exchangeable into IMC Global, Inc. common
stock) ............................................ 90,000 $ 1,991,250 -- -- 90,000 1,991,250
Merrill Lynch & Co., Inc. $3.12
(exchangeable into Cox Cable Communications
Inc. common stock) ................................ -- -- 11,300 507,088 11,300 507,088
Merrill Lynch & Co., Inc. $4.087
(exchangeable into SunAmerica, Inc. common
stock) ............................................ 25,800 1,886,625 -- -- 25,800 1,886,625
----------- -------- ----------
3,877,875 507,088 4,384,963
----------- -------- ----------
MACHINERY (0.5%)
Ingersoll-Rand Co. $1.688 .......................... 117,000 2,457,000 -- -- 117,000 2,457,000
----------- -------- ----------
MAJOR U.S. TELECOMMUNICATIONS (1.1%)
Loral Space & Commmunications Ltd. $3.00 --
144A* (Bermuda) ................................... 44,100 1,990,012 -- -- 44,100 1,990,012
Loral Space & Communications Ltd. (Series C)
$3.00 (Bermuda) ................................... 47,000 2,120,875 5,200 234,733 52,200 2,355,608
Qualcomm Financial Trust $2.875 .................... 27,000 1,128,951 -- -- 27,000 1,128,951
----------- -------- ----------
5,239,838 234,733 5,474,571
----------- -------- ----------
MEDICAL SERVICES (0.1%)
Laboratory Corp. of America (Series A) $4.25 ....... -- -- 6,600 293,700 6,600 293,700
----------- -------- ----------
MOVIES/ENTERTAINMENT (0.6%)
Premier Parks, Inc. $4.05 .......................... 70,000 2,730,000 -- -- 70,000 2,730,000
----------- -------- ----------
NON -- U.S. BANKS (1.4%)
National Australia Bank, Ltd. $1.969 (Australia)
(Units) ++ ........................................ 135,000 3,594,375 -- -- 135,000 3,594,375
WBK Strypes Trust $3.135 ........................... 111,500 3,080,187 11,700 323,213 123,200 3,403,400
----------- -------- ----------
6,674,562 323,213 6,997,775
----------- -------- ----------
OIL REFINING/MARKETING (0.6%)
Tesoro Petroleum Corp. $1.16 ....................... 200,000 2,850,000 -- -- 200,000 2,850,000
----------- -------- ----------
OTHER CONSUMER SERVICES (0.7%)
Cendant Corp. ...................................... -- -- 3,700 80,475 3,700 80,475
Cendant Corp. $3.75 ................................ 100,000 2,500,000 25,800 645,000 125,800 3,145,000
----------- -------- ----------
2,500,000 725,475 3,225,475
----------- -------- ----------
PACKAGE GOODS/COSMETICS (0.8%)
Estee Lauder Co. $3.80 ............................. 72,000 3,960,000 -- -- 72,000 3,960,000
----------- -------- ----------
POLLUTION CONTROL (0.0%)
Laidlaw One, Inc. (Canada) $1.22 ................... -- -- 10,800 237,600 10,800 237,600
----------- -------- ----------
PROPERTY -- CASUALTY INSURANCE (0.4%)
Philadelphia Consolidated Holding Co. $0.70 ........ 210,000 2,047,500 9,500 92,625 219,500 2,140,125
----------- -------- ----------
</TABLE>
4
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN
WITTER TCW/DW INCOME
INCOME BUILDER FUND AND GROWTH FUND COMBINED
------------------------- ------------------------ ------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
RAILROADS (0.8%)
Union Pacific Capital Trust $3.125 -- 144A* ........ 75,000 $ 3,375,000 12,000 $ 541,152 87,000 $ 3,916,152
----------- ---------- -----------
REAL ESTATE INVESTMENT TRUST (2.8%)
Camden Property Trust (Series A) $2.25 ............. 61,400 1,542,675 -- -- 61,400 1,542,675
FelCor Lodging Trust, Inc. (Series A) $1.95 ........ 182,000 3,913,000 -- -- 182,000 3,913,000
Merry Land & Investment Co., Inc.
(Series C) $2.15 .................................. 113,000 2,973,313 -- -- 113,000 2,973,313
Rouse Co. (Series B) $3.00 ......................... 36,600 1,647,000 -- -- 36,600 1,647,000
SL Green Realty Corp. $2.00 ........................ 140,000 3,360,000 -- -- 140,000 3,360,000
----------- ---------- -----------
13,435,988 -- 13,435,988
----------- ---------- -----------
RETAIL (0.2%)
Dollar General $3.35 ............................... -- -- 14,000 504,000 14,000 504,000
Kmart Financing I $3.875 ........................... -- -- 8,300 415,000 8,300 415,000
----------- ---------- -----------
-- 919,000 919,000
----------- ---------- -----------
SMALLER BANKS (0.9%)
CNB Capital Trust I $1.50 .......................... 145,000 3,878,750 11,500 307,625 156,500 4,186,375
St. George Bank Ltd. $4.50 -- 144A* ................ -- -- 8,000 380,000 8,000 380,000
----------- ---------- -----------
3,878,750 687,625 4,566,375
----------- ---------- -----------
STEEL/IRON ORE (0.7%)
USX Corp. .......................................... 165,000 3,114,375 -- -- 165,000 3,114,375
----------- ---------- -----------
TECHNOLOGY (0.1%)
Morgan Stanley Group, Inc. $3.99+ (exchangeable
into Cisco Systems Inc. common stock) ............. -- -- 6,600 624,466 6,600 624,466
----------- ---------- -----------
TELECOMMUNICATIONS (0.7%)
EchoStar Communications Corp. (Series C) $3.375 67,500 3,628,125 -- -- 67,500 3,628,125
----------- ---------- -----------
UNREGULATED POWER GENERATION (0.7%)
CalEnergy Capital Trust $3.25 ...................... 81,000 3,371,625 -- -- 81,000 3,371,625
----------- ---------- -----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Identified Cost $101,063,650, $9,718,261 and
$110,781,911, respectively) ....................... 83,038,408 9,540,804 92,579,212
----------- ---------- -----------
</TABLE>
5
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER
INCOME BUILDER FUND
--------------------------------
PRINCIPAL
COUPON MATURITY AMOUNT
RATE DATE (In thousands) VALUE
-------- ---------- ---------------- ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (38.6%)
CONVERTIBLE BONDS (14.9%)
AEROSPACE (0.1%)
Hexcel Corp. .................. 7.00 % 08/01/03 -- --
Morgan Stanley Group,
Inc.+ (exchangeable into
Boing Co. common
stock) ....................... 0.00 09/30/00 -- --
--
-- --
--
ASSISTED LIVING SERVICES (0.6%)
ARV Assisted Living, Inc. ..... 6.75 04/01/06 $1,500 $ 868,500
Emeritus Corp. -- 144A* ....... 6.25 01/01/06 3,000 2,099,460
------------
2,967,960
------------
AUTO PARTS (1.9%)
Magna International Inc. --
144A* ........................ 4.875 02/15/05 -- --
Mark IV Industries, Inc. --
144A* ........................ 4.75 11/01/04 4,000 3,326,240
MascoTech, Inc. ............... 4.50 12/15/03 3,000 2,553,750
Tower Automotive, Inc. --
144A* ........................ 5.00 08/01/04 2,700 2,592,000
------------
8,471,990
------------
BIOTECHNOLOGY (0.1%)
Centocor, Inc. ................ 4.75 02/15/05 -- --
Centocor, Inc. -- 144A* ....... 4.75 02/15/05 -- --
------------
--
------------
BUSINESS SERVICES (0.1%)
Interim Services, Inc. ........ 4.50 06/01/05 -- --
Metamor Worldwide, Inc. ....... 2.94 08/15/04 -- --
------------
--
------------
BOOKS/MAGAZINE (0.1%)
Nelson (Thomas), Inc. ......... 5.75 11/30/99 640 635,341
------------
CABLE/CELLULAR (0.6%)
U.S. Cellular Corp. ........... 0.00 06/15/15 7,850 2,983,157
------------
CABLE &
TELECOMMUNICATIONS (0.1%)
Tele-Communications
International, Inc. .......... 4.50 02/15/06 -- --
------------
CLOTHING/SHOE/ACCESSORY
CHAINS (1.2%)
Genesco Inc. -- 144A* ......... 5.50 04/15/05 4,400 2,549,492
Saks Holdings, Inc. ........... 5.50 09/15/06 3,200 3,168,000
------------
5,717,492
------------
COMPUTER SOFTWARE (0.1%)
Network Associates, Inc. ...... 0.00 02/13/18 -- --
Network Associates, Inc. --
144A* ........................ 0.00 02/13/18 -- --
------------
--
------------
DRUGS (0.5%)
Athena Neurosciences, Inc.
-- 144A* ..................... 4.75 11/15/04 -- --
Dura Pharmaceuticals, Inc. 3.50 07/15/02 -- --
<CAPTION>
TCW/DW INCOME
AND GROWTH FUND COMBINED
------------------------------ --------------------------------
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
(In thousands) VALUE (In thousands) VALUE
---------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (38.6%)
CONVERTIBLE BONDS (14.9%)
AEROSPACE (0.1%)
Hexcel Corp. .................. $ 345 $ 320,850 $ 345 $ 320,850
Morgan Stanley Group,
Inc.+ (exchangeable into
Boing Co. common
stock) ....................... 285 267,139 285 267,139
----------- ------------
587,989 587,989
----------- ------------
ASSISTED LIVING SERVICES (0.6%)
ARV Assisted Living, Inc. ..... -- -- 1,500 868,500
Emeritus Corp. -- 144A* ....... -- -- 3,000 2,099,460
----------- ------------
-- 2,967,960
----------- ------------
AUTO PARTS (1.9%)
Magna International Inc. --
144A* ........................ 300 301,125 300 301,125
Mark IV Industries, Inc. --
144A* ........................ -- -- 4,000 3,326,240
MascoTech, Inc. ............... -- -- 3,000 2,553,750
Tower Automotive, Inc. --
144A* ........................ 345 331,200 3,045 2,923,200
----------- ------------
632,325 9,104,315
----------- ------------
BIOTECHNOLOGY (0.1%)
Centocor, Inc. ................ 65 65,107 65 65,107
Centocor, Inc. -- 144A* ....... 255 255,421 255 255,421
----------- ------------
320,528 320,528
----------- ------------
BUSINESS SERVICES (0.1%)
Interim Services, Inc. ........ 345 296,838 345 296,838
Metamor Worldwide, Inc. ....... 370 317,834 370 317,834
----------- ------------
614,672 614,672
----------- ------------
BOOKS/MAGAZINE (0.1%)
Nelson (Thomas), Inc. ......... -- -- 640 635,341
----------- ------------
CABLE/CELLULAR (0.6%)
U.S. Cellular Corp. ........... -- -- 7,850 2,983,157
----------- ------------
CABLE &
TELECOMMUNICATIONS (0.1%)
Tele-Communications
International, Inc. .......... 310 298,840 310 298,840
----------- ------------
CLOTHING/SHOE/ACCESSORY
CHAINS (1.2%)
Genesco Inc. -- 144A* ......... -- -- 4,400 2,549,492
Saks Holdings, Inc. ........... -- -- 3,200 3,168,000
----------- ------------
-- 5,717,492
----------- ------------
COMPUTER SOFTWARE (0.1%)
Network Associates, Inc. ...... 245 95,579 245 95,579
Network Associates, Inc. --
144A* ........................ 745 290,639 745 290,639
----------- ------------
386,218 386,218
----------- ------------
DRUGS (0.5%)
Athena Neurosciences, Inc.
-- 144A* ..................... 810 1,004,829 810 1,004,829
Dura Pharmaceuticals, Inc. 400 274,328 400 274,328
</TABLE>
6
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER
INCOME BUILDER FUND
--------------------------------
PRINCIPAL
COUPON MATURITY AMOUNT
RATE DATE (In thousands) VALUE
-------- ---------- ---------------- ---------------
<S> <C> <C> <C> <C>
Morgan Stanley Group,
Inc.+ (exchangeable into
Johnson & Johnson Co.
common stock) ................. 2.00% 03/29/02 -- --
Sepracor, Inc. ................. 6.25 02/15/05 -- --
Sepracor, Inc. -- 144A* ........ 6.25 02/15/05 -- --
--
ELECTRONIC --
SEMICONDUCTORS (0.1%)
Analog Devices, Inc. ........... 3.50 12/01/00 -- --
--
ENTERTAINMENT (0.3%)
Action Performance
Companies -- 144A* ............ 4.75 04/15/05 -- --
Clear Channel
Communications, Inc. .......... 2.625 04/01/03 -- --
--
--
--
FINANCE (0.8%)
Financial Federal Corp. --
144A* ......................... 4.50 05/01/05 $4,000 $ 3,665,000
Xerox Credit Corp. ............. 2.875 07/01/02 -- --
------------
3,665,000
------------
FINANCIAL (0.1%)
Swiss Life Finance Ltd.--
144A* ......................... 2.00 05/20/05 -- --
------------
HEALTHCARE SERVICES (0.7%)
Alternative Living Services,
Inc. .......................... 5.25 12/15/02 -- --
Assisted Living Concepts,
Inc. .......................... 6.00 11/01/02 -- --
Assisted Living Concepts,
Inc. -- 144A* ................. 5.625 05/01/03 -- --
Omnicare, Inc. ................. 5.00 12/01/07 -- --
Omnicare, Inc. -- 144A* ........ 5.00 12/01/07 -- --
Quardramed Corp. ............... 5.25 05/01/05 -- --
Quardramed Corp. -- 144A* ...... 5.25 05/01/05 -- --
Quintiles Transportational
Corp. ......................... 4.25 05/31/00 -- --
Quintiles Transportational
Corp. -- 144A* ................ 4.25 05/31/00 -- --
Sunrise Assisted Living,
Inc. .......................... 5.50 06/15/02 -- --
Sunrise Assisted Living,
Inc. -- 144A* ................. 5.50 06/15/02 -- --
------------
--
------------
INDUSTRIALS (0.1%)
Diamond Offshore Drilling,
Inc. .......................... 0.00 02/15/07 -- --
------------
INSURANCE (0.2%)
American International
Group, Inc. ................... 2.25 07/03/04 -- --
Berkshire Hathaway, Inc.
(exchangeable into
Citigroup, Inc. common
stock) ........................ 1.00 12/02/01 -- --
------------
--
------------
<CAPTION>
TCW/DW INCOME
AND GROWTH FUND COMBINED
------------------------------ --------------------------------
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
(In thousands) VALUE (In thousands) VALUE
---------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Morgan Stanley Group,
Inc.+ (exchangeable into
Johnson & Johnson Co.
common stock) ................. $ 260 $ 360,394 $ 260 $ 360,394
Sepracor, Inc. ................. 50 79,163 50 79,163
Sepracor, Inc. -- 144A* ........ 430 680,802 430 680,802
----------- ------------
2,399,516 2,399,516
----------- ------------
ELECTRONIC --
SEMICONDUCTORS (0.1%)
Analog Devices, Inc. ........... 310 312,709 310 312,709
----------- ------------
ENTERTAINMENT (0.3%)
Action Performance
Companies -- 144A* ............ 180 140,837 180 140,837
Clear Channel
Communications, Inc. .......... 1,500 1,504,200 1,500 1,504,200
----------- ------------
1,645,037 1,645,037
----------- ------------
FINANCE (0.8%)
Financial Federal Corp. --
144A* ......................... -- -- 4,000 3,665,000
Xerox Credit Corp. ............. 295 315,632 295 315,632
----------- ------------
315,632 3,980,632
----------- ------------
FINANCIAL (0.1%)
Swiss Life Finance Ltd. --
144A* ......................... 300 291,750 300 291,750
----------- ------------
HEALTHCARE SERVICES (0.7%)
Alternative Living Services,
Inc. .......................... 580 613,350 580 613,350
Assisted Living Concepts,
Inc. .......................... 350 304,255 350 304,255
Assisted Living Concepts,
Inc. -- 144A* ................. 360 295,200 360 295,200
Omnicare, Inc. ................. 120 132,150 120 132,150
Omnicare, Inc. -- 144A* ........ 545 600,181 545 600,181
Quardramed Corp. ............... 250 208,163 250 208,163
Quardramed Corp. -- 144A* 275 228,979 275 228,979
Quintiles Transportational
Corp. ......................... 300 367,296 300 367,296
Quintiles Transportational
Corp. -- 144A* ................ 280 342,810 280 342,810
Sunrise Assisted Living,
Inc. .......................... 145 218,516 145 218,516
Sunrise Assisted Living,
Inc. -- 144A* ................. 200 158,424 200 158,424
----------- ------------
3,469,324 3,469,324
----------- ------------
INDUSTRIALS (0.1%)
Diamond Offshore Drilling,
Inc. .......................... 440 409,451 440 409,451
----------- ------------
INSURANCE (0.2%)
American International
Group, Inc. ................... 285 329,263 285 329,263
Berkshire Hathaway, Inc.
(exchangeable into
Citigroup, Inc. common
stock) ........................ 590 703,280 590 703,280
----------- ------------
1,032,543 1,032,543
----------- ------------
</TABLE>
7
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER
INCOME BUILDER FUND
--------------------------------
PRINCIPAL
COUPON MATURITY AMOUNT
RATE DATE (In thousands) VALUE
------------ ---------- ---------------- ---------------
<S> <C> <C> <C> <C>
LEISURE (0.1%)
News America Holdings,
Inc. .......................... 0.00 % 03/11/13 -- --
--
LEISURE TIME (0.0%)
Speedway Motorsports, Inc. 5.75 09/30/03 -- --
--
MACHINERY (0.4%)
Thermo Fibertek, Inc. --
144A* ......................... 4.50 07/15/04 $2,300 $ 2,110,250
------------
MAJOR U.S.
TELECOMMUNICATIONS (0.9%)
Bell Atlantic Financial
Service -- 144A* .............. 4.25 09/15/05 3,700 3,590,147
SA Telecommunications,
Inc. -- 144A* (a) ............. 10.00 08/15/06 750 22,500
------------
3,612,647
------------
MANAGED HEALTH
CARE (1.1%)
Concentra Managed Care,
Inc. -- 144A* ................. 4.50 03/15/03 4,400 2,824,272
Phymatrix Corp. ................ 6.75 06/15/03 5,400 2,052,000
------------
4,876,272
------------
MEDICAL ELECTRONICS (0.3%)
ThermoTrex Corp. ............... 3.25 11/01/07 2,100 1,523,508
------------
MISCELLANEOUS (0.1%)
Level One
Communications, Inc. .......... 4.00 09/01/04 -- --
------------
OFFICE EQUIPMENT &
SUPPLIES (0.6%)
Danka Business Systems,
PLC (United Kingdom) .......... 6.75 04/01/02 4,750 3,090,492
------------
POLLUTION CONTROL (0.3%)
U.S. Filter Corp. .............. 4.50 12/15/01 -- --
Waste Management, Inc. ......... 4.00 02/01/02 -- --
------------
--
------------
REAL ESTATE INVESTMENT
TRUST (1.4%)
Capstar Hotel Corp. ............ 4.75 10/15/04 3,800 2,539,426
Capstone Capital Corp. ......... 6.55 03/14/02 4,425 4,211,892
Security Capital U.S. Realty
-- 144A* ...................... 2.00 05/22/03 -- --
------------
6,751,318
------------
RETAIL (0.2%)
Charming Shoppers, Inc. ........ 7.50 07/15/06 -- --
Costco Companies, Inc. --
144A* ......................... 0.00 08/19/17 -- --
------------
--
------------
SEMICONDUCTORS (0.1%)
ST Microelectrononics N.V.
(France) ...................... 0.00 06/10/08 --
------------
<CAPTION>
TCW/DW INCOME
AND GROWTH FUND COMBINED
------------------------------ --------------------------------
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
(In thousands) VALUE (In thousands) VALUE
---------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
LEISURE (0.1%)
News America Holdings,
Inc. .......................... $ 570 $ 311,112 $ 570 $ 311,112
----------- ------------
LEISURE TIME (0.0%)
Speedway Motorsports, Inc. 255 225,555 255 225,555
----------- ------------
MACHINERY (0.4%)
Thermo Fibertek, Inc. --
144A* ......................... -- -- 2,300 2,110,250
----------- ------------
MAJOR U.S.
TELECOMMUNICATIONS (0.9%)
Bell Atlantic Financial
Service -- 144A* .............. 1,005 975,162 4,705 4,565,309
SA Telecommunications,
Inc. -- 144A* (a) ............. -- -- 750 22,500
----------- ------------
975,162 4,587,809
----------- ------------
MANAGED HEALTH
CARE (1.1%)
Concentra Managed Care,
Inc. -- 144A* ................. 910 584,111 5,310 3,408,383
Phymatrix Corp. ................ -- -- 5,400 2,052,000
----------- ------------
584,111 5,460,383
----------- ------------
MEDICAL ELECTRONICS (0.3%)
ThermoTrex Corp. ............... -- -- 2,100 1,523,508
----------- ------------
MISCELLANEOUS (0.1%)
Level One
Communications, Inc. .......... 480 463,238 480 463,238
----------- ------------
OFFICE EQUIPMENT &
SUPPLIES (0.6%)
Danka Business Systems,
PLC (United Kingdom) .......... -- -- 4,750 3,090,492
----------- ------------
POLLUTION CONTROL (0.3%)
U.S. Filter Corp. .............. 675 614,534 675 614,534
Waste Management, Inc. ......... 775 951,708 775 951,708
----------- ------------
1,566,242 1,566,242
----------- ------------
REAL ESTATE INVESTMENT
TRUST (1.4%)
Capstar Hotel Corp. ............ -- -- 3,800 2,539,426
Capstone Capital Corp. ......... -- -- 4,425 4,211,892
Security Capital U.S. Realty
-- 144A* ...................... 370 289,988 370 289,988
----------- ------------
289,988 7,041,306
----------- ------------
RETAIL (0.2%)
Charming Shoppers, Inc. ........ 270 252,218 270 252,218
Costco Companies, Inc. --
144A* ......................... 1,045 652,320 1,045 652,320
----------- ------------
904,538 904,538
----------- ------------
SEMICONDUCTORS (0.1%)
ST Microelectrononics N.V.
(France) ...................... 370 270,100 370 270,100
----------- ------------
</TABLE>
8
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER
INCOME BUILDER FUND
--------------------------------
PRINCIPAL
COUPON MATURITY AMOUNT
RATE DATE (In thousands) VALUE
---------- ---------- ---------------- ---------------
<S> <C> <C> <C> <C>
SERVICES TO THE HEALTH
INDUSTRY (0.4%)
Pharmaceutical Marketing
Services, Inc. .................. 6.25% 02/01/03 $1,380 $ 1,204,354
Pharmaceutical Marketing
Services, Inc. (Eurobond) 6.25 02/01/03 675 590,625
------------
1,794,979
------------
SHOE MANUFACTURING (0.9%)
Nine West Group, Inc. ............ 5.50 07/15/03 2,300 1,520,507
Nine West Group, Inc. --
144A* ........................... 5.50 07/15/03 4,300 2,842,687
------------
4,363,194
------------
TECHNOLOGY (0.2%)
Adaptec, Inc. -- 144A* ........... 4.75 02/01/04 -- --
Adaptec, Inc. .................... 4.75 02/01/04 -- --
Merrill Lynch & Co., Inc. ........ 0.00 02/02/05 -- --
Safeguard Scientifics, Inc. --
144A* ........................... 6.00 02/01/06 -- --
------------
--
------------
TELECOMMUNICATIONS (0.1%)
Comverse Technology, Inc.
-- 144A* ........................ 4.50 07/01/05 -- --
Premiere Technologies, Inc.
144A* ........................... 5.75 07/01/04 -- --
------------
--
------------
TRANSPORTATION (0.1%)
Blue Bird Body Co.
(Shares B) ...................... 10.75 11/15/06 -- --
------------
TOTAL CONVERTIBLE
BONDS
(Identified Cost $64,902,503,
$20,586,647 and $85,489,149,
respectively) 52,563,600
------------
NON-CONVERTIBLE
BONDS (23.7%)
AEROSPACE (0.0%)
Wyman-Gordon Co. ................. 8.00 12/15/07 -- --
------------
AUTO PARTS (0.1%)
Eagle Picher Industries, Inc 9.375 03/01/08 -- --
Hayes Wheels
International, Inc. ............. 11.00 07/15/06 -- --
Hayes Wheels
International, Inc.
(Series B) ...................... 9.125 07/15/07 -- --
Hayes Wheels
International, Inc.
(Series B) ...................... 9.125 07/15/07 -- --
------------
--
------------
BANKS (0.0%)
Chevy Chase Savings Bank 9.25 12/01/05 -- --
Chevy Chase Savings Bank,
F.S.B. .......................... 9.25 12/01/08 -- --
------------
--
------------
<CAPTION>
TCW/DW INCOME
AND GROWTH FUND COMBINED
------------------------------- --------------------------------
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
(In thousands) VALUE (In thousands) VALUE
---------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
SERVICES TO THE HEALTH
INDUSTRY (0.4%)
Pharmaceutical Marketing
Services, Inc. .................. -- -- $1,380 $ 1,204,354
Pharmaceutical Marketing
Services, Inc. (Eurobond) -- -- 675 590,625
-- ------------
-- 1,794,979
-- ------------
SHOE MANUFACTURING (0.9%)
Nine West Group, Inc. ............ -- -- 2,300 1,520,507
Nine West Group, Inc. --
144A* ........................... -- -- 4,300 2,842,687
-- ------------
-- 4,363,194
-- ------------
TECHNOLOGY (0.2%)
Adaptec, Inc. -- 144A* ........... $265 $ 184,853 265 184,853
Adaptec, Inc. .................... 115 80,219 115 80,219
Merrill Lynch & Co., Inc. ........ 360 393,750 360 393,750
Safeguard Scientifics, Inc. --
144A* ........................... 525 480,291 525 480,291
------------ ------------
1,139,113 1,139,113
------------ ------------
TELECOMMUNICATIONS (0.1%)
Comverse Technology, Inc.
-- 144A* ........................ 345 294,723 345 294,723
Premiere Technologies, Inc.
144A* ........................... 215 104,628 215 104,628
------------ ------------
399,351 399,351
------------ ------------
TRANSPORTATION (0.1%)
Blue Bird Body Co.
(Shares B) ...................... 250 257,500 250 257,500
------------ ------------
TOTAL CONVERTIBLE
BONDS
(Identified Cost $64,902,503,
$20,586,647 and $85,489,149,
respectively) 20,102,544 72,666,144
------------ ------------
NON-CONVERTIBLE
BONDS (23.7%)
AEROSPACE (0.0%)
Wyman-Gordon Co. ................. 150 152,250 150 152,250
------------ ------------
AUTO PARTS (0.1%)
Eagle Picher Industries, Inc 225 204,750 225 204,750
Hayes Wheels
International, Inc. ............. 100 109,750 100 109,750
Hayes Wheels
International, Inc.
(Series B) ...................... 25 25,250 25 25,250
Hayes Wheels
International, Inc.
(Series B) ...................... 100 101,000 100 101,000
------------ ------------
440,750 440,750
------------ ------------
BANKS (0.0%)
Chevy Chase Savings Bank 75 72,750 75 72,750
Chevy Chase Savings Bank,
F.S.B. .......................... 125 121,250 125 121,250
------------ ------------
194,000 194,000
------------ ------------
</TABLE>
9
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER
INCOME BUILDER FUND
--------------------------------
PRINCIPAL
COUPON MATURITY AMOUNT
RATE DATE (In thousands) VALUE
----------- ---------- ---------------- ---------------
<S> <C> <C> <C> <C>
BOOKS/MAGAZINE (0.6%)
Big Flower Press, Inc. .......... 8.875% 07/01/07 $2,200 $ 2,145,000
Hollinger International
Publishing, Inc. ............... 9.25 02/01/06 1,000 1,025,000
------------
3,170,000
------------
BROADCASTING (1.9%)
JCAC Inc. ....................... 10.125 06/15/06 3,000 3,285,000
Outdoor Communications,
Inc. ........................... 9.25 08/15/07 -- --
STC Broadcasting, Inc. .......... 11.00 03/15/07 -- --
Young Broadcasting Corp. ........ 11.75 11/15/04 5,060 5,388,900
------------
8,673,900
------------
BUILDING MATERIALS (0.7%)
American Standard Co. ........... 7.375 02/01/08 -- --
MDC Holdings, Inc. .............. 8.375 02/01/08 -- --
Standard Pacific Corp.
(Series A) ..................... 8.00 02/15/08 -- --
USG Corp. (Series B) ............ 9.25 09/15/01 2,850 3,113,824
------------
3,113,824
------------
BUSINESS SERVICES (0.2%)
American Pad & Paper Co. 13.00 11/15/05 -- --
Federal Data Corp. .............. 10.125 08/01/05 -- --
Les Inc. -- 144A* ............... 9.25 06/01/08 -- --
Pierce Leahy Command
Co. -- 144A* ................... 8.125 05/15/08 -- --
Rental Service Corp. --
144A* .......................... 9.00 05/15/08 -- --
------------
--
------------
BUSINESS SERVICES --
DISTRIBUTORS (0.1%)
American Business
Information, Inc. --
144A* .......................... 9.50 06/15/08 -- --
Anthony Crane Rentals --
144A* .......................... 10.375 08/01/08 -- --
Coinmach Corp. (Series D) 11.75 11/15/05 -- --
Iron Mountain, Inc. ............. 10.125 10/01/06 -- --
------------
--
------------
CABLE &
TELECOMMUNICATIONS (0.1%)
Adelphia Communications
Corp. (Series B) ............... 9.25 10/01/02 -- --
Adelphia Communications
Corp. (Series B) ............... 8.375 02/01/08 -- --
Paging Network, Inc. ............ 10.125 08/01/07 -- --
Paging Network, Inc. ............ 10.00 10/15/08 -- --
------------
--
------------
CABLE/CELLULAR (3.5%)
Century Communications .......... 9.50 03/01/05 -- --
Century Communications .......... 8.75 10/01/07 -- --
Classic Cable, Inc. -- 144A* 9.875 08/01/08 -- --
Comcast Cellular Holdings,
Inc. (Series B) ................ 9.50 05/01/07 -- --
<CAPTION>
TCW/DW INCOME
AND GROWTH FUND COMBINED
------------------------------ --------------------------------
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
(In thousands) VALUE (In thousands) VALUE
---------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
BOOKS/MAGAZINE (0.6%)
Big Flower Press, Inc. .......... -- -- $2,200 $ 2,145,000
Hollinger International
Publishing, Inc. ............... -- -- 1,000 1,025,000
-- ------------
-- 3,170,000
-- ------------
BROADCASTING (1.9%)
JCAC Inc. ....................... $100 $ 109,500 3,100 3,394,500
Outdoor Communications,
Inc. ........................... 145 147,900 145 147,900
STC Broadcasting, Inc. .......... 275 292,875 275 292,875
Young Broadcasting Corp. ........ -- -- 5,060 5,388,900
----------- ------------
550,275 9,224,175
----------- ------------
BUILDING MATERIALS (0.7%)
American Standard Co. ........... 225 225,844 225 225,844
MDC Holdings, Inc. .............. 100 96,000 100 96,000
Standard Pacific Corp.
(Series A) ..................... 150 143,250 150 143,250
USG Corp. (Series B) ............ -- -- 2,850 3,113,824
----------- ------------
465,094 3,578,918
----------- ------------
BUSINESS SERVICES (0.2%)
American Pad & Paper Co. 306 168,300 306 168,300
Federal Data Corp. .............. 150 136,500 150 136,500
Les Inc. -- 144A* ............... 350 351,750 350 351,750
Pierce Leahy Command
Co. -- 144A* ................... 100 94,000 100 94,000
Rental Service Corp. --
144A* .......................... 300 285,000 300 285,000
----------- ------------
1,035,550 1,035,550
----------- ------------
BUSINESS SERVICES --
DISTRIBUTORS (0.1%)
American Business
Information, Inc. --
144A* .......................... 75 67,500 75 67,500
Anthony Crane Rentals --
144A* .......................... 100 93,500 100 93,500
Coinmach Corp. (Series D) 75 79,313 75 79,313
Iron Mountain, Inc. ............. 350 367,500 350 367,500
----------- ------------
607,813 607,813
----------- ------------
CABLE &
TELECOMMUNICATIONS (0.1%)
Adelphia Communications
Corp. (Series B) ............... 200 206,500 200 206,500
Adelphia Communications
Corp. (Series B) ............... 100 101,500 100 101,500
Paging Network, Inc. ............ 60 60,000 60 60,000
Paging Network, Inc. ............ 150 148,875 150 148,875
----------- ------------
516,875 516,875
----------- ------------
CABLE/CELLULAR (3.5%)
Century Communications .......... 75 82,125 75 82,125
Century Communications .......... 75 78,750 75 78,750
Classic Cable, Inc. -- 144A* 150 152,625 150 152,625
Comcast Cellular Holdings,
Inc. (Series B) ................ 10 10,550 10 10,550
</TABLE>
10
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER
INCOME BUILDER FUND
--------------------------------
PRINCIPAL
COUPON MATURITY AMOUNT
RATE DATE (In thousands) VALUE
----------- ---------- ---------------- ---------------
<S> <C> <C> <C> <C>
Continental Cablevision,
Inc. ......................... 11.00% 06/01/07 $12,950 $ 14,073,801
CSC Holdings, Inc. ............ 9.875 05/15/06 -- --
CSC Holdings, Inc. ............ 7.25 07/15/08 -- --
CSC Holdings, Inc.
(Series B) ................... 8.125 08/15/09 -- --
CSC Holdings, Inc. ............ 7.625 07/15/18 -- --
Tele-Communications, Inc. ..... 9.25 04/15/02 2,000 2,259,520
------------
16,333,321
------------
CASINO/GAMBLING (0.9%)
Casino Magic Finance
Corp. ........................ 11.50 10/15/01 4,200 4,200,000
------------
CHEMICALS (0.1%)
Geo Specialty Chemicals --
144A* ........................ 10.125 08/01/08 -- --
Polymer Group Inc. 144A* 8.75 03/01/08 -- --
Texas Petrochemicals Corp. 11.125 07/01/06 -- --
------------
--
------------
COMMERCIAL SERVICES (0.2%)
Intermedia
Communications, Inc.
(Series B) ................... 8.50 01/15/08 -- --
MasTec, Inc. (Series B) ....... 7.75 02/01/08 -- --
NEXTLINK
Communications, Inc. ......... 9.625 10/01/07 -- --
------------
--
------------
CONSUMER -- NONCYCLICAL (0.4%)
Boyds Collection Ltd. --
144A* ........................ 9.00 05/15/08 -- --
Cott Corp. (Canada) ........... 9.375 07/01/05 -- --
Homles Products Corp.
(Series B) ................... 9.875 11/15/07 -- --
Home Interiors & Gift --
144A* ........................ 10.125 06/01/08 -- --
International Home Foods,
Inc. ......................... 10.375 11/01/06 -- --
Revlon Consumer Products,
Inc. ......................... 8.125 02/01/06 -- --
Revlon Consumer Products,
Inc. ......................... 8.625 02/01/08 -- --
------------
--
------------
CONSUMER SUNDRIES (0.0%)
Protection One, Inc. .......... 7.375 08/15/05 -- --
------------
CONTAINERS (0.2%)
Ball Corp. -- 144A* ........... 7.75 08/01/06 -- --
Ball Corp. -- 144A* ........... 8.25 08/01/08 -- --
Huntsman Packaging Corp. 9.125 10/01/07 -- --
Plastic Containers, Inc.
(Series B) ................... 10.00 12/15/06 -- --
U.S. Can Corp. ................ 10.125 10/15/06 -- --
------------
--
------------
<CAPTION>
TCW/DW INCOME
AND GROWTH FUND COMBINED
------------------------------ --------------------------------
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
(In thousands) VALUE (In thousands) VALUE
---------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Continental Cablevision,
Inc. ......................... -- -- $12,950 $ 14,073,801
CSC Holdings, Inc. ............ $ 25 $ 27,125 25 27,125
CSC Holdings, Inc. ............ 300 303,081 300 303,081
CSC Holdings, Inc.
(Series B) ................... 50 52,670 50 52,670
CSC Holdings, Inc. ............ 125 121,734 125 121,734
Tele-Communications, Inc. ..... -- -- 2,000 2,259,520
----------- ------------
828,660 17,161,981
----------- ------------
CASINO/GAMBLING (0.9%)
Casino Magic Finance
Corp. ........................ -- -- 4,200 4,200,000
----------- ------------
CHEMICALS (0.1%)
Geo Specialty Chemicals --
144A* ........................ 60 57,600 60 57,600
Polymer Group Inc. 144A* 100 94,750 100 94,750
Texas Petrochemicals Corp. 325 299,000 325 299,000
----------- ------------
451,350 451,350
----------- ------------
COMMERCIAL SERVICES (0.2%)
Intermedia
Communications, Inc.
(Series B) ................... 150 148,500 150 148,500
MasTec, Inc. (Series B) ....... 250 222,500 250 222,500
NEXTLINK
Communications, Inc. ......... 415 403,588 415 403,588
----------- ------------
774,588 774,588
----------- ------------
CONSUMER -- NONCYCLICAL (0.4%)
Boyds Collection Ltd. --
144A* ........................ 225 213,750 225 213,750
Cott Corp. (Canada) ........... 190 188,100 190 188,100
Homles Products Corp.
(Series B) ................... 175 159,250 175 159,250
Home Interiors & Gift --
144A* ........................ 300 283,500 300 283,500
International Home Foods,
Inc. ......................... 475 503,500 475 503,500
Revlon Consumer Products,
Inc. ......................... 100 98,250 100 98,250
Revlon Consumer Products,
Inc. ......................... 300 292,500 300 292,500
----------- ------------
1,738,850 1,738,850
----------- ------------
CONSUMER SUNDRIES (0.0%)
Protection One, Inc. .......... 150 154,587 150 154,587
----------- ------------
CONTAINERS (0.2%)
Ball Corp. -- 144A* ........... 250 257,500 250 257,500
Ball Corp. -- 144A* ........... 125 128,750 125 128,750
Huntsman Packaging Corp. 275 262,625 275 262,625
Plastic Containers, Inc.
(Series B) ................... 275 284,625 275 284,625
U.S. Can Corp. ................ 225 225,000 225 225,000
----------- ------------
1,158,500 1,158,500
----------- ------------
</TABLE>
11
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER
INCOME BUILDER FUND
--------------------------------
PRINCIPAL
COUPON MATURITY AMOUNT
RATE DATE (In thousands) VALUE
----------- ---------- ---------------- ---------------
<S> <C> <C> <C> <C>
DIVERSIFIED FINANCIAL
SERVICES (3.2%)
Groupe Videotron Ltee
(Canada) ........................ 10.63% 02/15/05 $14,060 $ 15,413,275
------------
DRUG STORE CHAIN (0.4%)
Thrifty PayLess Holdings,
Inc. ............................ 12.25 04/15/04 1,950 2,132,813
------------
ENTERTAINMENT/GAMING (0.1%)
Boyd Gaming Corp. ................ 9.25 10/01/03 -- --
Hard Rock Hotel Inc. --
144A* ........................... 9.25 04/01/05 -- --
Hollywood Park (Series B) 9.50 08/01/07 -- --
------------
--
------------
FINANCIAL SERVICES (0.3%)
Forest City Enterprises, Inc. 8.50 03/15/08 -- --
GS Escrow Corp. -- 144A* ......... 7.125 08/01/05 -- --
Nationwide Credit, Inc. --
144A* ........................... 10.25 01/15/08 -- --
Williams Scotsman, Inc. .......... 9.875 06/01/07 -- --
------------
--
------------
FOOD SERVICES (0.1%)
Fred Meyer, Inc. ................. 7.45 03/01/08 -- --
Jitney-Jungle Stores of
America, Inc. ................... 10.375 09/15/07 -- --
------------
--
------------
FOREST PRODUCTS,
PAPER &
PACKAGING (0.2%)
Paperboard Industrial
International, Inc. ............. 8.375 09/15/07 -- --
Riverwood International
Corp. ........................... 10.625 08/01/07 -- --
Tembec Finance Corp. ............. 9.875 09/30/05 -- --
------------
--
------------
HEALTH EQUIPMENT
& SERVICES (0.0%)
Prime Medical Services Inc. 8.75 04/01/08 -- --
------------
HEALTH SERVICES (0.1%)
Integrated Health Services
(Series A) ...................... 9.50 09/15/07 -- --
------------
HEALTHCARE (0.1%)
Dade International, Inc.
(Series B) ...................... 11.125 05/01/06 -- --
------------
INDUSTRIAL
SPECIALTIES (0.1%)
ITT Corp. ........................ 7.375 11/15/15 -- --
------------
LODGING (0.1%)
HMH Properties, Inc.
(Series B) ...................... 7.875 08/01/08 -- --
Signature Resorts, Inc. .......... 9.25 05/15/06 -- --
------------
--
------------
<CAPTION>
TCW/DW INCOME
AND GROWTH FUND COMBINED
------------------------------ --------------------------------
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
(In thousands) VALUE (In thousands) VALUE
---------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
DIVERSIFIED FINANCIAL
SERVICES (3.2%)
Groupe Videotron Ltee
(Canada) ........................ -- -- $14,060 $ 15,413,275
-- ------------
DRUG STORE CHAIN (0.4%)
Thrifty PayLess Holdings,
Inc. ............................ -- -- 1,950 2,132,813
-- ------------
ENTERTAINMENT/GAMING (0.1%)
Boyd Gaming Corp. ................ $200 $ 204,000 200 204,000
Hard Rock Hotel Inc. --
144A* ........................... 300 297,000 300 297,000
Hollywood Park (Series B) 75 73,500 75 73,500
----------- ------------
574,500 574,500
----------- ------------
FINANCIAL SERVICES (0.3%)
Forest City Enterprises, Inc. 300 294,000 300 294,000
GS Escrow Corp. -- 144A* ......... 700 715,812 700 715,812
Nationwide Credit, Inc. --
144A* ........................... 65 61,750 65 61,750
Williams Scotsman, Inc. .......... 290 288,550 290 288,550
----------- ------------
1,360,112 1,360,112
----------- ------------
FOOD SERVICES (0.1%)
Fred Meyer, Inc. ................. 325 341,764 325 341,764
Jitney-Jungle Stores of
America, Inc. ................... 225 225,000 225 225,000
----------- ------------
566,764 566,764
----------- ------------
FOREST PRODUCTS,
PAPER &
PACKAGING (0.2%)
Paperboard Industrial
International, Inc. ............. 125 113,750 125 113,750
Riverwood International
Corp. ........................... 225 208,688 225 208,688
Tembec Finance Corp. ............. 460 464,600 460 464,600
----------- ------------
787,038 787,038
----------- ------------
HEALTH EQUIPMENT
& SERVICES (0.0%)
Prime Medical Services Inc. 225 207,000 225 207,000
----------- ------------
HEALTH SERVICES (0.1%)
Integrated Health Services
(Series A) ...................... 410 403,850 410 403,850
----------- ------------
HEALTHCARE (0.1%)
Dade International, Inc.
(Series B) ...................... 260 279,500 260 279,500
----------- ------------
INDUSTRIAL
SPECIALTIES (0.1%)
ITT Corp. ........................ 400 373,820 400 373,820
----------- ------------
LODGING (0.1%)
HMH Properties, Inc.
(Series B) ...................... 500 493,750 500 493,750
Signature Resorts, Inc. .......... 50 40,500 50 40,500
----------- ------------
534,250 534,250
----------- ------------
</TABLE>
12
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER
INCOME BUILDER FUND
--------------------------------
PRINCIPAL
COUPON MATURITY AMOUNT
RATE DATE (In thousands) VALUE
----------- ---------- ---------------- ---------------
<S> <C> <C> <C> <C>
MAJOR CHEMICALS (1.5%)
Harris Chemical North
America, Inc. .................. 10.75% 10/15/03 $7,000 $ 7,245,000
------------
MANAGED HEALTH CARE (0.8%)
Healthsouth Rehabilition
Corp. .......................... 9.50 04/01/01 4,000 4,130,000
------------
MANUFACTURING (0.5%)
Ametek Inc. -- 144A* ............ 7.20 07/15/08 -- --
BE Aerospace, Inc.
(Series B) ..................... 8.00 03/01/08 -- --
Communications & Power
Industries, Inc. (Series B) 12.00 08/01/05 -- --
Doskocil Manufacturing
Co., Inc. ...................... 10.125 09/15/07 -- --
Foamex L.P. ..................... 9.875 06/15/07 -- --
GSI Group Inc. .................. 10.25 11/01/07 -- --
International Wire Group
(Series B) ..................... 11.75 06/01/05 -- --
Jordan Telecom Products
(Series B) ..................... 9.875 08/01/07 -- --
Morris Materials Handling
-- 144A* ....................... 9.50 04/01/08 -- --
Packaged Ice, Inc. .............. 9.75 02/01/05 -- --
Telecommunications
Techniques Co. -- 144A* ........ 9.75 05/15/08 -- --
Viasystems, Inc. -- 144A* ....... 9.75 06/01/07 -- --
------------
--
------------
MEDIA CONGLOMERATES (0.7%)
Garden State Newspapers,
Inc. ........................... 12.00 07/01/04 3,000 3,240,000
Garden State Newspapers,
Inc. ........................... 8.75 10/01/09 -- --
------------
3,240,000
------------
MEDIA GROUP (0.2%)
Adams Outdoor
Advertising, L.P. .............. 10.75 03/15/06 -- --
Chancellor Media Corp. .......... 9.375 10/01/04 -- --
Chancellor Media Corp.
(Series B) ..................... 8.125 12/15/07 -- --
Chancellor Media Corp.
(Series B) ..................... 9.00 10/01/08 -- --
Outdoor Systems, Inc. ........... 8.875 06/15/07 -- --
------------
--
------------
METALS & MINING (0.1%)
Geneva Steel Co. ................ 11.125 03/15/01 -- --
Metal Management, Inc. --
144A* .......................... 10.00 05/15/08 -- --
P&L Coal Holdings Corp. --
144A* .......................... 8.875 05/15/08 -- --
------------
--
------------
MISCELLANEOUS (2.1%)
Huntsman Polymers Corp. ......... 11.75 12/01/04 6,960 7,273,200
Ivaco, Inc. (Canada) ............ 11.50 09/15/05 2,900 2,784,000
------------
10,057,200
------------
<CAPTION>
TCW/DW INCOME
AND GROWTH FUND COMBINED
------------------------------ --------------------------------
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
(In thousands) VALUE (In thousands) VALUE
---------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
MAJOR CHEMICALS (1.5%)
Harris Chemical North
America, Inc. .................. -- -- $7,000 $ 7,245,000
-- ------------
MANAGED HEALTH CARE (0.8%)
Healthsouth Rehabilition
Corp. .......................... -- -- 4,000 4,130,000
-- ------------
MANUFACTURING (0.5%)
Ametek Inc. -- 144A* ............ $200 $ 212,957 200 212,957
BE Aerospace, Inc.
(Series B) ..................... 215 210,700 215 210,700
Communications & Power
Industries, Inc. (Series B) 335 368,500 335 368,500
Doskocil Manufacturing
Co., Inc. ...................... 275 258,500 275 258,500
Foamex L.P. ..................... 50 58,750 50 58,750
GSI Group Inc. .................. 60 51,000 60 51,000
International Wire Group
(Series B) ..................... 100 102,500 100 102,500
Jordan Telecom Products
(Series B) ..................... 500 470,000 500 470,000
Morris Materials Handling
-- 144A* ....................... 150 108,000 150 108,000
Packaged Ice, Inc. .............. 350 329,000 350 329,000
Telecommunications
Techniques Co. -- 144A* ........ 200 180,000 200 180,000
Viasystems, Inc. -- 144A* ....... 125 106,250 125 106,250
----------- ------------
2,456,157 2,456,157
----------- ------------
MEDIA CONGLOMERATES (0.7%)
Garden State Newspapers,
Inc. ........................... -- -- 3,000 3,240,000
Garden State Newspapers,
Inc. ........................... 425 412,250 425 412,250
----------- ------------
412,250 3,652,250
----------- ------------
MEDIA GROUP (0.2%)
Adams Outdoor
Advertising, L.P. .............. 500 525,000 500 525,000
Chancellor Media Corp. .......... 50 50,875 50 50,875
Chancellor Media Corp.
(Series B) ..................... 225 217,687 225 217,687
Chancellor Media Corp.
(Series B) ..................... 100 100,625 100 100,625
Outdoor Systems, Inc. ........... 25 26,125 25 26,125
----------- ------------
920,312 920,312
----------- ------------
METALS & MINING (0.1%)
Geneva Steel Co. ................ 275 165,000 275 165,000
Metal Management, Inc. --
144A* .......................... 150 102,000 150 102,000
P&L Coal Holdings Corp. --
144A* .......................... 200 203,500 200 203,500
----------- ------------
470,500 470,500
----------- ------------
MISCELLANEOUS (2.1%)
Huntsman Polymers Corp. ......... -- -- 6,960 7,273,200
Ivaco, Inc. (Canada) ............ -- -- 2,900 2,784,000
----------- ------------
-- 10,057,200
----------- ------------
</TABLE>
13
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER
INCOME BUILDER FUND
--------------------------------
PRINCIPAL
COUPON MATURITY AMOUNT
RATE DATE (In thousands) VALUE
----------- ---------- ---------------- ---------------
<S> <C> <C> <C> <C>
MOVIES/ENTERTAINMENT (0.5%)
Time Warner, Inc. ............. 9.625% 05/01/02 $2,000 $ 2,269,180
------------
OIL INTERNATIONAL --
EXPLORATION
& PRODUCTION (0.0%)
Magnum Hunter Resources,
Inc. ......................... 10.00 06/01/07 -- --
------------
PAPER & FOREST
PRODUCTS (0.1%)
Stone Container Corp. ......... 10.75 10/01/02 -- --
------------
PUBLISHING (0.1%)
Primedia, Inc. ................ 7.625 04/01/08 -- --
Von Hoffman Press, Inc. --
144A* ........................ 10.375 05/15/07 -- --
------------
--
------------
RESTAURANTS (0.1%)
American
RestaurantGroup, Inc. --
144A* ........................ 11.50 02/15/03 -- --
Perkins Family Restaurant,
L.P. (Series B) .............. 10.125 12/15/07 -- --
------------
--
------------
RETAIL (0.3%)
Cole National Group, Inc. ..... 8.625 08/15/07 -- --
Guitar Center Management 11.00 07/01/06 -- --
Leslie's Poolmart ............. 10.375 07/15/04 -- --
Michaels Stores, Inc. ......... 10.875 06/15/06 -- --
Mrs. Fields Original
Cookies ...................... 10.125 12/01/04 -- --
Zale Corp. (Series B) ......... 8.50 10/01/07 -- --
------------
--
------------
SPECIALTY STEEL (1.7%)
AK Steel Corp. ................ 10.75 04/01/04 8,000 8,320,000
------------
TELECOMMUNICATIONS (0.2%)
Intermedia
Communications, Inc.
(Series B) ................... 8.875 11/01/07 -- --
Level 3 Communications,
Inc. ......................... 9.125 05/01/08 -- --
Verio Inc. -- 144A* ........... 10.375 04/01/05 -- --
------------
--
------------
TEXTILES (1.0%)
Dan River, Inc. ............... 10.125 12/15/03 4,300 4,450,500
Westpoint Stevens, Inc. --
144A* ........................ 7.875 06/15/08 -- --
------------
4,450,500
------------
TRANSPORTATION (0.0%)
Atlas Air, Inc. ............... 10.75 08/01/05 -- --
------------
UTILITIES (0.1%)
Cal Energy Co., Inc. .......... 9.50 09/15/06 -- --
Cal Energy Co., Inc. .......... 7.63 10/15/07 -- --
Niagara Mohawk Power
(Series F) ................... 7.625 10/01/05 -- --
<CAPTION>
TCW/DW INCOME
AND GROWTH FUND COMBINED
------------------------------ --------------------------------
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
(In thousands) VALUE (In thousands) VALUE
---------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
MOVIES/ENTERTAINMENT (0.5%)
Time Warner, Inc. ............. -- -- $2,000 $ 2,269,180
-- ------------
OIL INTERNATIONAL --
EXPLORATION
& PRODUCTION (0.0%)
Magnum Hunter Resources,
Inc. ......................... $275 $ 233,750 275 233,750
----------- ------------
PAPER & FOREST
PRODUCTS (0.1%)
Stone Container Corp. ......... 300 303,375 300 303,375
----------- ------------
PUBLISHING (0.1%)
Primedia, Inc. ................ 50 48,000 50 48,000
Von Hoffman Press, Inc. --
144A* ........................ 250 250,000 250 250,000
----------- ------------
298,000 298,000
----------- ------------
RESTAURANTS (0.1%)
American
RestaurantGroup, Inc. --
144A* ........................ 225 200,250 225 200,250
Perkins Family Restaurant,
L.P. (Series B) .............. 150 150,375 150 150,375
----------- ------------
350,625 350,625
----------- ------------
RETAIL (0.3%)
Cole National Group, Inc. ..... 50 49,250 50 49,250
Guitar Center Management 246 260,145 246 260,145
Leslie's Poolmart ............. 75 75,000 75 75,000
Michaels Stores, Inc. ......... 600 654,000 600 654,000
Mrs. Fields Original
Cookies ...................... 100 94,000 100 94,000
Zale Corp. (Series B) ......... 175 169,750 175 169,750
----------- ------------
1,302,145 1,302,145
----------- ------------
SPECIALTY STEEL (1.7%)
AK Steel Corp. ................ -- -- 8,000 8,320,000
----------- ------------
TELECOMMUNICATIONS (0.2%)
Intermedia
Communications, Inc.
(Series B) ................... 150 150,750 150 150,750
Level 3 Communications,
Inc. ......................... 200 189,000 200 189,000
Verio Inc. -- 144A* ........... 825 808,500 825 808,500
----------- ------------
1,148,250 1,148,250
----------- ------------
TEXTILES (1.0%)
Dan River, Inc. ............... -- -- 4,300 4,450,500
Westpoint Stevens, Inc. --
144A* ........................ 200 203,500 200 203,500
----------- ------------
203,500 4,654,000
----------- ------------
TRANSPORTATION (0.0%)
Atlas Air, Inc. ............... 75 75,000 75 75,000
----------- ------------
UTILITIES (0.1%)
Cal Energy Co., Inc. .......... 180 194,400 180 194,400
Cal Energy Co., Inc. .......... 75 77,360 75 77,360
Niagara Mohawk Power
(Series F) ................... 100 103,908 100 103,908
</TABLE>
14
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PRO FORMA PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER
INCOME BUILDER FUND
-------------------------------
PRINCIPAL
COUPON MATURITY AMOUNT
RATE DATE (In thousands) VALUE
---------- ---------- ---------------- --------------
<S> <C> <C> <C> <C>
Niagara Mohawk Power
(Series G) .................... 7.75% 10/01/08 -- --
Niagara Mohawk Power
(Series H) .................... 0.00 07/01/10 -- --
--
--
--
TOTAL NON-CONVERTIBLE
BONDS
(Identified Cost
$95,138,077, $23,880,624
and $119,018,700,
respectively) ................. $ 92,749,013
------------
TOTAL CORPORATE
BONDS
(Identified Cost
$160,040,580, $44,467,271
and $204,507,849,
respectively) ................. 145,312,613
------------
WARRANT (0.0%)
Fitzgerald Gaming Corp
(Identified Cost $0, $21,082, and
$21,082, respectively) ........ -- -- --
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT
The Bank of New York
(dated 09/30/98; proceeds
$1,701,930, $0 and
$1,701,930, respectivley)
(b) (Identified Cost
$1,701,694, $0 and
$1,701,694, respectively) ..... 5.00 10/01/98 $1,701 1,701,694
------------
TOTAL INVESTMENTS
(Identified Cost
$452,694,639, $54,206,614
and $506,901,253,
respectively) (c) ............. 426,717,021
OTHER ASSETS IN
EXCESS OF
LIABILITIES ................... 6,513,009
------------
NET ASSETS ..................... $433,230,030
============
<CAPTION>
TCW/DW INCOME
AND GROWTH FUND COMBINED
------------------------------ -------------------------------
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
(In thousands) VALUE (In thousands) VALUE
---------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
Niagara Mohawk Power
(Series G) .................... $175 $ 187,558 $ 175 $ 187,558
Niagara Mohawk Power
(Series H) .................... 125 92,640 125 92,640
----------- ------------
655,866 655,866
----------- ------------
TOTAL NON-CONVERTIBLE
BONDS
(Identified Cost
$95,138,077, $23,880,624
and $119,018,700,
respectively) ................. 22,985,706 115,734,719
----------- ------------
TOTAL CORPORATE
BONDS
(Identified Cost
$160,040,580, $44,467,271
and $204,507,849,
respectively) ................. 43,088,250 188,400,863
----------- ------------
WARRANT (0.0%)
Fitzgerald Gaming Corp
(Identified Cost $0, $21,082,
and
$21,082, respectively) ........ 4 9,366 4 9,366
----------- ------------
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT
The Bank of New York
(dated 09/30/98; proceeds
$1,701,930, $0 and
$1,701,930, respectivley)
(b) (Identified Cost
$1,701,694, $0 and
$1,701,694, respectively) ..... -- -- 1,701 1,701,694
----------- ------------
TOTAL INVESTMENTS
(Identified Cost
$452,694,639, $54,206,614
and $506,901,253,
respectively) (c) ............. 52,638,420 98.2% 479,355,441
OTHER ASSETS IN
EXCESS OF
LIABILITIES ................... 2,309,769 1.8 8,822,778
----------- -------- ------------
NET ASSETS ..................... $54,948,189 100.0% $488,178,219
=========== ======== ============
</TABLE>
- ----------
Note: Percentages indicated parenthetically represent the net assets of the
combined Fund.
ADR American Depository Receipt.
* Resale is restricted to qualified institutional investors.
+ Issuer is an affiliate of Morgan Stanley Dean Witter Advisors Inc., the
combined Fund's Investment Manager.
++ Consists of more than one class of securities traded together as a unit;
stocks with attached warrants.
(a) Non-income producing security; bond in default.
(b) Collateralized by $1,627,093 U.S. Treasury Note 6.25% due 01/31/02
valued at $1,735,727.
(c) The aggregate cost for federal income tax purposes approximates
identified cost.
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION DEPRECIATION
-------------- -------------- -----------------
<S> <C> <C> <C>
Morgan Stanley Dean Witter Income Builder Fund ......... $24,041,088 $50,018,706 ($ 25,977,618)
TCW/DW Income and Growth Fund .......................... $ 2,639,980 $ 4,208,174 ($ 1,568,194)
----------- ----------- ------------
Combined ............................................... $26,681,068 $54,226,880 ($ 27,545,812)
=========== =========== ============
</TABLE>
See Notes to Pro Forma Financial Statements
15
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER
PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY
DEAN WITTER TCW/DW
INCOME BUILDER INCOME & GROWTH PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
---------------- ----------------- ------------------ ---------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value (identified cost
$452,694,639, $54,206,614 and $506,901,253,
respectively) .......................................... $ 426,717,021 $ 52,638,420 -- $ 479,355,441
Receivable for:
Interest ............................................... 4,016,177 860,352 -- 4,876,529
Investments sold ....................................... 3,162,862 2,021,494 -- 5,184,356
Dividends .............................................. 753,565 25,213 -- 778,778
Shares of beneficial interest sold ..................... 562,079 1,535 -- 563,614
Deferred organizational expenses ........................ 89,536 -- -- 89,536
Prepaid expenses and other assets ....................... 66,495 6,920 -- 73,415
------------- ------------ -- -------------
TOTAL ASSETS ........................................... 435,367,735 55,553,934 -- 490,921,669
------------- ------------ -- -------------
LIABILITIES:
Payable for:
Investments purchased .................................. 1,025,876 299,506 -- 1,325,382
Plan of distribution fee ............................... 357,189 33,860 -- 391,049
Shares of beneficial interest purchased ................ 287,751 14,014 -- 301,765
Investment management/advisory fee ..................... 267,986 13,557 -- 281,543
Dividends and distributions to shareholders ............ 91,008 -- -- 91,008
Management fee ......................................... -- 20,335 -- 20,335
Payable to bank ......................................... -- 32,049 -- 32,049
Accrued expenses and other payables ..................... 107,895 192,424 -- 300,319
------------- ------------ -- -------------
TOTAL LIABILITIES ...................................... 2,137,705 605,745 -- 2,743,450
------------- ------------ -- -------------
NET ASSETS ............................................. $ 433,230,030 $ 54,948,189 -- $ 488,178,219
============= ============ == =============
COMPOSITION OF NET ASSETS:
Paid-in-capital ......................................... $ 434,715,783 $ 54,413,771 -- $ 489,129,554
Net unrealized depreciation ............................. (25,977,618) (1,568,194) -- (27,545,812)
Net investment income ................................... 3,454,171 69,339 -- 3,523,510
Accumulated undistributed net realized gain ............. 21,037,694 2,033,273 -- 23,070,967
------------- ------------ -- -------------
NET ASSETS ............................................. $ 433,230,030 $ 54,948,189 -- $ 488,178,219
============= ============ == =============
CLASS A SHARES:
Net Assets .............................................. $ 10,073,263 $ 63,941 -- $ 10,137,204
Shares Outstanding (unlimited authorized, $.01 par
value) ................................................. 900,992 6,047 (328)(1) 906,711
NET ASSET VALUE PER SHARE .............................. $ 11.18 $ 10.57 $ 11.18
============= ============ =============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ....... $ 11.80 $ 11.16 $ 11.80
============= ============ =============
CLASS B SHARES:
Net Assets .............................................. $ 416,908,604 $ 7,832,580 -- $ 424,741,184
Shares Outstanding (unlimited authorized,$.01 par
value) ................................................. 37,280,650 740,649 (40,060)(1) 37,981,239
NET ASSET VALUE PER SHARE .............................. $ 11.18 $ 10.58 $ 11.18
============= ============ =============
CLASS C SHARES:
Net Assets .............................................. $ 5,630,261 $ 47,041,402 -- $ 52,671,663
Shares Outstanding (unlimited authorized, $.01 par
value) ................................................. 504,418 4,444,337 (229,158)(1) 4,719,597
NET ASSET VALUE PER SHARE .............................. $ 11.16 $ 10.58 $ 11.16
============= ============ =============
CLASS D SHARES:
Net Assets .............................................. $ 617,902 $ 10,266 -- $ 628,168
Shares Outstanding (unlimited authorized, $.01 par
value) ................................................. 55,258 970 (52)(1) 56,176
NET ASSET VALUE PER SHARE .............................. $ 11.18 $ 10.58 $ 11.18
============= ============ =============
</TABLE>
- ----------
(1) Represents the difference between total additional shares to be issued
(see Note 2) and current TCW/DW Income & Growth Fund shares outstanding.
See Notes to Pro Forma Financial Statements
16
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER
PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY
DEAN WITTER TCW/DW PRO FORMA
INCOME BUILDER INCOME & GROWTH ADJUSTMENTS
FUND FUND (NOTE 3) COMBINED
---------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
INCOME
Interest .......................................... $ 14,163,882 $ 3,539,709 -- $ 17,703,591
Dividends ......................................... 11,937,421 479,815 -- 12,417,236
------------- ------------ -- -------------
TOTAL INCOME ..................................... 26,101,303 4,019,534 -- 30,120,827
------------- ------------ -- -------------
EXPENSES
Plan of distribution fee (Class A shares) ......... 18,844 86 -- 18,930
Plan of distribution fee (Class B shares) ......... 3,886,869 51,744 -- 3,938,613
Plan of distribution fee (Class C shares) ......... 41,480 403,064 -- 444,544
Investment management/advisory fee ................ 3,387,158 183,906 271,704 (1) 3,842,768
Management fee .................................... -- 275,860 (275,860)(1) --
Transfer agent fees and expenses .................. 380,586 61,335 8,000 (4) 449,921
Registration fees ................................. 165,230 116,545 (110,528)(3) 171,247
Professional fees ................................. 50,805 45,813 (45,813)(2) --
37,000 (4) 87,805
Shareholder reports and notices ................... 66,522 48,082 (35,635)(2) --
52,000 (4) 130,969
Custodian fees .................................... 47,954 24,665 -- 72,619
Organizational expenses ........................... 32,715 19,846 (19,846)(3) 32,715
Trustees' fees and expenses ....................... 11,998 32,770 (32,770)(2) 11,998
Other ............................................. 20,188 16,965 (443)(2) 36,710
------------- ------------ -------- -------------
TOTAL EXPENSES ................................... 8,110,349 1,280,681 (152,191) 9,238,839
------------- ------------ -------- -------------
NET INVESTMENT INCOME ............................ 17,990,954 2,738,843 152,191 20,881,988
------------- ------------ -------- -------------
NET REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain ................................. 21,800,391 3,354,925 -- 25,155,316
Net change in unrealized appreciation ............. (68,902,232) (7,538,979) -- (76,441,211)
------------- ------------ -------- -------------
NET GAIN (LOSS) .................................. (47,101,841) (4,184,054) -- (51,285,895)
------------- ------------ -------- -------------
NET INCREASE (DECREASE) ........................... $ (29,110,887) $ (1,445,211) 152,191 $ (30,403,907)
============= ============ ======== =============
</TABLE>
- ----------
(1) Reflects adjustment to investment management fees and plan of
distribution fees based on the surviving Fund's fee schedule.
(2) Reflects elimination of duplicate services or fees.
(3) Organizational expenses of the acquired Fund will not be assumed by the
surviving Fund.
(4) Solicitation costs in connection with the organization, which will be
borne by TCW/DW Income & Growth Fund approximate $97,000.
See Notes to Pro Forma Financial Statements
17
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION -- The Pro Forma Statement of Assets and Liabilities,
including the Portfolio of Investments, at September 30, 1998 and the related
Statement of Operations ("Pro Forma Statements") for the twelve months ended
September 30, 1998, reflect the accounts of Morgan Stanley Dean Witter Income
Builder Fund ("MSDW Income Builder") and TCW/DW Income and Growth Fund ("TCW
Income and Growth").
The Pro Forma Statements give effect to the proposed transfer of all assets and
liabilities of TCW Income and Growth in exchange for shares in MSDW Income
Builder. The Pro Forma Statements should be read in conjunction with the
historical financial statements of each Fund included in its Statement of
Additional Information.
2. SHARES OF BENEFICIAL INTEREST -- The pro forma net asset value per share
assumes the issuance of additional shares of MSDW Income Builder which would
have been issued on September 30, 1998 in connection with the proposed
reorganization. Shareholders of TCW Income and Growth would become shareholders
of MSDW Income Builder receiving shares of the corresponding class of MSDW
Income Builder equal to the value of their holdings in TCW Income and Growth.
The amount of additional shares assumed to be issued was calculated based on
the September 30, 1998 net assets of TCW Income and Growth and the net asset
value per share of MSDW Income Builder as follows:
<TABLE>
<CAPTION>
CLASS A B C D
- ----------------------------------- ------------ --------------- ---------------- ------------
<S> <C> <C> <C> <C>
Additional Shares Issued .......... 5,719 700,589 4,215,179 918
Net Assets 9/30/98
TCW Income and Growth ............ $ 63,941 $ 7,832,580 $ 47,041,402 $ 10,266
Net Asset Value Per Share
MSDW -- Income Builder ........... $ 11.18 $ 11.18 $ 11.16 $ 11.18
</TABLE>
3. PRO FORMA OPERATIONS -- The Pro Forma Statement of Operations assumes
similar rates of gross investment income for the investments of each Fund.
Accordingly, the combined gross investment income is equal to the sum of each
Fund's gross investment income. Certain expenses have been adjusted to reflect
the expected expenses of the combined entity. The pro-forma investment
management fees and plan of distribution fees of the combined Fund are based on
the fee schedule in effect for MSDW Income Builder at the combined level of
average net assets for the twelve months ended September 30, 1998. The Pro
Forma Statement of Operations does not include the effect of any realized gains
or losses, or transaction fees incurred in connection with the realignment of
the portfolio.
18
<PAGE>
CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of the Income Builder
and TCW/DW Income & Growth as of January 31, 1999 and on a pro forma combined
basis as if the Reorganization had occurred on that date:
<TABLE>
<CAPTION>
NET ASSET
SHARES VALUE
CLASS A NET ASSETS OUTSTANDING PER SHARE
- ------------------------------------- -------------- ------------- ----------
<S> <C> <C> <C>
TCW/DW Income & Growth Fund ......... $ 88,349 7,728 $ 11.43
Income Builder ...................... $ 12,300,188 1,073,862 $ 11.45
Combined Fund (pro forma) ........... $ 12,388,537 1,081,578 $ 11.45
CLASS B
- --------------------------------------
TCW/DW Income & Growth .............. $ 8,927,127 781,025 $ 11.43
Income Builder ...................... $421,497,820 36,809,451 $ 11.45
Combined Fund (pro forma) ........... $430,424,947 37,589,113 $ 11.45
CLASS C
- --------------------------------------
TCW/DW Income & Growth .............. $ 47,957,979 4,191,798 $ 11.44
Income Builder ...................... $ 5,845,733 511,572 $ 11.43
Combined Fund (pro forma) ........... $ 53,803,712 4,707,371 $ 11.43
CLASS D
- --------------------------------------
TCW/DW Income & Growth .............. $ 11,662 1,019 $ 11.44
Income Builder ...................... $ 722,030 63,011 $ 11.46
Combined Fund (pro forma) ........... $ 733,692 64,029 $ 11.46
</TABLE>
19
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION MORGAN STANLEY DEAN WITTER
INCOME BUILDER
NOVEMBER 25, 1998 FUND
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Income Builder Fund (the "Fund") is an
open-end, diversified management investment company whose primary investment
objective is to seek reasonable income. Growth of capital is a secondary
objective. The Fund seeks to achieve its objectives by investing under normal
market conditions, at least 65% of its total assets in a diversified portfolio
of income-producing common stocks and preferred stocks and in securities
convertible into common stock. (See "Investment Practices and Policies.")
A Prospectus for the Fund dated November 25, 1998, which provides the
basic information you should know before investing in the Fund, may be obtained
without charge from the Fund at its address or telephone numbers listed below
or from the Fund's Distributor, Morgan Stanley Dean Witter Distributors Inc.,
or from Dean Witter Reynolds Inc., at any of its branch offices. This Statement
of Additional Information is not a Prospectus. It contains information in
addition to and more detailed than that set forth in the Prospectus. It is
intended to provide additional information regarding the activities and
operations of the Fund, and should be read in conjunction with the Prospectus.
Morgan Stanley Dean Witter Income Builder Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management .............................................. 3
Trustees and Officers .................................................... 7
Investment Practices and Policies ........................................ 13
Investment Restrictions .................................................. 15
Portfolio Transactions and Brokerage ..................................... 16
The Distributor .......................................................... 18
Purchase of Fund Shares .................................................. 23
Shareholder Services ..................................................... 26
Redemptions and Repurchases .............................................. 30
Dividends, Distributions and Taxes ....................................... 32
Performance Information .................................................. 33
Shares of the Fund ....................................................... 35
Custodian and Transfer Agent ............................................. 35
Independent Accountants .................................................. 36
Reports to Shareholders .................................................. 36
Legal Counsel ............................................................ 36
Experts .................................................................. 36
Registration Statement ................................................... 36
Financial Statements--September 30, 1998 ................................. 37
Report of Independent Accountants ........................................ 55
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the laws of the Commonwealth of
Massachusetts on March 21, 1996 under the name Dean Witter Income Builder Fund.
On June 22, 1998, the Trustees of the Fund adopted an Amendment to the
Declaration of Trust of the Fund changing the name of the Fund to Morgan
Stanley Dean Witter Income Builder Fund.
THE INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc. (the "Investment Manager" or
"MSDW Advisors"), a Delaware corporation, whose address is Two World Trade
Center, New York, New York 10048, is the Fund's Investment Manager. MSDW
Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
("MSDW"), a Delaware corporation. The daily management of the Fund and research
relating to the Fund's portfolio are conducted by or under the direction of
officers of the Fund and of the Investment Manager, subject to review by the
Fund's Board of Trustees. Information as to these Trustees and officers is
contained under the caption "Trustees and Officers."
MSDW Advisors is the investment manager or investment advisor of the
following investment companies, which are collectively referred to as the
"Morgan Stanley Dean Witter Funds":
<TABLE>
<S> <C>
OPEN-END FUNDS
1 Active Assets California Tax-Free Trust
2 Active Assets Government Securities Trust
3 Active Assets Money Trust
4 Active Assets Tax-Free Trust
5 Morgan Stanley Dean Witter American Value Fund
6 Morgan Stanley Dean Witter Balanced Growth Fund
7 Morgan Stanley Dean Witter Balanced Income Fund
8 Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
9 Morgan Stanley Dean Witter California Tax-Free Income Fund
10 Morgan Stanley Dean Witter Capital Appreciation Fund
11 Morgan Stanley Dean Witter Capital Growth Securities
12 Morgan Stanley Dean Witter Competitive Edge Fund, "Best Ideas" Portfolio
13 Morgan Stanley Dean Witter Convertible Securities Trust
14 Morgan Stanley Dean Witter Developing Growth Securities Trust
15 Morgan Stanley Dean Witter Diversified Income Trust
16 Morgan Stanley Dean Witter Dividend Growth Securities Inc.
17 Morgan Stanley Dean Witter Equity Fund
18 Morgan Stanley Dean Witter European Growth Fund Inc.
19 Morgan Stanley Dean Witter Federal Securities Trust
20 Morgan Stanley Dean Witter Financial Services Trust
21 Morgan Stanley Dean Witter Fund of Funds
22 Morgan Stanley Dean Witter Global Dividend Growth Securities
23 Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
24 Morgan Stanley Dean Witter Global Utilities Fund
25 Morgan Stanley Dean Witter Growth Fund
26 Morgan Stanley Dean Witter Hawaii Municipal Trust
27 Morgan Stanley Dean Witter Health Sciences Trust
28 Morgan Stanley Dean Witter High Yield Securities Inc.
29 Morgan Stanley Dean Witter Income Builder Fund
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
30 Morgan Stanley Dean Witter Information Fund
31 Morgan Stanley Dean Witter Intermediate Income Securities
32 Morgan Stanley Dean Witter International SmallCap Fund
33 Morgan Stanley Dean Witter Japan Fund
34 Morgan Stanley Dean Witter Limited Term Municipal Trust
35 Morgan Stanley Dean Witter Liquid Asset Fund Inc.
36 Morgan Stanley Dean Witter Market Leader Trust
37 Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
38 Morgan Stanley Dean Witter Mid-Cap Growth Fund
39 Morgan Stanley Dean Witter Multi-State Municipal Series Trust
40 Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
41 Morgan Stanley Dean Witter New York Municipal Money Market Trust
42 Morgan Stanley Dean Witter New York Tax-Free Income Fund
43 Morgan Stanley Dean Witter Pacific Growth Fund Inc.
44 Morgan Stanley Dean Witter Precious Metals and Minerals Trust
45 Morgan Stanley Dean Witter Select Dimensions Investment Series
46 Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
47 Morgan Stanley Dean Witter Short-Term Bond Fund
48 Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
49 Morgan Stanley Dean Witter Special Value Fund
50 Morgan Stanley Dean Witter S&P 500 Index Fund
51 Morgan Stanley Dean Witter S&P 500 Select Fund
52 Morgan Stanley Dean Witter Strategist Fund
53 Morgan Stanley Dean Witter Tax-Exempt Securities Trust
54 Morgan Stanley Dean Witter Tax-Free Daily Income Trust
55 Morgan Stanley Dean Witter U.S. Government Money Market Trust
56 Morgan Stanley Dean Witter U.S. Government Securities Trust
57 Morgan Stanley Dean Witter Utilities Fund
58 Morgan Stanley Dean Witter Value-Added Market Series
59 Morgan Stanley Dean Witter Value Fund
60 Morgan Stanley Dean Witter Variable Investment Series
61 Morgan Stanley Dean Witter World Wide Income Trust
CLOSED-END FUNDS
1 InterCapital California Insured Municipal Income Trust
2 InterCapital California Quality Municipal Securities
3 Dean Witter Government Income Trust
4 High Income Advantage Trust
5 High Income Advantage Trust II
6 High Income Advantage Trust III
7 InterCapital Income Securities Inc.
8 InterCapital Insured California Municipal Securities
9 InterCapital Insured Municipal Bond Trust
10 InterCapital Insured Municipal Income Trust
11 InterCapital Insured Municipal Securities
12 InterCapital Insured Municipal Trust
13 Municipal Income Opportunities Trust
14 Municipal Income Opportunities Trust II
15 Municipal Income Opportunities Trust III
16 Municipal Income Trust
17 Municipal Income Trust II
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
18 Municipal Income Trust III
19 Municipal Premium Income Trust
20 InterCapital New York Quality Municipal Securities
21 Morgan Stanley Dean Witter Prime Income Trust
22 InterCapital Quality Municipal Income Trust
23 InterCapital Quality Municipal Investment Trust
24 InterCapital Quality Municipal Securities
</TABLE>
In addition, Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services"), a wholly-owned subsidiary of MSDW Advisors, serves as manager for
the following investment companies for which TCW Funds Management, Inc. is the
investment advisor (the "TCW/DW Funds"):
<TABLE>
<S> <C>
OPEN-END FUNDS
1 TCW/DW Emerging Markets Opportunities Trust
2 TCW/DW Global Telecom Trust
3 TCW/DW Income and Growth Fund
4 TCW/DW Latin American Growth Fund
5 TCW/DW Mid-Cap Equity Trust
6 TCW/DW North American Government Income Trust
7 TCW/DW Small Cap Growth Fund
8 TCW/DW Total Return Trust
CLOSED-END FUNDS
1 TCW/DW Term Trust 2000
2 TCW/DW Term Trust 2002
3 TCW/DW Term Trust 2003
</TABLE>
MSDW Advisors also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company; (ii) sub-administrator of
Templeton Global Governments Income Trust, a closed-end investment company; and
(iii) investment advisor of Offshore Dividend Growth Fund and Offshore Money
Market Fund, mutual funds established under the laws of the Cayman Islands and
available only to investors who are participants in the International Active
Assets Account program and are neither citizens nor residents of the United
States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help and bookkeeping and certain legal services as the Fund
may reasonably require in the conduct of its business, including the
preparation of prospectuses, statements of additional information, proxy
statements and reports required to be filed with federal and state securities
commissions (except insofar as the participation or assistance of independent
accountants and attorneys is, in the opinion of the Investment Manager,
necessary or desirable). In addition, the Investment Manager pays the salaries
of all personnel, including officers of the Fund, who are employees of the
Investment Manager. The Investment Manager also bears the cost of telephone
service, heat, light, power and other utilities provided to the Fund. The
Investment Manager has retained MSDW Services to provide its administrative
services under the Agreement.
5
<PAGE>
Expenses not expressly assumed by the Investment Manager under the
Agreement or by Morgan Stanley Dean Witter Distributiors Inc., the Distributor
of the Fund's shares ("MSDW Distributors" or "the Distributor") will be paid by
the Fund. These expenses will be allocated among the four classes of shares of
the Fund (each, a "Class") pro rata based on the net assets of the Fund
attributable to each Class, except as described below. Such expenses include,
but are not limited to: expenses of the Plan of Distribution pursuant to Rule
12b-1 (the "12b-1 fee") (see "The Distributor"); charges and expenses of any
registrar; custodian, stock transfer and dividend disbursing agent; brokerage
commissions; taxes; engraving and printing of share certificates; registration
costs of the Fund and its shares under federal and state securities laws; the
cost and expense of printing, including typesetting, and distributing
Prospectuses and Statements of Additional Information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Trustees' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Trustees or
members of any advisory board or committee who are not employees of the
Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to any dividend, withdrawal or redemption options; charges
and expenses of any outside service used for pricing of the Fund's shares; fees
and expenses of legal counsel, including counsel to the Trustees who are not
interested persons of the Fund or of the Investment Manager (not including
compensation or expenses of attorneys who are employees of the Investment
Manager) and independent accountants; membership dues of industry associations;
interest on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and Trustees) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims
and liabilities and litigation costs and any indemnification relating thereto);
and all other costs of the Fund's operation. The 12b-1 fees relating to a
particular Class will be allocated directly to that Class. In addition, other
expenses associated with a particular Class (except advisory or custodial fees)
may be allocated directly to that Class, provided that such expenses are
reasonably identified as specifically attributable to that Class and the direct
allocation to that Class is approved by the Trustees.
As full compensation for the services and facilities furnished to the Fund
and 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 0.75% to the Fund's daily net assets. Effective May 1, 1998, the
Investment Manager's compensation was scaled down to 0.725% on assets over $500
million. For the fiscal period June 26, 1996 (commencement of operations)
through September 30, 1996, and for the fiscal years ended September 30, 1997
and 1998, the Fund accrued total compensation to the Investment Manager in the
amount of $242,252, $1,868,871 and $3,387,158, respectively.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors. The Agreement in no way restricts the Investment
Manager from acting as investment manager or adviser to others.
The Investment Manager paid the organizational expenses of the Fund, in
the amount of $163,660, incurred prior to the offering of the Fund's shares.
The Fund has reimbursed the Investment Manager for such expenses. The
organizational expenses of the Fund have been deferred by the Fund and are
being amortized on the straight line method over a period not to exceed five
years from the date of commencement of the Fund's operations.
The Agreement was initially approved by the Trustees on February 21, 1997
and by the shareholders of the Fund at a Special Meeting of Shareholders held
on May 21, 1997. The Agreement is substantially identical to a prior investment
management agreement which was initially approved by the Board of Trustees on
April 17, 1996 and by MSDW Advisors, as the then sole shareholder, on April 17,
1996. The Agreement took effect on May 31, 1997 upon the consummation of the
merger of Dean Witter, Discover & Co. with Morgan Stanley Group Inc. The
Agreement may be terminated at any time, without penalty, on thirty days'
notice by the Board of Trustees of the Fund, by the holders of a majority, as
defined in the Investment Company Act of 1940 (the "Act"), of the outstanding
shares of the Fund, or by the Investment Manager. The Agreement will
automatically terminate in the event of its assignment (as defined in the Act).
6
<PAGE>
Under its terms, the Agreement has an initial term ending April 30, 1999,
and will remain in effect from year to year thereafter, provided continuance of
the Agreement is approved at least annually by the vote of the holders of a
majority of the outstanding shares of the Fund, as defined in the Act, or by
the Trustees of the Fund; provided that in either event such continuance is
approved annually by the vote of a majority of the Trustees of the Fund who are
not parties to the Agreement or "interested persons" (as defined in the Act) of
any such party (the "Independent Trustees"), which vote must be cast in person
at a meeting called for the purpose of voting on such approval. At their
meeting held on April 30, 1998, the Trustees of the Fund amended the Agreement
to lower the management fees charged on the Fund's average daily net assets in
excess of $500 million.
The following owned 5% or more of the outstanding shares of Class A on
October 31, 1998: Morgan Stanley Dean Witter Trust FSB, custodian for FBO
Chattanooga Housing Authority Retirement Plan, PO Box 957, Jersey City, NJ
07303-0957--5.7%. The following owned 25% or more of the outstanding shares of
Class D on October 31, 1998: Morgan Stanley Dean Witter Trust FSB, agent for
American Baptist Homes Foundation of the West Inc., TTEE FBO Gift Annuity,
Jersey City, New Jersey 07311--61%.
The Fund has acknowledged that the name "Morgan Stanley Dean Witter" is a
property right of MSDW. The Fund has agreed that MSDW, or any corporate
affiliate of MSDW, may use or, at any time, permit others to use, the name
"Morgan Stanley Dean Witter." The Fund has also agreed that in the event the
Agreement is terminated, or if the affiliation between MSDW Advisors and its
parent company is terminated, the Fund will eliminate the name "Morgan Stanley
Dean Witter" from its name if MSDW, or any corporate affiliate of MSDW, shall
so request.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
MSDW Advisors, and with the 85 Morgan Stanley Dean Witter Funds and the 11
TCW/DW Funds are shown below:
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ---------------------------------------------------
<S> <C>
Michael Bozic (57) ........................ Vice Chairman of Kmart Corporation (commencing
Trustee December, 1998); Director or Trustee of the Morgan
c/o Levitz Furniture Corporation Stanley Dean Witter Funds; formerly Chairman
c/o Kmart Corporation and Chief Executive Officer of Levitz Furniture
3100 West Big Beaver Road Corporation (November, 1995-November, 1998)
Troy, Michigan and President and Chief Executive Officer of Hills
Department Stores (May, 1991-July, 1995); formerly
variously Chairman, Chief Executive Officer,
President and Chief Operating Officer of the Sears
Merchandise Group of Sears, Roebuck and Co.
(1987-1991); Director of Eaglemark Financial
Services, Inc. and Weirton Steel Corporation.
Charles A. Fiumefreddo* (65) .............. Chairman, Director or Trustee, President and Chief
Chairman, President, Executive Officer of the Morgan Stanley Dean
Chief Executive Officer and Trustee Witter Funds; Chairman, Chief Executive Officer
Two World Trade Center and Trustee of the TCW/DW Funds; formerly
New York, New York Chairman, Chief Executive Officer and Director of
MSDW Advisors, MSDW Distributors and MSDW
Services, Executive Vice President and Director of
Dean Witter Reynolds Inc. ("DWR"), Chairman
and Director of Morgan Stanley Dean Witter Trust
FSB ("MSDW Trust"), and Director and/or officer
of various MSDW subsidiaries (until June, 1998).
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ----------------------------------------------------
<S> <C>
Edwin J. Garn (66) ........................ Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; formerly United States Senator
c/o Huntsman Corporation (R-Utah) (1974-1992) and Chairman, Senate
500 Huntsman Way Banking Committee (1980-1986); formerly Mayor
Salt Lake City, Utah of Salt Lake City, Utah (1972-1974); formerly
Astronaut, Space Shuttle Discovery (April 12-19,
1985); Vice Chairman, Huntsman Corporation;
Director of Franklin Covey (time management
systems), John Alden Financial Corp. (health
insurance), United Space Alliance (joint venture
between Lockheed Martin and the Boeing
Company) and Nuskin Asia Pacific (multilevel
marketing); member of the board of various civic
and charitable organizations.
John R. Haire (73) ........................ Chairman of the Audit Committee and Director or
Trustee Trustee of the Morgan Stanley Dean Witter Funds;
Two World Trade Center Chairman of the Audit Committee and Trustee of
New York, New York the TCW/DW Funds; formerly Chairman of the
Independent Directors or Trustees of the Morgan
Stanley Dean Witter Funds and the TCW/DW
Funds (until June, 1998); formerly President,
Council for Aid to Education (1978-1989) and
Chairman and Chief Executive Officer of Anchor
Corporation, an Investment Adviser (1964-1978).
Wayne E. Hedien (64) ...................... Retired; Director or Trustee of the Morgan Stanley
Trustee Dean Witter Funds; Director of The PMI Group,
c/o Gordon Altman Butowsky Inc. (private mortgage insurance); Trustee and
Weitzen Shalov & Wein Vice Chairman of The Field Museum of Natural
Counsel to the Independent Trustees History; formerly associated with the Allstate
114 West 47th Street Companies (1966-1994), most recently as
New York, New York Chairman of The Allstate Corporation (March,
1993-December, 1994) and Chairman and Chief
Executive Officer of its wholly-owned subsidiary,
Allstate Insurance Company (July, 1989-December,
1994); director of various other business and
charitable organizations.
Dr. Manuel H. Johnson (49) ................ Senior Partner, Johnson Smick International, Inc.,
Trustee a consulting firm; Co-Chairman and a founder of
c/o Johnson Smick International, Inc. the Group of Seven Council (G7C), an international
1133 Connecticut Avenue, N.W. economic commission; Director or Trustee of the
Washington, DC Morgan Stanley Dean Witter Funds; Trustee of the
TCW/DW Funds; Director of NASDAQ (since June,
1995); Director of Greenwich Capital Markets, Inc.
(broker-dealer) and NVR, Inc. (home construction);
Chairman and Trustee of the Financial Accounting
Foundation (oversight organization of the Financial
Accounting Standards Board); formerly Vice
Chairman of the Board of Governors of the Federal
Reserve System (1986-1990) and Assistant
Secretary of the U.S. Treasury.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- -----------------------------------------------------
<S> <C>
Michael E. Nugent (62) .................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Director or Trustee of the
c/o Triumph Capital, L.P. Morgan Stanley Dean Witter Funds; Trustee of the
237 Park Avenue TCW/DW Funds; formerly Vice President, Bankers
New York, New York Trust Company and BT Capital Corporation
(1984-1988); director of various business
organizations.
Philip J. Purcell* (55) ................... Chairman of the Board of Directors and Chief
Trustee Executive Officer of MSDW, DWR, and Novus
1585 Broadway Credit Services Inc.; Director of MSDW Distributors;
New York, New York Director or Trustee of the Morgan Stanley Dean
Witter Funds; Director and/or officer of various
MSDW subsidiaries.
John L. Schroeder (68) .................... Retired; Director or Trustee of the Morgan Stanley
Trustee Dean Witter Funds; Trustee of the TCW/DW Funds;
c/o Gordon Altman Butowsky Director of Citizens Utilities Company; formerly
Weitzen Shalov & Wein Executive Vice President and Chief Investment
Counsel to the Independent Trustees Officer of the Home Insurance Company (August,
114 West 47th Street 1991- September, 1995).
New York, New York
Barry Fink (43) ........................... Senior Vice President (since March, 1997),
Vice President, Secretary Secretary and General Counsel (since February,
and General Counsel 1997) and Director (since July, 1998) of MSDW
Two World Trade Center Advisors and MSDW Services; Senior Vice
New York, New York President (since March, 1997) and Assistant
Secretary and Assistant General Counsel (since
February, 1997) of MSDW Distributors; Assistant
Secretary of DWR (since August, 1996); Vice
President, Secretary and General Counsel of the
Morgan Stanley Dean Witter Funds and the
TCW/DW Funds (since February, 1997); previously
First Vice President (June, 1993-February, 1997),
Vice President and Assistant Secretary and
Assistant General Counsel of MSDW Advisors and
MSDW Services and Assistant Secretary of the
Morgan Stanley Dean Witter Funds and the
TCW/DW Funds.
Thomas F. Caloia (52) ..................... First Vice President and Assistant Treasurer of
Treasurer MSDW Advisors and MSDW Services; Treasurer
Two World Trade Center of the Morgan Stanley Dean Witter Funds and the
New York, New York TCW/DW Funds.
Paul D. Vance (62) ........................ Senior Vice President of MSDW Advisors; Vice
Vice President President of various Morgan Stanley Dean Witter
Two World Trade Center Funds.
New York, New York
Peter M. Avelar (40) ...................... Senior Vice President of MSDW Advisors; Vice
Vice President President of various Morgan Stanley Dean Witter
Two World Trade Center Funds.
New York, New York
</TABLE>
- ----------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
9
<PAGE>
In addition, Mitchell M. Merin, President, Chief Executive Officer and
Director of MSDW Advisors and MSDW Services, Chairman and Director of MSDW
Distributors and MSDW Trust, Executive Vice President and Director of DWR, and
Director of various MSDW subsidiaries, Robert M. Scanlan, President, Chief
Operating Officer and Director of MSDW Advisors and MSDW Services, Executive
Vice President of MSDW Distributors and MSDW Trust and Director of MSDW Trust,
Ronald E. Robison, Executive Vice President and Chief Administrative Officer of
MSDW Advisors and MSDW Services, Robert S. Giambrone, Senior Vice President of
MSDW Advisors, MSDW Services, MSDW Distributors and MSDW Trust and Director of
MSDW Trust and Joseph J. McAlinden, Executive Vice President and Chief
Investment Officer of MSDW Advisors and Director of MSDW Trust, are Vice
Presidents of the Fund. Marilyn K. Cranney and Carsten Otto, First Vice
Presidents and Assistant General Counsels of MSDW Advisors and MSDW Services,
Frank Bruttomesso, LouAnne D. McInnis and Ruth Rossi, Vice Presidents and
Assistant General Counsels of MSDW Advisors and MSDW Services, and Todd Lebo, a
staff attorney with MSDW Advisors, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same
individuals also serve as directors or trustees for all of the Morgan Stanley
Dean Witter Funds, and are referred to in this section as Trustees. As of the
date of this Statement of Additional Information, there are a total of 85
Morgan Stanley Dean Witter Funds, comprised of 121 portfolios. As of October
31, 1998, the Morgan Stanley Dean Witter Funds had total net assets of
approximately $109.2 billion and more than six million shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with MSDW Advisors or any of its affiliated persons and do not own
any stock or other securities issued by MSDW Advisors' parent company, MSDW.
These are the "disinterested" or "independent" Trustees. Four of the seven
independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Morgan Stanley Dean Witter Funds seek as
Independent Trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' Boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their
time. Indeed, by serving on the Funds' Boards, certain Trustees who would
otherwise be qualified and in demand to serve on bank boards would be
prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee.
Three of them also serve as members of the Derivatives Committee. In addition,
three of the Trustees, including two Independent Trustees, serve as members of
the Insurance Committee. During the calendar year ended December 31, 1997, the
Audit Committee, the Derivatives Committee and the Independent Trustees held a
combined total of seventeen meetings.
The Independent Trustees are charged with recommending to the full Board
approval of management, advisory and administration contracts, Rule 12b-1 plans
and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage
and allocations, as well as other matters that arise from time to time. The
Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Morgan Stanley Dean Witter Funds have such a
plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional
10
<PAGE>
services provided by the independent accountants and other accounting firms
prior to the performance of such services; and reviewing the independence of
the independent accountants; considering the range of audit and non-audit fees;
reviewing the adequacy of the Fund's system of internal controls.
The Board of each Fund has formed a Derivatives Committee to approve
parameters for and monitor the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
Finally, the Board of each Fund has formed an Insurance Committee to
review and monitor the insurance coverage maintained by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Morgan Stanley Dean Witter Funds
avoids the duplication of effort that would arise from having different groups
of individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and
enhances their ability to negotiate on behalf of each Fund with the Fund's
service providers. This arrangement also precludes the possibility of separate
groups of Independent Trustees arriving at conflicting decisions regarding
operations and management of the Funds and avoids the cost and confusion that
would likely ensue. Finally, having the same Independent Trustees serve on all
Fund Boards enhances the ability of each Fund to obtain, at modest cost to each
separate Fund, the services of Independent Trustees of the caliber, experience
and business acumen of the individuals who serve as Independent Trustees of the
Morgan Stanley Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of
$750). If a Board meeting and a meeting of the Independent Trustees or a
Committee meeting, or a meeting of the Independent Trustees and/or more than
one Committee meeting, take place on a single day, the Trustees are paid a
single meeting fee by the Fund. The Fund also reimburses such Trustees for
travel and other out-of-pocket expenses incurred by them in connection with
attending such meetings. Trustees and officers of the Fund who are or have been
employed by the Investment Manager or an affiliated company receive no
compensation or expense reimbursement from the Fund for their services as
Trustee. Mr. Haire currently serves as Chairman of the Audit Committee. Prior
to June 1, 1998, Mr. Haire also served as Chairman of the Independent Trustees,
for which services the Fund paid him an additional annual fee of $1,200.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended September 30, 1998.
<TABLE>
<CAPTION>
FUND COMPENSATION
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- -------------
<S> <C>
Michael Bozic ................. $1,500
Edwin J. Garn ................. 1,650
John R. Haire ................. 2,900
Wayne E. Hedien ............... 1,932
Dr. Manuel H. Johnson ......... 1,600
Michael E. Nugent ............. 1,650
John L. Schroeder ............. 1,650
</TABLE>
11
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for services
to the 84 Morgan Stanley Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were in operation at
December 31, 1997. Mr. Haire serves as Chairman of the Audit Committee of each
Morgan Stanley Dean Witter Fund and each TCW/DW Fund and, prior to June 1,
1998, also served as Chairman of the Independent Directors or Trustees of those
Funds. With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW
Funds are included solely because of a limited exchange privilege between those
Funds and five Morgan Stanley Dean Witter Money Market Funds. Mr. Hedien's term
as Director or Trustee of each Morgan Stanley Dean Witter Fund commenced on
September 1, 1997.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF
INDEPENDENT FOR SERVICE AS TOTAL CASH
FOR SERVICE DIRECTORS/ CHAIRMAN OF COMPENSATION
AS DIRECTOR OR FOR SERVICE AS TRUSTEES AND INDEPENDENT FOR SERVICES TO
TRUSTEE AND TRUSTEE AND AUDIT TRUSTEES 84 MORGAN STANLEY
COMMITTEE MEMBER COMMITTEE MEMBER COMMITTEES OF 84 AND AUDIT DEAN WITTER
NAME OF OF 84 MORGAN STANLEY OF 14 TCW/DW MORGAN STANLEY COMMITTEES OF 14 FUNDS AND 14
INDEPENDENT TRUSTEE DEAN WITTER FUNDS FUNDS DEAN WITTER FUNDS TCW/DW FUNDS TCW/DW FUNDS
- ------------------- ----------------- ----- ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael Bozic ............. $133,602 -- -- -- $133,602
Edwin J. Garn ............. 149,702 -- -- -- 149,702
John R. Haire ............. 149,702 $73,725 $157,463 $25,350 406,240
Wayne E. Hedien ........... 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson 145,702 71,125 -- -- 216,827
Michael E. Nugent ......... 149,702 73,725 -- -- 223,427
John L. Schroeder ......... 149,702 73,725 -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the
Morgan Stanley Dean Witter Funds, not including the Fund, have adopted a
retirement program under which an Independent Trustee who retires after serving
for at least five years (or such lesser period as may be determined by the
Board) as an Independent Director or Trustee of any Morgan Stanley Dean Witter
Fund that has adopted the retirement program (each such Fund referred to as an
"Adopting Fund" and each such Trustee referred to as an "Eligible Trustee") is
entitled to retirement payments upon reaching the eligible retirement age
(normally, after attaining age 72). Annual payments are based upon length of
service. Currently, upon retirement, each Eligible Trustee is entitled to
receive from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "Regular Benefit") equal to 29.41% of his or her Eligible Compensation
plus 0.4901667% of such Eligible Compensation for each full month of service as
an Independent Director or Trustee of any Adopting Fund in excess of five years
up to a maximum of 58.82% after ten years of service. The foregoing percentages
may be changed by the Board.(1) "Eligible Compensation" is one-fifth of the
total compensation earned by such Eligible Trustee for service to the Adopting
Fund in the five year period prior to the date of the Eligible Trustee's
retirement. Benefits under the retirement program are not secured or funded by
the Adopting Funds.
- --------------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement.
The amount estimated to be payable under this method, through the
remainder of the later of the lives of such Eligible Trustee and spouse,
will be the actuarial equivalent of the Regular Benefit. In addition, the
Eligible Trustee may elect that the surviving spouse's periodic payment
of benefits will be equal to either 50% or 100% of the previous periodic
amount, an election that, respectively, increases or decreases the
previous periodic amount so that the resulting payments will be the
actuarial equivalent of the Regular Benefit.
12
<PAGE>
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 57 Morgan Stanley Dean Witter Funds (not
including the Fund) for the year ended December 31, 1997, and the estimated
retirement benefits for the Fund's Independent Trustees, to commence upon their
retirement, from the 57 Morgan Stanley Dean Witter Funds as of December 31,
1997.
RETIREMENT BENEFITS FROM ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
ESTIMATED BENEFITS BENEFITS
CREDITED ACCRUED AS UPON
YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
RETIREMENT ELIGIBLE ADOPTING ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- --------------------------- ------------ ------------ ----- --------
<S> <C> <C> <C> <C>
Michael Bozic ................. 10 58.82% $ 20,499 $55,026
Edwin J. Garn ................. 10 58.82 30,878 55,026
John R. Haire ................. 10 58.82 (19,823)(3) 132,002
Wayne E. Hedien ............... 9 50.00 0 46,772
Dr. Manuel H. Johnson ......... 10 58.82 12,832 55,026
Michael E. Nugent ............. 10 58.82 22,546 55,026
John L. Schroeder ............. 8 49.02 39,350 46,123
</TABLE>
- --------------------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until May 1, 1999.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers investors an opportunity
to participate in a diversified portfolio of securities, consisting, under
normal market conditions of at least 65% of its total assets in
income-producing equity securities, in preferred stocks and securities
convertible into common stock. Up to 35% of the Fund's assets may be invested
in fixed-income securities or common stocks that do not pay a regular dividend
but are expected to contribute to the Fund's ability to meet its investment
objectives. The Fund has no intention of investing in excess of 50% of its net
assets in lower rated convertibles and fixed-income securities for the fiscal
year ending September 30, 1999.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested
or used for payments of obligations of the Fund. These agreements, which may be
viewed as a type of secured lending by the Fund, 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. The collateral will be maintained in a
segregated account and will be marked-to-market daily to determine that the
value of the collateral, as specified in the agreement, does not decrease below
the purchase price plus accrued interest. If such decrease occurs, additional
collateral will be requested and, when received, added to the account to
maintain full collateralization. The Fund will accrue interest from the
institution until the time when the repurchase is to occur. Although such date
is deemed by the Fund to be the maturity date of a repurchase agreement, the
maturities of the collateral are not subject to any limits.
13
<PAGE>
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
From time to time 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 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 or dividends accrue to
the purchaser prior to the settlement date. 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 liquid
portfolio securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis.
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 or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio of the Fund until the Investment Manager determines
that issuance of the security is probable. At such time, the Fund will record
the transaction and, in determining its net asset value, will reflect the value
of the security daily. At such time, the Fund will also establish a segregated
account with its custodian bank in which it will maintain cash or cash
equivalents or other liquid portfolio securities equal in value to recognized
commitments for such securities. The value of the Fund's commitments to
purchase the securities of any one issuer, together with the value of all
securities of such issuer owned by the Fund, may not exceed 5% of the value of
the Fund's total assets at the time the initial commitment to purchase such
securities is made (see "Investment Restrictions"). 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. The Fund may also sell securities on a "when, as and if issued" basis
provided that the issuance of the security will result automatically from the
exchange or conversion of a security owned by the Fund at the time of sale.
RULE 144A SECURITIES
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 Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. The procedures require that the following factors be taken into account
in making a liquidity determination: (1) the frequency of trades and price
quotes for the security; (2) the number of dealers and other potential
purchasers who have issued quotes on the security; (3) any dealer undertakings
to make a market in the security; and (4) the nature of the security and the
nature of the marketplace trades (the time needed to dispose of the security,
the method of soliciting offers, and the mechanics of transfer). If a
restricted security is determined to be "liquid," such security will not be
included within the category "illiquid securities," which under current policy
may not exceed 15% of the Fund's net assets.
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 notice provisions described below), 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 equal to at least the
market value, determined daily, of the loaned securities. The advantage of such
loans is that the Fund continues to receive the income on the loaned securities
while at the same time earning interest on the cash amounts deposited as
collateral, which will
14
<PAGE>
be invested in short-term obligations. The Fund will not lend its portfolio
securities if such loans are not permitted by the laws or regulations of any
state in which its shares are qualified for sale and will not lend more than
25% of the value of its total assets. A loan may be terminated by the borrower
on one business day's notice, or by the Fund on four business days' notice. If
the borrower fails to deliver the loaned securities within four days after
receipt of notice, the Fund could use the collateral to replace the securities
while holding the borrower liable for any excess of replacement cost over
collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Fund's management to be
creditworthy and when the income which can be earned from such loan justifies
the attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price during
the loan period would inure to the Fund. The creditworthiness of firms to which
the Fund lends its portfolio securities will be monitored on an ongoing basis
by the Investment Manager pursuant to procedures adopted and reviewed, on an
ongoing basis, by the Board of Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned securities,
to be delivered within one day after notice, to permit the exercise of such
rights if the matters involved would have a material effect on the Fund's
investment in such loaned securities. The Fund will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.
New Instruments. New financial products and various combinations thereof
continue to be developed. The Fund may invest in any such products as may be
developed, to the extent conistent with its investment objective and applicable
regulatory requirements.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate for the fiscal years ended September
30, 1997 and 1998 was approximately 74% and 58%, respectively. A 100% turnover
rate would occur, for example, if 100% of the securities held in the Fund's
portfolio (excluding all securities whose maturities at acquisition were one
year or less) were sold and replaced within one year.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. 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. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of Shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund. For purposes of the following restrictions: (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 in securities of any issuer if in the exercise of reasonable
diligence, the Fund has determined that any officer or trustee/director of
the Fund or of the Investment Manager owns more than 1/2 of 1% of the
outstanding securities of such issuer, and such officers and
trustees/directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer.
2. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities secured by
real estate or interests therein.
3. Purchase or sell commodities.
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<PAGE>
4. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest in
the securities of companies which operate, invest in, or sponsor such
programs.
5. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
6. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).
7. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(6).
8. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase agreement; (b) borrowing money in accordance
with restrictions described above; (c) purchasing any securities on a
when-issued or delayed delivery basis; or (d) lending portfolio securities.
9. Make loans of money or securities, except: (a) by the purchase of debt
obligations in which the Fund may invest consistent with its investment
objective and policies; (b) by investment in repurchase agreements; or (c)
by lending its portfolio securities.
10. Make short sales of securities.
11. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities.
12. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
13. Invest for the purpose of exercising control or management of any
other issuer.
In addition, the Fund, as non-fundamental policies, will not invest in
options or futures contracts or in more than 5% of the value of its net assets
in warrants, including not more than 2% of such assets in warrants not listed
on the New York or American Stock Exchange. However, the acquisition of
warrants attached to other securities is not subject to this restriction.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objectives by investing all or substantially all
of its assets in another investment company having substantially the same
investment objectives and policies as the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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Subject to the general supervision of the Board of Trustees, the
Investment Manager is responsible for decisions to buy and sell securities for
the Fund, the selection of brokers and dealers to effect the transactions, and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a stock exchange are effected through brokers who charge a
commission for their services. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their
own accounts without a stated commission, although the price of the security
usually includes a profit to the dealer. The Fund also expects that securities
will be purchased at times in underwritten offerings where the price includes a
fixed amount of compensation, generally referred to as the underwriter's
concession or discount. Options and futures transactions will usually be
effected through a broker and a commission will be charged. On occasion, the
Fund may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid. During the fiscal
period June 26, 1996 (commencement of operations) through September 30, 1996
and the fiscal years ended September 30, 1997 and 1998, the Fund paid $100,337,
$224,501 and $314,715, respectively, in brokerage commissions.
Many of the Fund's portfolio transactions will occur primarily with
issuers, underwriters or major dealers in U.S. Government Securities acting as
principals. Such transactions are normally on a net
16
<PAGE>
basis which do not involve payment of brokerage commissions. The cost of
securities purchased from an underwriter usually includes a commission paid by
the issuer to the underwriters; transactions with dealers normally reflect the
spread between bid and asked prices.
The Investment Manager currently serves as investment manager to a number
of clients, including other investment companies, and may in the future act as
investment manager or adviser to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, various
factors may be considered, including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts. In the case of certain
initial and secondary public offerings, the Investment Manager utilizes a pro
rata allocation process based on the size of the Morgan Stanley Dean Witter
Funds involved and the number of shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid
in all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager from obtaining a high quality of
brokerage and research services. In seeking to determine the reasonableness of
brokerage commissions paid in any transaction, the Investment Manager relies
upon its experience and knowledge regarding commissions generally charged by
various brokers and on its judgment in evaluating the brokerage and research
services received from the broker effecting the transaction. Such
determinations are necessarily subjective and imprecise, as in most cases an
exact dollar value for those services is not ascertainable.
In seeking to implement the Fund's policies, the Investment Manager
effects transactions with those brokers and dealers who the Investment Manager
believes provide the most favorable prices and are capable of providing
efficient executions. If the Investment Manager believes such prices and
executions are obtainable from more than one broker or dealer, it may give
consideration to placing portfolio transactions with those brokers and dealers
who also furnish research and other services to the Fund or the Investment
Manager. Such services may include, but are not limited to, any one or more of
the following: information as to the availability of securities for purchase or
sale; statistical or factual information or opinions pertaining to investments;
wire services; and appraisals or evaluations of portfolio securities. During
the fiscal year ended September 30, 1998, the Fund paid $160,575 in brokerage
commissions in connection with transactions in the aggregate amount of
$88,677,861, to brokers because of research services provided.
The information and services received by the Investment Manager from
brokers and dealers may be of benefit to the Investment Manager in the
management of accounts of some of its other clients and may not in all cases
benefit the Fund directly. While the receipt of such information and services
is useful in varying degrees and would generally reduce the amount of research
or services otherwise performed by the Investment Manager and thereby reduce
its expenses, it is of indeterminable value and the management fee paid to the
Investment Manager is not reduced by any amount that may be attributable to the
value of such services.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR, Morgan Stanley & Co. Incorporated ("MS & Co.") and
other affiliated brokers and dealers. In order for an affiliated broker or
dealer to effect any portfolio transactions for the Fund, the commissions, fees
or other remuneration received by the affiliated broker or dealer must be
reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
17
<PAGE>
similar securities being purchased or sold on an exchange during a comparable
period of time. This standard would allow the affiliated broker or dealer to
receive no more than the remuneration which would be expected to be received by
an unaffiliated broker in a commensurate arm's-length transaction. Furthermore,
the Board of Trustees of the Fund, including a majority of the Trustees who are
not "interested" persons of the Fund, as defined in the Act, have adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to an affiliated broker or dealer are consistent
with the foregoing standard. The Fund does not reduce the management fee it
pays to the Investment Manager by any amount of the brokerage commissions it
may pay to an affiliated broker or dealer. During the fiscal period June 26,
1996 (commencement of operations) through September 30, 1996 and the fiscal
years ended September 30, 1997 and 1998, the Fund paid a total of $24,548,
$82,810 and $141,296, respectively, in brokerage commissions to DWR. The
brokerage commissions paid to DWR represented approximately 44.90% of the total
brokerage commissions paid by the Fund for the fiscal year ended September 30,
1998 and were paid on account of transactions having an aggregate dollar value
equal to approximately 53.7% of the aggregate dollar value of all portfolio
transactions of the Fund during the fiscal year for which commissions were
paid. During the period June 1, 1997 through September 30, 1997 the Fund did
not pay any brokerage commissions to MS & Co. and during the fiscal year ended
September 30, 1998, the Fund paid a total of $6,600 in brokerage commissions to
MS & Co., which broker-dealer became an affiliate of the Investment Manager on
May 31, 1997 upon consummation of the Merger of Dean Witter, Discover & Co.
with Morgan Stanley Group Inc. During the fiscal year ended September 30, 1998,
the brokerage commissions paid to MS & Co. represented approximately 2.10% of
the total brokerage commissions paid by the Fund during the year and were paid
on account of transactions having an aggregate dollar value equal to
approximately 2.73% of the aggregate dollar value of all portfolio transactions
of the Fund during the year for which commissions were paid.
Pursuant to an order of the Securities and Exchange Commission, the Fund
may effect principal transactions in certain money market instruments with DWR.
The Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers. During the fiscal period June 26, 1996 (commencement of
operations) through September 30, 1996 and the fiscal years ended September 30,
1997 and 1998, the Fund did not effect any principal transactions with DWR.
During the fiscal year ended September 30, 1998, the Fund purchased
preferred stock of Merrill Lynch & Co., which issuer was among the ten brokers
or the ten dealers which executed transactions for or with the Fund in the
largest dollar amounts during the period. At September 30, 1998, the Fund held
preferred stock of two companies, each issued by Merrill Lynch & Co. with a
market value of $1,991,250 and $1,886,625, respectively.
THE DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by
Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"). The
Distributor has entered into a selected dealer agreement with DWR, which
through its own sales organization sells shares of the Fund. In addition, the
Distributor may enter into selected dealer agreements with other selected
broker-dealers. The Distributor, a Delaware corporation, is a wholly-owned
subsidiary of MSDW. The Trustees of the Fund including a majority of the
Trustees who are not, and were not at the time they voted, interested persons
of the Fund, as defined in the Act ( the "Independent Trustees"), approved, at
their meeting held on June 30, 1997, the current Distribution Agreement
appointing the Distributor exclusive distributor of the Fund's shares and
providing for the Distributor to bear distribution expenses not borne by the
Fund. By its terms, the Distribution Agreement had an initial term ending April
30, 1998, and will remain in effect from year to year thereafter if approved by
the Trustees. At their meeting held on April 30, 1998, the Trustees of the
Fund, including a majority of the Independent Trustees, approved the
Continuation of the Distribution Agreement until April 30, 1999.
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<PAGE>
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to Morgan
Stanley Dean Witter Financial Advisors and other selected broker-dealer
representatives. The Distributor also pays certain expenses in connection with
the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears the
costs of initial typesetting, printing and distribution of prospectuses and
supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal securities laws and pays
filing fees in accordance with state securities laws. The Fund and the
Distributor have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for losses sustained by the Fund
or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan" ) pursuant to which each Class, other than Class D, pays
the Distributor compensation accrued daily and payable monthly at the following
annual rates: 0.25% and 1.0% of the average daily net assets of Class A and
Class C, respectively, and, with respect to Class B, 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Fund's Class B shares since the
inception of the Fund (not including reinvestments of dividends or capital
gains distributions), less the average daily aggregate net asset value of the
Fund's Class B shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or upon which such charge has
been waived; or (b) the average daily net assets of Class B. The Distributor
receives the proceeds of front-end sales charges and of contingent deferred
sales charges imposed on certain redemptions of shares, which are separate and
apart from payments made pursuant to the Plan (see "Purchase of Fund Shares" in
the Prospectus). The Distributor has informed the Fund that it and/or DWR
received (a) approximately $25,720, $618,040 and $1,076,184 in contingent
deferred sales charges from Class B for the period June 26, 1996 (commencement
of operations) through September 30, 1996 and for the fiscal years ended
September 30, 1997 and 1998, respectively, (b) approximately $12 and $4,960 in
contingent deferred sales charges from Class C for the fiscal years ended
September 30, 1997 and 1998, respectively, and (c) approximately $14,418 and
$99,718 in front-end sales charges from Class A for the fiscal years ended
September 30, 1997 and 1998, respectively, none of which was retained by the
Distributor. No contingent deferred sales charges were received from Class A
during the fiscal years ended September 30, 1997 and 1998.
The Distributor has informed the Fund that the entire fee payable by Class
A and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class's average daily net assets
are currently each characterized as a "service fee" under the Rules of the
Association of the National Association of Securities Dealers, Inc. (of which
the Distributor is a member). The "service fee" is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion
of the Plan fees payable by a Class, if any, is characterized as an
"asset-based sales charge" as such is defined by the aforementioned Rules of
the Association.
The Plan was adopted by a vote of the Trustees of the Fund on April 17,
1996 at a meeting of the Trustees called for the purpose of voting on such
Plan. The vote included the vote of a majority of the Trustees of the Fund who
are not "interested persons" of the Fund (as defined in the Act) and who have
no direct or indirect financial interest in the operation of the Plan (the
"Independent 12b-1 Trustees"). In making their decision to adopt the Plan, the
Trustees requested from the Distributor and received such information as they
deemed necessary to make an informed determination as to whether or not
adoption of the Plan was in the best interests of the shareholders of the Fund.
After due consideration of the information received, the Trustees, including
the Independent 12b-1 Trustees, determined that adoption of the Plan would
benefit the shareholders of the Fund. MSDW Advisors, as then sole shareholder
of the
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<PAGE>
Fund, approved the Plan on April 17, 1996, whereupon the Plan went into effect.
At their meeting held on June 30, 1997, the Trustees, including a majority of
the Independent 12b-1 Trustees, approved amendments to the Plan to reflect the
multiple-class structure for the Fund, which took effect on July 28, 1997.
Pursuant to the Plan and as required by Rule 12b-1, the Trustees will
receive and review promptly after the end of each calendar quarter a written
report provided by the Distributor of the amounts expended by the Distributor
under the Plan and the purpose for which such expenditures were made. The Fund
accrued amounts payable to the Distributor under the Plan, during the fiscal
year ended September 30, 1998 of $3,886,869. This is an accrual at an annual
rate of 0.88% of the Fund's average daily net assets and was calculated
pursuant to clause (a) of the compensation formula of the plan. This amount is
treated by the Fund as an expense in the year it is accrued. For the fiscal
year ended September 30, 1998, Class A and Class C shares of the Fund accrued
payments under the Plan amounting to $18,844 and $41,480, respectively, which
amounts are equal to 0.25% and 1.00% of the average daily net assets of Class A
and Class C, respectively, for the fiscal year.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set forth
in the Prospectus.
With respect to Class A shares, DWR compensates its Financial Advisors by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value
of the respective accounts for which they are the Financial Advisors or dealers
of record in all cases. On orders of $1 million or more (for which no sales
charge was paid) or net asset value purchases by employer sponsored 401(k) and
other plans qualified under Section 401(a) of the Internal Revenue Code
("Qualified Retirement Plans") for which Morgan Stanley Dean Witter Trust FSB
("MSDW Trust") serves as Trustee or DWR's Retirement Plan Services serves as
recordkeeper pursuant to a written Recordkeeping Services Agreement, the
Investment Manager compensates DWR's Financial Advisors by paying them, from
its own funds, a gross sales credit of 1.0% of the amount sold.
With respect to Class B shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission,
currently a residual of up to 0.25% of the current value (not including
reinvested dividends or distributions) of the amount sold in all cases. In the
case of Class B shares purchased on or after July 28, 1997 by Qualified
Retirement Plans for which MSDW Trust serves as Trustee or DWR's Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement, DWR compensates its Financial Advisors by paying them, from
its own funds, a gross sales credit of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value of
the respective accounts for which they are the Financial Advisors of record.
With respect to Class D shares other than shares held by participants in
the MSDW Advisors mutual fund asset allocation program, the Investment Manager
compensates DWR's Financial Advisors by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of
up to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid
if the Class D shares are redeemed in the first year and a chargeback of 50% of
the amount paid if the Class D shares are redeemed in the second year after
purchase. The Investment Manager also compensates DWR's Financial Advisors by
paying them, from its own funds, an annual residual commission, currently a
residual of up to 0.10% of the current value of the respective accounts for
which they are the Financial Advisors of record (not including accounts of
participants in the MSDW Advisors mutual fund asset allocation program).
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<PAGE>
The gross sales credit is a charge which reflects commissions paid by DWR
to its Financial Advisors and Fund associated distribution-related expenses,
including sales compensation and overhead and other branch office
distribution-related expenses including: (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies; (b) the costs of client sales seminars; (c) travel expenses of mutual
fund sales coordinators to promote the sale of Fund shares; and (d) other
expenses relating to branch promotion of Fund shares sales. Payments may also
be made with respect to distribution expenses incurred in connection with the
distribution of shares, including personal services to shareholders with
respect to holdings of such shares, of an investment company whose assets are
acquired by the Fund in a tax-free reorganization. The distribution fee that
the Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred on behalf of the Fund and, in the case of Class
B shares, opportunity costs, such as the gross sales credit and an assumed
interest charge thereon ("carrying charge"). In the Distributor's reporting of
the distribution expenses to the Fund, in the case of Class B shares, such
assumed interest (computed at the "broker's call rate") has been calculated on
the gross sales credit as it is reduced by amounts received by the Distributor
under the Plan and any contingent deferred sales charges received by the
Distributor upon redemption of shares of the Fund. No other interest charge is
included as a distribution expense in the Distributor's calculation of its
distribution costs for this purpose. The broker's call rate is the interest
rate charged to securities brokers on loans secured by exchange-listed
securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event
exceed an amount equal to a payment at the annual rate of 0.25%, in the case of
Class A, and 1.0%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C
will be reimbursable under the Plan. With respect to Class A, in the case of
all expenses other than expenses representing the service fee, and, with
respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to Morgan Stanley Dean Witter
Financial Advisors or other selected broker-dealer representatives, such
amounts shall be determined at the beginning of each calendar quarter by the
Trustees, including, a majority of the Independent 12b-1 Trustees. Expenses
representing the service fee (for Class A) or a gross sales credit or a
residual to Morgan Stanley Dean Witter Financial Advisors or other selected
broker-dealer representatives (for Class C) may be reimbursed without prior
determination. In the event that the Distributor proposes that monies shall be
reimbursed for other than such expenses, then in making quarterly
determinations of the amounts that may be reimbursed by the Fund, the
Distributor will provide and the Trustees will review a quarterly budget of
projected distribution expenses to be incurred on behalf of the Fund, together
with a report explaining the purposes and anticipated benefits of incurring
such expenses. The Trustees will determine which particular expenses, and the
portions thereof, that may be borne by the Fund, and in making such a
determination shall consider the scope of the Distributor's commitment to
promoting the distribution of the Fund's Class A and Class C shares.
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended September 30, 1998 to the Distributor. The
Distributor and DWR estimate that they have spent, pursuant to the Plan,
$26,595,881 on behalf of Class B since the inception of the Plan. It is
estimated that this amount was spent in approximately the following ways: (i)
8.56% ($2,277,144)--advertising and promotional expenses; (ii) 0.89%
($236,404)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 90.55% ($24,082,333)--other expenses, including the
gross sales credit and the carrying charge, of which 5.54% ($1,334,253)
represents carrying charges, 38.63% ($9,303,965) represents commission credits
to DWR branch offices for payments of commissions to Morgan Stanley Dean Witter
Financial Advisors or other selected broker-dealer representatives and 55.83%
($13,444,115) represents overhead and other branch office distribution-related
expenses. The term "overhead and other branch office distribution-related
expenses" represents (a) the expenses of operating DWR's branch offices in
connection with the sale of Fund shares, including lease costs, the
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<PAGE>
salaries and employee benefits of operations and sales support personnel,
utility costs, communications costs and the costs of stationery and supplies;
(b) the costs of client sales seminars; (c) travel expenses of mutual fund
sales coordinators to promote the sale of Fund shares; and (d) other expenses
relating to branch promotion of Fund share sales. The amounts accrued by Class
A and Class C for distribution during the fiscal year ended September 30, 1998
were for expenses which relate to compensation of sales personnel and
associated overhead expenses.
In the case of Class B shares, at any given time, the expenses in
distribution shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
The Distributor has advised the Fund that in the case of Class B shares the
excess distribution expenses, including the carrying charge designed to
approximate the opportunity costs incurred by DWR which arise from it having
advanced monies without having received the amount of any sales charges imposed
at the time of sale of the Fund's Class B shares, totalled $18,378,964 at
September 30, 1998. Because there is no requirement under the Plan that the
Distributor be reimbursed for all expenses with respect to Class B shares 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 distribution expenses in excess of payments made
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. Any cumulative expenses incurred, but not yet recovered through
distribution fees or contingent deferred sales charges, may or may not be
recovered through future distribution fees or contingent deferred sales
charges.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or
indirect financial interest in the operation of the Plan except to the extent
that the Distributor, MSDW Advisors, MSDW Services, DWR or certain of their
employees may be deemed to have such an interest as a result of benefits
derived from the successful operation of the Plan or as a result of receiving a
portion of the amounts expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending April 30, 1997 and
will continue from year to year thereafter, provided such continuance is
approved annually by a vote of the Trustees in the manner described above. The
most recent continuance of the Plan for one year, until April 30, 1999, was
approved by the Board of Trustees of the Fund, including a majority of the
Independent 12b-1 Trustees, at a Board meeting held on April 30, 1998. Prior to
approving the continuation of the Plan, the Trustees requested and received
from the Distributor and reviewed all the information which they deemed
necessary to arrive at an informed determination. In making their determination
to continue the Plan, the Trustees considered: (1) the Fund's experience under
the Plan and whether such experience indicates that the Plan is operating as
anticipated; (2) the benefits the Fund had obtained, was obtaining and would be
likely to obtain under the Plan; and (3) what services had been provided and
were continuing to be provided under the Plan to the Fund and its shareholders.
Based upon their review, the Trustees of the Fund, including each of the
Independent 12b-1 Trustees, determined that continuation of the Plan would be
in the best interest of the Fund and would have a reasonable likelihood of
continuing to benefit the Fund and its shareholders. In the Trustees' quarterly
review of the Plan, they will consider its continued appropriateness and the
level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
affected Class or Classes of the Fund, and all material amendments of the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Act) or not more
than thirty days' written notice to any other party to the Plan. So long as the
Plan is in effect, the election and nomination of Independent 12b-1 Trustees
shall be committed to the discretion of the Independent 12b-1 Trustees.
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, short-term 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
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<PAGE>
the securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt
securities will be valued on a mark-to-market basis until such time as they
reach a remaining maturity of sixty days, whereupon they will be valued at
amortized cost using their value on the 61st day 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.
All other securities and other assets are valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
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 the close of the New
York Stock Exchange. 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 the close of the
New York Stock Exchange. Occasionally, events which may affect the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the New York Stock Exchange and will
therefore not be reflected in the computation of the Fund's net asset value. If
events that may affect the value of such securities occur during such period,
then these securities may be valued at their fair value as determined in good
faith under procedures established by and under the supervision of the
Trustees.
The net asset value per share for each Class of shares of the Fund is
determined once daily at 4:00 p.m. New York time (or, on days when the New York
Stock Exchange closes prior to 4:00 p.m., at such earlier time), on each day
that the New York Stock Exchange is open by taking the value of all assets of
the Fund, subtracting its liabilities, dividing by the number of shares
outstanding and adjusting to the nearest cent. The New York Stock Exchange
currently observes the following holidays: New Year's Day, Reverend Dr. Martin
Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
Right of Accumulation. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefiting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other Morgan Stanley Dean Witter Funds that are
multiple class funds ("Morgan Stanley Dean Witter Multi-Class Funds") or shares
of other Morgan Stanley Dean Witter Funds sold with a front-end sales charge
purchased at a price including a front-end sales charge having a current value
of $5,000, and purchases $20,000 of additional shares of the Fund, the sales
charge applicable to the $20,000 purchase would be 4.75% of the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Distributor or Morgan Stanley Dean Witter Trust
FSB (the "Transfer Agent") fails to confirm the investor's represented
holdings.
23
<PAGE>
Letter of Intent. As discussed in the Prospectus, reduced sales charges
are available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment
goal to be achieved by any number of purchases over a thirteen-month period.
Each purchase of Class A shares made during the period will receive the reduced
sales commission applicable to the amount represented by the goal, as if it
were a single purchase. A number of shares equal in value to 5% of the dollar
amount of the Letter of Intent will be held in escrow by the Transfer Agent, in
the name of the shareholder. The initial purchase under a Letter of Intent must
be equal to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level,
the sales charge on the entire amount of the purchase that results in passing
that level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation,"
but there will be no retroactive reduction of sales charges on previous
purchases. For the purpose of determining whether the investor is entitled to a
further reduced sales charge applicable to purchases at or above a sales charge
level which exceeds the stated goal of a Letter of Intent, the cumulative
current net asset value of any shares owned by the investor in any other Morgan
Stanley Dean Witter Funds held by the shareholder which were previously
purchased at a price including a front-end sales charge (including shares of
the Fund and other Morgan Stanley Dean Witter Funds acquired in exchange for
those shares, and including in each case shares acquired through reinvestment
of dividends and distributions) will be added to the cost or net asset value of
shares of the Fund owned by the investor. However, shares of "Exchange Funds"
(see "Shareholder Services--Exchange Privilege") and the purchase of shares of
other Morgan Stanley Dean Witter Funds will not be included in determining
whether the stated goal of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction.
The 5% escrow and minimum purchase requirements will be applicable to the new
stated goal. Investors electing to purchase shares of the Fund pursuant to a
Letter of Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to
a CDSC payable upon most redemptions within six years after purchase. As stated
in the Prospectus, a CDSC will be imposed on any redemption by an investor if
after such redemption the current value of the investor's Class B shares of the
Fund is less than the dollar amount of all payments by the shareholder for the
purchase of Class B shares during the preceding six years (or, in the case of
shares held by certain Qualified Retirement Plans, three years). However, no
CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption, plus (b) the current
net asset value of shares purchased through reinvestment of dividends or
distributions of the Fund or another Morgan Stanley Dean Witter Fund (see
"Shareholder Services--Targeted Dividends"), plus (c) the current net asset
value of shares acquired in exchange for (i) shares of Morgan Stanley Dean
Witter front-end sales charge funds, or (ii) shares of other Morgan Stanley
Dean Witter Funds for which shares of front-end sales charge funds have been
exchanged (see "Shareholder Services--Exchange Privilege"), plus (d) increases
in the net asset value of the investor's shares above the total amount of
payments for the purchase of Fund shares made during the preceding six (three)
years. The CDSC will be paid to the Distributor.
24
<PAGE>
In determining the applicability of the CDSC to each redemption, the
amount which represents an increase in the net asset value of the investor's
shares above the amount of the total payments for the purchase of shares within
the last six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) will be redeemed first. In the event the
redemption amount exceeds such increase in value, the next portion of the
amount redeemed will be the amount which represents the net asset value of the
investor's shares purchased more than six (three) years prior to the redemption
and/or shares purchased through reinvestment of dividends or distributions
and/or shares acquired in exchange for shares of Morgan Stanley Dean Witter
front-end sales charge funds, or for shares of other Morgan Stanley Dean Witter
Funds for which shares of front-end sales charge funds have been exchanged. A
portion of the amount redeemed which exceeds an amount which represents both
such increase in value and the value of shares purchased more than six years
(or, in the case of shares held by certain Qualified Retirement Plans, three
years) prior to the redemption and/or shares purchased through reinvestment of
dividends or distributions and/or shares acquired in the above-described
exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number
of years from the time of any payment for the purchase of shares, all payments
made during a month will be aggregated and deemed to have been made on the last
day of the month. The following table sets forth the rates of the CDSC
applicable to most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
<S> <C>
First .......................... 5.0%
Second ......................... 4.0%
Third .......................... 3.0%
Fourth ......................... 2.0%
Fifth .......................... 2.0%
Sixth .......................... 1.0%
Seventh and thereafter ......... None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund purchased on or after July 28, 1997 by Qualified Retirement
Plans for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services
serve as recordkeeper pursuant to a written Recordkeeping Services Agreement:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
<S> <C>
First ......................... 2.0%
Second ........................ 2.0%
Third ......................... 1.0%
Fourth and thereafter ......... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
of purchase which are in excess of these amounts and which redemptions do not
qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC
of 1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
25
<PAGE>
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account
is opened for the investor on the books of the Fund and maintained by the
Transfer Agent. This is an open account in which shares owned by the investor
are credited by the Transfer Agent in lieu of issuance of a share certificate.
If a share certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares and may be
redeposited in the account at any time. There is no charge to the investor for
issuance of a certificate. Whenever a shareholder instituted transaction takes
place in the Shareholder Investment Account, the shareholder will be mailed a
confirmation of the transaction from the Fund or from DWR or other selected
broker-dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of the
Fund, unless the shareholder requests that they be paid in cash. Each purchase
of shares of the Fund is made upon the condition that the Transfer Agent is
thereby automatically appointed as agent of the investor to receive all
dividends and capital gains distributions on shares owned by the investor. Such
dividends and distributions will be paid, at the net asset value per share, in
shares of the applicable Class of the Fund (or in cash if the shareholder so
requests) as of the close of business on the record date. At any time an
investor may request the Transfer Agent, in writing, to have subsequent
dividends and/or capital gains distributions paid to him or her 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 record date of the dividend or distribution. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payments will be made to the Distributor or other
selected broker-dealer, and will be forwarded to the shareholder upon the
receipt of proper instructions. It has been and remains the Fund's policy and
practice that, if checks for dividends or distributions paid in cash remain
uncashed, no interest will accrue on amounts represented by such uncashed
checks.
Targeted Dividends(SM). In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an open-end Morgan Stanley
Dean Witter Fund other than Morgan Stanley Dean Witter Income Builder Fund or
in another Class of Morgan Stanley Dean Witter Income Builder Fund. Such
investment will be made as described above for automatic investment in shares
of the applicable Class of the Fund, at the net asset value per share of the
selected Morgan Stanley Dean Witter Fund as of the close of business on the
payment date of the dividend or distribution and will begin to earn dividends,
if any, in the selected Morgan Stanley Dean Witter Fund the next business day.
To participate in the Targeted Dividends program, shareholders should contact
their Morgan Stanley Dean Witter Financial Advisor or other selected
broker-dealer representative or the Transfer Agent. Shareholders of the Fund
must be shareholders of the selected Class of the Morgan Stanley Dean Witter
Fund targeted to receive investments from dividends at the time they enter the
Targeted Dividends program. Investors should review the prospectus of the
targeted Morgan Stanley Dean Witter Fund before entering the program.
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 or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund. Shares purchased through EasyInvest will be added to the
shareholder's existing account at the net asset value calculated the same
business day the transfer of funds is effected (subject to any applicable sales
charges). Shares of the Morgan Stanley Dean Witter money market funds redeemed
in connection with EasyInvest are redeemed on the business day preceding the
transfer of funds. For further information or to subscribe to EasyInvest,
shareholders should contact their Morgan Stanley Dean Witter Financial Advisor
or other selected broker-dealer representative or the Transfer Agent.
26
<PAGE>
Investment of Dividends or Distributions Received in Cash. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares of
the applicable Class at net asset value, without the imposition of a CDSC upon
redemption, by returning the check or the proceeds to the Transfer Agent within
30 days after the payment date. If the shareholder returns the proceeds of a
dividend or distribution, such funds must be accompanied by a signed statement
indicating that the proceeds constitute a dividend or distribution to be
invested. Such investment will be made at the net asset value per share next
determined after receipt of the check or proceeds by the Transfer Agent.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders whose
shares of Morgan Stanley Dean Witter Funds have an aggregate value of $10,000
or more. Shares of any Fund from which redemptions will be made pursuant to the
Plan must have a value of $1,000 or more (referred to as a "SWP Fund"). The
required share values are determined on the date the shareholder establishes
the Withdrawal Plan. The Withdrawal Plan provides for monthly, quarterly,
semi-annual or annual payments in any amount not less than $25, or in any whole
percentage of the Value of the SWP Funds' shares, on an annualized basis. Any
applicable Contingent Deferred Sales Charge ("CDSC") will be imposed on shares
redeemed under the Withdrawal Plan (see "Purchase of Fund Shares"), except that
the CDSC, if any, will be waived on redemptions under the Withdrawal Plan of up
to 12% annually of the value of each SWP Fund account, based on the share
values next determined after the shareholder establishes the Withdrawal Plan.
Redemptions for which this CDSC waiver policy applies may be in amounts up to
1% per month, 3% per quarter, 6% semi-annually or 12% annually. Under this CDSC
waiver policy, amounts withdrawn each period will be paid by first redeeming
shares not subject to a CDSC because the shares were purchased by the
reinvestment of dividends or capital gains distributions, the CDSC period has
elapsed or some other waiver of the CDSC applies. If shares subject to a CDSC
must be redeemed, shares held for the longest period of time will be redeemed
first and continuing with shares held the next longest period of time until
shares held the shortest period of time are redeemed. 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 CDSC) to the
shareholder will be the designated monthly, quarterly, semi-annual or annual
amount.
A shareholder may suspend or terminate participation in the Withdrawal
Plan at any time. A shareholder who has suspended participation may resume
payments under the Withdrawal Plan, without requiring a new determination of
the account value for the 12% CDSC waiver. The Withdrawal Plan may be
terminated or revised at any time by the Fund.
Prior to adding an additional SWP Fund to an existing Withdrawal Plan, the
required $10,000/$1,000 share values must be met, to be calculated on the date
the shareholder adds the additional SWP Fund. However, the addition of a new
SWP Fund will not change the account value for the 12% CDSC waiver for the SWP
Funds already participating in the Withdrawal Plan.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of
the relevant month, quarter, or semi-annual or annual period and normally a
check for the proceeds will be mailed by the Transfer Agent, or amounts
credited to a shareholder's Dean Witter Reynolds Inc. or other selected
broker-dealer brokerage account, or amounts deposited electronically into the
shareholder's bank account via the Automated Clearing House, within five
business days after the date of redemption.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted. Each withdrawal constitutes a
redemption of shares and any gain or loss realized must be recognized for
federal income tax purposes. Although a shareholder may make additional
investments while participating in the Withdrawal Plan, withdrawals made
concurrently with purchases of additional shares are inadvisable because of
sales charges applicable to purchases or redemptions of shares (see "Purchase
of Fund Shares" in the Prospectus).
27
<PAGE>
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions 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 in such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her Morgan Stanley Dean Witter Financial Advisor or other selected
broker-dealer representative or by written notification to the Transfer Agent.
In addition, the party and/or the address to which checks are mailed may be
changed by written notification to the Transfer Agent, with signature
guarantees required in the manner described above. The shareholder may also
terminate the Withdrawal Plan at any time by written notice to the Transfer
Agent. In the event of such termination, the account will be continued as a
regular Shareholder Investment Account. The shareholder may also redeem all or
part of the shares held in the Withdrawal Plan account (see "Redemptions and
Repurchases" in the Prospectus) at any time.
Direct Investments through Transfer Agent. As discussed in the Prospectus,
shareholders may make additional investments in any Class of shares of the Fund
for which they qualify at any time by sending a check in any amount, not less
than $100, payable to Morgan Stanley Dean Witter Income Builder Fund, and
indicating the selected Class, directly to the Fund's Transfer Agent. In the
case of Class A shares, after deduction of any applicable sales charge, the
balance will be applied to the purchase of Fund shares, and, in the case of
shares of the other Classes, the entire amount will be applied to the purchase
of Fund shares, at the net asset value per share next computed after receipt of
the check or purchase payment by the Transfer Agent. The shares so purchased
will be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of each Class of shares
of the Fund may exchange their shares for shares of the same Class of shares of
any other Morgan Stanley Dean Witter Multi-Class Fund without the imposition of
any exchange fee. Shares may also be exchanged for shares of any of the
following funds: Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust,
Morgan Stanley Dean Witter Limited Term Municipal Trust, Morgan Stanley Dean
Witter Short-Term Bond Fund and five Morgan Stanley Dean Witter Funds which are
money market funds (the foregoing eight funds are hereinafter referred to as
the "Exchange Funds"). Class A shares may also be exchanged for shares of
Morgan Stanley Dean Witter Multi-State Municipal Series Trust and Morgan
Stanley Dean Witter Hawaii Municipal Trust, which are Morgan Stanley Dean
Witter Funds sold with a front-end sales charge ("FSC 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 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.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a Morgan Stanley
Dean Witter Multi-Class Fund are exchanged for shares of an Exchange Fund, the
exchange is executed at no charge to the shareholder, without the imposition of
the CDSC at the time
28
<PAGE>
of the exchange. During the period of time the shareholder remains in the
Exchange Fund (calculated from the last day of the month in which the Exchange
Fund shares were acquired), the holding period or "year since purchase payment
made" is frozen. When shares are redeemed out of the Exchange Fund, they will
be subject to a CDSC which would be based upon the period of time the
shareholder held shares in a Morgan Stanley Dean Witter Multi-Class Fund.
However, in the case of shares exchanged into an Exchange Fund on or after
April 23, 1990, upon a redemption of shares which results in a CDSC being
imposed, a credit (not to exceed the amount of the CDSC) will be given in an
amount equal to the Exchange Fund 12b-1 distribution fees incurred on or after
that date which are attributable to those shares. Shareholders acquiring shares
of an Exchange Fund pursuant to this exchange privilege may exchange those
shares back into a Morgan Stanley Dean Witter Multi-Class Fund from the
Exchange Fund, with no CDSC being imposed on such exchange. The holding period
previously frozen when shares were first exchanged for shares of the Exchange
Fund resumes on the last day of the month in which shares of a Morgan Stanley
Dean Witter Multi-Class Fund are reacquired. A CDSC is imposed only upon an
ultimate redemption, based upon the time (calculated as described above) the
shareholder was invested in a Morgan Stanley Dean Witter Multi-Class Fund. In
the case of exchanges of Class A shares which are subject to a CDSC, the
holding period also includes the time (calculated as described above) the
shareholder was invested in a FSC Fund.
When shares initially purchased in a Morgan Stanley Dean Witter
Multi-Class Fund are exchanged for shares of a Morgan Stanley Dean Witter
Multi-Class Fund, shares of a FSC Fund, or shares of an Exchange Fund, the date
of purchase of the shares of the fund exchanged into, for purposes of the CDSC
upon redemption, will be the last day of the month in which the shares being
exchanged were originally purchased. In allocating the purchase payments
between funds for purposes of the CDSC, the amount which represents the current
net asset value of shares at the time of the exchange which were (i) purchased
more than one, three or six years (depending on the CDSC schedule applicable to
the shares) prior to the exchange, (ii) originally acquired through
reinvestment of dividends or distributions and (iii) acquired in exchange for
shares of FSC Funds, or for shares of other Morgan Stanley Dean Witter Funds
for which shares of FSC Funds have been exchanged (all such shares called "Free
Shares"), will be exchanged first. After an exchange, all dividends earned on
shares in an Exchange Fund will be considered Free Shares. If the exchanged
amount exceeds the value of such Free Shares, an exchange is made, on a
block-by-block basis, of non-Free Shares held for the longest period of time
(except that, with respect to Class B shares, if shares held for identical
periods of time but subject to different CDSC schedules are held in the same
Exchange Privilege account, the shares of that block that are subject to a
lower CDSC rate will be exchanged prior to the shares of that block that are
subject to a higher CDSC rate). Shares equal to any appreciation in the value
of non-Free Shares exchanged will be treated as Free Shares, and the amount of
the purchase payments for the non-Free Shares of the fund exchanged into will
be equal to the lesser of (a) the purchase payments for, or (b) the current net
asset value of, the exchanged non-Free Shares. If an exchange between funds
would result in exchange of only part of a particular block of non-Free Shares,
then shares equal to any appreciation in the value of the block (up to the
amount of the exchange) will be treated as Free Shares and exchanged first, and
the purchase payment for that block will be allocated on a pro rata basis
between the non-Free Shares of that block to be retained and the non-Free
Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase
payment for such shares, and the amount of purchase payment for the exchanged
non-Free Shares will be equal to the lesser of (a) the prorated amount of the
purchase payment for, or (b) the current net asset value of, those exchanged
non-Free Shares. Based upon the procedures described in the Prospectus under
the caption "Purchase of Fund Shares," any applicable CDSC will be imposed upon
the ultimate redemption of shares of any fund, regardless of the number of
exchanges since those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges,
29
<PAGE>
redemptions or repurchases, the Transfer Agent shall be liable for its own
negligence and not for the default or negligence of its correspondents or for
losses in transit. The Fund shall not be liable for any default or negligence
of the Transfer Agent, the Distributor or any selected broker-dealer.
The Distributor and any Selected broker-dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
Selected broker-dealer for any transactions pursuant to this Exchange
Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Morgan Stanley Dean
Witter Liquid Asset Fund Inc., Morgan Stanley Dean Witter Tax-Free Daily Income
Trust, Morgan Stanley Dean Witter California Tax-Free Daily Income Trust and
Morgan Stanley Dean Witter New York Municipal Money Market Trust although those
funds may, at their discretion, accept initial investments of as low as $1,000.
The minimum investment for the Exchange Privilege account of each Class is
$10,000 for Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust, although
that fund, in its discretion, may accept initial purchases of as low as $5,000.
The minimum initial investment for the Exchange Privilege account of each Class
is $5,000 for Morgan Stanley Dean Witter Special Value Fund. The minimum
initial investment for the Exchange Privilege account of each Class of all
other Morgan Stanley Dean Witter Funds for which the Exchange Privilege is
available is $1,000.) Upon exchange into an Exchange Fund, the shares of that
fund will be held in a special Exchange Privilege Account separately from
accounts of those shareholders who have acquired their shares directly from
that fund. As a result, certain services normally available to shareholders of
those funds, including the check writing feature, will not be available for
funds held in that account.
The Fund and each of the other Morgan Stanley Dean Witter Funds may limit
the number of times this Exchange Privilege may be exercised by any investor
within a specified period of time. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of the Morgan Stanley
Dean Witter Funds for which shares of the Fund have been exchanged, upon such
notice as may be required by applicable regulatory agencies (presently sixty
days' prior written notice for termination or material revision), provided that
six months' prior written notice of termination will be given to the
shareholders who hold shares of Exchange Funds, pursuant to the Exchange
Privilege, and provided further that the Exchange Privilege may be terminated
or materially revised without notice at times (a) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (b) when
trading on that Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, (d) during any other period when the
Securities and Exchange Commission by order so permits (provided that
applicable rules and regulations of the Securities and Exchange Commission
shall govern as to whether the conditions prescribed in (b) or (c) exist) or
(e) if the Fund would be unable to invest amounts effectively in accordance
with its investment objective, policies and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisor or other
selected broker-dealer representative or the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC. If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption. The share certificate, or
an accompanying stock power, and the request for redemption, must be signed by
the shareholder or
30
<PAGE>
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, which will redeem the shares at their net asset value next
computed (see "Purchase of Fund Shares") after it receives the request, and
certificate, if any, in good order. Any redemption request received after such
computation will be redeemed at the next determined net asset value. The term
good order means that the share certificate, 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 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 is accepted.
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 or a selected broker-dealer for the account of the
shareholder), partnership, trust or fiduciary, or sent to the shareholder at an
address other than the registered address, signatures 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 such an eligible guarantor). A stock power may be obtained from
any dealer or commercial bank. The Fund may change the signature guarantee
requirements from time to time upon notice to shareholders, which may be by
means of a supplement to the prospectus.
Repurchase. As stated in the Prospectus, 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 computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares of any Class 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 at times (a) when
the New York Stock Exchange is closed for other than customary weekends and
holidays, (b) when trading on that Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or (d) during any other
period when the Securities and Exchange Commission by order so permits;
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist. 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). It
has been and remains the Fund's policy and practice that, if checks for
redemption proceeds remain uncashed, no interest will accrue on amounts
represented by such uncashed checks. Shareholders maintaining margin accounts
with DWR or another selected broker-dealer are referred to their Morgan Stanley
Dean Witter Financial Advisor or other selected broker-dealer representative
regarding restrictions on redemption of shares of the Fund pledged in the
margin account.
Transfers of Shares. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the
length of time shares subject to the charge have been held), any transfer
involving less than all of the shares in an account will be made on a pro rata
basis (that is, by transferring shares in the same proportion that the
transferred shares bear to the total shares in the account immediately prior to
the transfer). The transferred shares will continue to be subject to any
applicable CDSC as if they had not been so transferred.
31
<PAGE>
Reinstatement Privilege. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 35 days after the redemption
or repurchase, reinstate any portion or all of the proceeds of such redemption
or repurchase in shares of the Fund in the same Class at the net asset value
next determined after a reinstatement request, together with the proceeds, is
received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax and state income tax treatment of any gain or loss realized upon the
redemption or repurchase, except that if the redemption or repurchase resulted
in a loss and reinstatement is made in shares of the Fund, some or all of the
loss, depending on the amount reinstated, will not be allowed as a deduction
for federal income tax and state personal income tax purposes but will be
applied to adjust the cost basis of the shares acquired upon reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus under "Dividends, Distributions and Taxes,"
the Fund will determine either to distribute or to retain all or part of any
net long-term capital gains in any year for reinvestment. If any such gains are
retained, the Fund will pay federal income tax thereon, and shareholders at
year-end will be able to claim their share of the tax paid by the Fund as a
credit against their individual federal income tax. Shareholders will increase
their tax basis of Fund shares owned by an amount equal, under current law, to
65% of the amount of undistributed capital gains.
Because the Fund intends to distribute substantially all of its net
investment income and net capital gains to shareholders and otherwise qualify
as a regulated investment company under Subchapter M of the Internal Revenue
Code it is not expected that the Fund will be required to pay any federal
income tax. Shareholders will normally have to pay federal income taxes, and
any state income taxes, on the dividends and distributions they receive from
the Fund. Such dividends and distributions, to the extent that they are derived
from the net investment income or short-term capital gains, are taxable to the
shareholder as ordinary income regardless of whether the shareholder receives
such payments 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 received by the shareholder in the prior calendar
year. Dividend payments will be eligible for the federal dividends received
deduction available to the Fund's corporate shareholders only to the extent the
aggregate dividends received by the Fund would be eligible for the deduction if
the Fund were the shareholder claiming the dividends received deduction. The
amount of dividends paid by the Fund which may qualify for the dividends
received deduction is limited to the aggregate amount of qualifying dividends
which the Fund derives from its portfolio investments which the Fund has held
for a minimum period, usually 46 days within a 90-day period beginning 45 days
before the ex-dividend date of each qualifying dividend. Shareholders must meet
a similar holding period requirement with respect to their shares to claim the
dividends received deduction with respect to any distribution of qualifying
dividends. Any long-term capital gain distributions will also not be eligible
for the dividends received deduction. The ability to take the dividends
received deduction will also be limited in the case of a Fund shareholder which
incurs or continues indebtedness which is directly attributable to its
investment in the Fund.
Gains or losses on sales of securities by the Fund will be long-term
capital gains or losses if the securities have a tax holding period of more
than twelve months. Gains or losses on the sale of securities with a tax
holding period of twelve months or less will be short-term gains or losses.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction. It is expected that the Treasury
will issue regulations or other guidance to permit shareholders to take into
account their proportionate share of the Fund's capital gains distributions
that will be subject to a reduced rate under the Taxpayer Relief Act of 1997.
The Taxpayer Relief Act reduced the maximum tax rate on long term capital gains
from 28% to 20%; however, it also lengthened the required holding period to
obtain the lower rate from more than 12 months to more than
32
<PAGE>
18 months. However, the IRS Restructuring and Reform Act of 1998 reduces the
holding period requirement for the lower capital gain rate to more than twelve
months for transactions occurring after January 1, 1998. The lower rates do not
apply to collectibles and certain other assets. Additionally, the maximum
capital gain rate for assets that are held more than five years and that are
acquired after December 31, 2000 is 18%.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes, including information as to the portion taxable as ordinary income,
the portion taxable as long-term capital gains, and the amount of dividends
eligible for the Federal dividends received deduction available to
corporations. To avoid being subject to a 31% Federal backup withholding tax on
taxable dividends, capital gains distributions and the proceeds of redemptions
and repurchases, shareholders' taxpayer identification numbers must be
furnished and certified as to their accuracy.
Under current federal tax law, the Fund will receive net investment income
in the form of interest by virtue of holding Treasury bills, notes and bonds,
and will recognize income attributable to it from holding zero coupon Treasury
securities. Current federal tax law requires that a holder (such as the Fund)
of a zero coupon security accrue a portion of the discount at which the
security was purchased as income each year even though the Fund receives no
interest payment in cash on the security during the year. As an investment
company, the Fund must pay out substantially all of its net investment income
each year. Accordingly, the Fund, to the extent it invests in zero coupon
Treasury securities, may be required to pay out as an income distribution each
year an amount which is greater than the total amount of cash receipts of
interest the Fund actually received. Such distributions will be made from the
available cash of the Fund or by liquidation of portfolio securities if
necessary. If a distribution of cash necessitates the liquidation of portfolio
securities, the Investment Manager will select which securities to sell. The
Fund may realize a gain or loss from such sales. In the event the Fund realizes
net capital gains from such transactions, its shareholders may receive a larger
capital gain distribution, if any, than they would in the absence of such
transactions.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and some
portion of the dividends are subject to federal income taxes. If the net asset
value of the shares should be reduced below a shareholder's cost as a result of
the payment of dividends or the distribution of realized long-term capital
gains, such payment or distribution would be in part a return of capital but
nonetheless would be taxable to the shareholder. Therefore, an investor should
consider the tax implications of purchasing Fund shares immediately prior to a
distribution record date.
Shareholders are urged to consult their attorneys or tax advisors
regarding specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. These figures are
computed separately for Class A, Class B, Class C and Class D shares. The
Fund's "average annual total return" represents an annualization of the Fund's
total return over a specified period and is computed by finding the annual
percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. The ending redeemable value
is reduced by any CDSC at the end of the one, five or ten year or other period.
For the purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing the average annual
total return involves a percentage obtained by dividing the ending redeemable
value by the amount of the initial investment, taking a root of the quotient
(where the root is equivalent to the number of years in the period) and
subtracting 1 from the result. The average annual total returns of Class B for
the fiscal year ended September 30, 1998 and for the period June 26, 1996
(commencement of operations) through
33
<PAGE>
September 30, 1998 were -9.66% and 9.89%, respectively. The average annual
total returns of Class A for the fiscal year ended September 30, 1998 and for
the period July 28, 1997 (inception of the Class) through September 30, 1998
were -9.67% and -3.67%, respectively. The average annual total returns of Class
C for the fiscal year ended September 30, 1998 and for the period July 28, 1997
(inception of the Class) through September 30, 1998 were -6.25% and 0.09%,
respectively. The average annual total returns of Class D for the fiscal year
ended September 30, 1998 and for the period July 28, 1997 (inception of the
Class) through September 30, 1998 were -4.46% and 1.06%, respectively.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for Class
A or the deduction of the CDSC for each of Class B and Class C which, if
reflected, would reduce the performance quoted. For example, the average annual
total return of the Fund may be calculated in the manner described in the
preceding paragraph, but without deduction for any applicable sales charge.
Based on this calculation, the average annual total returns of Class B for the
fiscal year ended September 30, 1998 and for the period June 26, 1996
(commencement of operations) through September 30, 1998 were -5.29% and 11.06%,
respectively. Based on this calculation, the average annual total returns of
Class A for the fiscal year ended September 30, 1998 and for the period July
28, 1997 through September 30, 1998 were -4.67% and 0.86%, respectively, the
average annual total returns of Class C for the fiscal year ended September 30,
1998 and for the period July 28, 1997 through September 30, 1998 were -5.38%
and 0.09%, respectively, and the average annual total returns of Class D for
the fiscal year ended September 30, 1998 and for the period July 28, 1997
through September 30, 1998 were -4.46% and 1.06%, respectively.
In addition, the Fund may compute its aggregate total return for each
Class for specified periods by determining the aggregate percentage rate which
will result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed
that all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without reduction for any sales charge) by the initial $1,000 investment
and subtracting 1 from the result. Based on the foregoing calculation, the
total returns for Class B for the fiscal year ended September 30, 1998 and for
the period June 26, 1996 (commencement of operations) through September 30,
1998 were -5.29% and 26.78%, respectively. Based on the foregoing calculations,
the total returns for Class A for the fiscal year ended September 30, 1998 and
for the period July 28, 1997 through September 30, 1998 were -4.67% and 1.01%,
respectively, the total returns of Class C for the fiscal year ended September
30, 1998 and for the period July 28, 1997 through September 30, 1998 were
- -5.38% and 0.10%, respectively, and the total returns of Class D for the fiscal
year ended September 30, 1998 and for the period July 28, 1997 through
September 30, 1998 were -4.46% and 1.25%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1
to the Fund's aggregate total return to date (expressed as a decimal and
without taking into account the effect of any applicable CDSC) and multiplying
by $9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 and $100,000 adjusted for the initial sales charge) or by $10,000,
$50,000 and $100,000 in the case of each of Class B, Class C and Class D, as
the case may be. Investments of $10,000, $50,000 and $100,000 in each Class at
inception of the Class would have grown to the following amounts at September
30, 1998:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION ----------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ---------------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Class A ............ 07/28/97 $9,570 $48,485 $97,980
Class B ............ 06/26/96 12,678 63,390 126,780
Class C ............ 07/28/97 10,010 50,050 100,100
Class D ............ 07/28/97 10,125 50,625 101,250
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
34
<PAGE>
SHARES OF THE FUND
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share of beneficial interest held. The Fund is authorized to issue an unlimited
number of shares of beneficial interest. All of the Trustees have been elected
by the shareholders of the Fund, most recently at a Special Meeting of
Shareholders held on May 21, 1997. The Trustees themselves have the power to
alter the number and the terms of office of the Trustees (as provided for in
the Declaration of Trust), and they may at any time lengthen or shorten their
own terms or make their terms of unlimited duration and appoint their own
successors, provided that always at least a majority of the Trustees has been
elected by the shareholders of the Fund. Under certain circumstances the
Trustees may be removed by action of the Trustees. The shareholders also have
the right under certain circumstances to remove the Trustees. The voting rights
of shareholders are not cumulative, so that holders of more than 50 percent of
the shares voting can, if they choose, elect all Trustees being selected, while
the holders of the remaining shares would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series. The Trustees have not authorized any such additional series
or classes of shares, other than as set forth in the Prospectus.
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor is
any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise
from his/her or its own bad faith, willful misfeasance, gross negligence or
reckless disregard of his/her or its duties. It also provides that all third
persons shall look solely to the Fund property for satisfaction of claims
arising in connection with the affairs of the Fund. With the exceptions stated,
the Declaration of Trust provides that a Trustee, officer, employee or agent is
entitled to be indemnified against all liability in connection with the affairs
of the Fund.
The Fund is authorized to issue an unlimited number of shares of
beneficial interest.
The Fund shall be of unlimited duration subject to the provisions in the
Declaration of Trust concerning termination by action of the shareholders or
the Trustees.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), Harborside Financial
Center, Plaza Two, Jersey City, New Jersey 07311 is the Transfer Agent of the
Fund's shares and Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various
investment plans described herein. MSDW Trust is an affiliate of Morgan Stanley
Dean Witter Advisors Inc., the Fund's Investment Manager and Morgan Stanley
Dean Witter Distributors Inc., the Fund's Distributor. As Transfer Agent and
Dividend Disbursing Agent, MSDW Trust's responsibilities include maintaining
shareholder accounts, disbursing cash dividends and reinvesting dividends,
processing account registration changes, handling purchase and redemption
transactions, mailing prospectuses and reports, mailing and tabulating proxies,
processing share certificate transactions, and maintaining shareholder records
and lists. For these services MSDW Trust receives a per shareholder account fee
from the Fund.
35
<PAGE>
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP serves as the independent accountants of the
Fund. The independent accountants are responsible for auditing the annual
financial statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports
showing the Fund's portfolio and other information. An annual report,
containing financial statements audited by independent accountants, will be
sent to shareholders each year.
The Fund's fiscal year ends on September 30. The financial statements of
the Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The annual financial statements of the Fund for the fiscal year ended
September 30, 1998 which are included in the Statement of Additional
Information and incorporated by reference in the Prospectus, have been so
included and incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
36
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (45.4%)
Accident & Health Insurance (0.8%)
96,000 Torchmark Corp. ................................... $ 3,450,000
------------
Apparel (0.8%)
132,000 Kellwood Co. ...................................... 3,547,500
------------
Auto Parts -- Original Equipment (1.7%)
97,000 Dana Corp. ........................................ 3,619,312
78,000 Johnson Controls, Inc. ............................ 3,627,000
------------
7,246,312
------------
Building Materials (1.7%)
70,000 Armstrong World Industries, Inc. .................. 3,745,000
34,000 Vulcan Materials Co. .............................. 3,440,375
------------
7,185,375
------------
Clothing/Shoe/Accessory Chains (0.8%)
157,000 Limited (The), Inc. ............................... 3,444,187
------------
Consumer Electric/Appliances (0.8%)
76,000 Whirlpool Corp. ................................... 3,572,000
------------
Consumer Sundries (0.8%)
92,000 American Greetings Corp. (Class A) ................ 3,639,750
------------
Containers/Packaging (0.8%)
130,000 Crown Cork & Seal Co., Inc. ....................... 3,477,500
------------
Diversified Financial Services (0.7%)
33,000 Providian Financial Corp. ......................... 2,798,812
------------
Electric Utilities: East (1.7%)
92,000 New England Electric System ....................... 3,818,000
94,000 Public Service Enterprise Group, Inc. ............. 3,695,375
------------
7,513,375
------------
Electric Utilities: South (0.9%)
121,000 Houston Industries Inc. ........................... 3,766,125
------------
Finance Companies (2.4%)
55,000 Associates First Capital Corp. (Class A) .......... 3,588,750
56,000 Fannie Mae ........................................ 3,598,000
105,000 SLM Holding Corp. ................................. 3,405,936
------------
10,592,686
------------
Food Distributors (0.8%)
156,000 Supervalu, Inc. ................................... 3,636,750
------------
Home Building (0.8%)
115,000 Fleetwood Enterprises, Inc. ....................... 3,471,562
------------
Life Insurance (1.1%)
17,622 Aegon N.V. (ADR) (Netherlands) .................... 1,372,313
59,000 Jefferson-Pilot Corp. ............................. 3,569,500
------------
4,941,813
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Major Banks (0.8%)
116,000 KeyCorp .......................................... $ 3,349,500
------------
Major Chemicals (3.3%)
42,000 Dow Chemical Co. ................................. 3,588,375
123,000 Hercules, Inc. ................................... 3,697,688
67,000 PPG Industries, Inc. ............................. 3,655,688
127,000 Rohm & Haas Co. .................................. 3,532,188
------------
14,473,939
------------
Major Pharmaceuticals (0.8%)
35,000 Schering-Plough Corp. ............................ 3,624,688
------------
Major U.S. Telecommunications (3.4%)
62,000 AT&T Corp. ....................................... 3,623,125
76,000 Bell Atlantic Corp. .............................. 3,681,250
68,000 GTE Corp. ........................................ 3,740,000
69,000 U.S. West Communications Group, Inc. ............. 3,618,188
------------
14,662,563
------------
Meat/Poultry/Fish (0.8%)
132,000 Hormel Foods Corp. ............................... 3,572,250
------------
Mid-Sized Banks (1.5%)
192,000 First Security Corp. ............................. 3,204,000
126,000 First Tennessee National Corp. ................... 3,433,500
------------
6,637,500
------------
Motor Vehicles (2.4%)
72,000 Chrysler Corp. ................................... 3,447,000
74,500 Ford Motor Co. ................................... 3,496,844
62,000 General Motors Corp. ............................. 3,390,625
------------
10,334,469
------------
Multi-Line Insurance (0.8%)
41,000 Lincoln National Corp. ........................... 3,372,250
------------
Multi-Sector Companies (0.8%)
105,000 Tenneco, Inc. .................................... 3,451,875
------------
Natural Gas -- Distribution (0.9%)
71,000 Consolidated Natural Gas Co. ..................... 3,869,500
------------
Newspapers (0.5%)
136,344 Hollinger International, Inc. (Class A) .......... 1,959,945
------------
Oil Refining/Marketing (0.8%)
75,000 Ashland, Inc. .................................... 3,468,750
------------
Other Metals/Minerals (0.9%)
280,000 Cyprus Amax Minerals Co. ......................... 3,710,000
------------
Real Estate Investment Trust (5.3%)
98,300 Boston Properties, Inc. .......................... 2,801,550
120,000 Equity One, Inc. ................................. 1,050,000
59,250 Healthcare Realty Trust, Inc. .................... 1,510,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C>
91,500 LTC Properties, Inc. ................................ $ 1,595,531
100,000 Meditrust Corp. ..................................... 1,706,250
92,377 MeriStar Hospitality Corp. .......................... 1,576,183
200,000 Mid-Atlantic Realty Trust ........................... 2,700,000
50,420 New Plan Excel Realty Trust ......................... 1,175,416
145,000 Reckson Associates Realty Corp. ..................... 3,407,500
208,800 Sunstone Hotel Investors, Inc. ...................... 1,892,250
68,800 Tanger Factory Outlet Centers, Inc. ................. 1,560,900
60,000 Trinet Corporate Realty Trust, Inc. ................. 1,957,500
------------
22,933,955
------------
Savings & Loan Associations (2.4%)
166,000 TCF Financial Corp. ................................. 3,299,250
148,000 Washington Federal, Inc. ............................ 3,700,000
102,000 Washington Mutual, Inc. ............................. 3,423,375
------------
10,422,625
------------
Smaller Banks (0.9%)
73,000 Wilmington Trust Corp. .............................. 3,723,000
------------
Steel/Iron Ore (0.8%)
150,000 USX-U.S. Steel Group, Inc. .......................... 3,581,250
------------
Tobacco (1.7%)
80,000 Philip Morris Companies, Inc. ....................... 3,685,000
120,000 UST, Inc. ........................................... 3,547,500
------------
7,232,500
------------
TOTAL COMMON STOCKS
(Identified Cost $189,888,715) ...................... 196,664,306
------------
CONVERTIBLE PREFERRED STOCKS (19.2%)
Accident & Health Insurance (0.5%)
85,000 AmerUs Life Holdings, Inc. .......................... 2,061,250
------------
Apparel (0.3%)
30,500 Warnaco Group, Inc. $3.00 ........................... 1,220,000
------------
Auto Parts (0.7%)
94,000 BTI Capital Trust $3.25 -- 144A* .................... 1,880,000
68,500 Walbro Capital Trust $2.00 .......................... 1,147,375
------------
3,027,375
------------
Books/Magazine (0.6%)
130,000 Reader's Digest Association, Inc $1.93............... 2,705,625
------------
Broadcasting (0.9%)
109,700 Metromedia International Group, Inc. $3.625.......... 2,495,675
145,000 Triathlon Broadcasting Co. $0.945 ................... 1,377,500
------------
3,873,175
------------
Business Services (0.7%)
63,000 Unisys Corp. (Series A) $3.75 ....................... 2,984,625
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Containers/Packaging (0.6%)
70,000 Sealed Air Corp. (Series A) $2.00 ................................. $ 2,528,750
------------
Finance (0.3%)
39,200 Insignia Financing, Inc. $3.25..................................... 1,496,970
------------
Investment Bankers/Brokers/Services (0.9%)
90,000 Merrill Lynch & Co., Inc. $2.39
(exchangeable into IMC Global, Inc. common stock) ................. 1,991,250
25,800 Merrill Lynch & Co., Inc. $4.087
(exchangeable into SunAmerica, Inc. common stock) ................. 1,886,625
------------
3,877,875
------------
Machinery (0.6%)
117,000 Ingersoll-Rand Co. $1.688 ......................................... 2,457,000
------------
Major U.S. Telecommunications (1.2%)
44,100 Loral Space & Commmunications Ltd. $3.00 -- 144A* (Bermuda) 1,990,012
47,000 Loral Space & Communications Ltd. (Series C) $3.00 (Bermuda) ...... 2,120,875
27,000 Qualcomm Financial Trust $2.875 ................................... 1,128,951
------------
5,239,838
------------
Movies/Entertainment (0.6%)
70,000 Premier Parks, Inc. $4.05.......................................... 2,730,000
------------
Non-U.S. Banks (1.5%)
135,000 National Australia Bank, Ltd. $1.969 (Australia) (Units)++ ........ 3,594,375
111,500 WBK Strypes Trust $3.135........................................... 3,080,187
------------
6,674,562
------------
Oil Refining/Marketing (0.7%)
200,000 Tesoro Petroleum Corp. $1.16 ...................................... 2,850,000
------------
Other Consumer Services (0.6%)
100,000 Cendant Corp. $3.75 ............................................... 2,500,000
------------
Package Goods/Cosmetics (0.9%)
72,000 Estee Lauder Co. $3.80 ............................................ 3,960,000
------------
Property -- Casualty Insurance (0.5%)
210,000 Philadelphia Consolidated Holding Co. $0.70 ....................... 2,047,500
------------
Railroads (0.8%)
75,000 Union Pacific Capital Trust $3.125 -- 144A* ....................... 3,375,000
------------
Real Estate Investment Trust (3.1%)
61,400 Camden Property Trust (Series A) $2.25 ............................ 1,542,675
182,000 FelCor Lodging Trust, Inc. (Series A) $1.95 ....................... 3,913,000
113,000 Merry Land & Investment Co., Inc. (Series C) $2.15 ................ 2,973,313
36,600 Rouse Co. (Series B) $3.00 ........................................ 1,647,000
140,000 SL Green Realty Corp. $2.00 ....................................... 3,360,000
------------
13,435,988
------------
Smaller Banks (0.9%)
145,000 CNB Capital Trust I $1.50.......................................... 3,878,750
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Steel/Iron Ore (0.7%)
165,000 USX Corp. ............................................... $ 3,114,375
------------
Telecommunications (0.8%)
67,500 EchoStar Communications Corp. (Series C) $3.375.......... 3,628,125
------------
Unregulated Power Generation (0.8%)
81,000 CalEnergy Capital Trust $3.25............................ 3,371,625
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Identified Cost $101,063,650)........................... 83,038,408
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ----------- ------------ -----------
<S> <C> <C> <C> <C>
CORPORATE BONDS (33.5%)
CONVERTIBLE BONDS (12.1%)
Assisted Living Services (0.7%)
$ 1,500 ARV Assisted Living, Inc. .................... 6.75 % 04/01/06 868,500
3,000 Emeritus Corp. -- 144A* ...................... 6.25 01/01/06 2,099,460
---------
2,967,960
---------
Auto Parts (2.0%)
4,000 Mark IV Industries, Inc. -- 144A* ............ 4.75 11/01/04 3,326,240
3,000 MascoTech, Inc. .............................. 4.50 12/15/03 2,553,750
2,700 Tower Automotive, Inc. -- 144A* .............. 5.00 08/01/04 2,592,000
---------
8,471,990
---------
Books/Magazine (0.1%)
640 Nelson (Thomas), Inc. ........................ 5.75 11/30/99 635,341
---------
Cable/Cellular (0.7%)
7,850 U.S. Cellular Corp. .......................... 0.00 06/15/15 2,983,157
---------
Clothing/Shoe/Accessory Chains (1.3%)
4,400 Genesco Inc. -- 144A* ........................ 5.50 04/15/05 2,549,492
3,200 Saks Holdings, Inc. .......................... 5.50 09/15/06 3,168,000
---------
5,717,492
---------
Finance (0.8%)
4,000 Financial Federal Corp. -- 144A* ............. 4.50 05/01/05 3,665,000
---------
Machinery (0.5%)
2,300 Thermo Fibertek, Inc. -- 144A* ............... 4.50 07/15/04 2,110,250
---------
Major U.S. Telecommunications (0.8%)
3,700 Bell Atlantic Financial Service -- 144A*...... 4.25 09/15/05 3,590,147
750 SA Telecommunications, Inc.
-- 144A* (a) ................................. 10.00 08/15/06 22,500
---------
3,612,647
---------
Managed Health Care (1.1%)
4,400 Concentra Managed Care, Inc. -- 144A*......... 4.50 03/15/03 2,824,272
5,400 Phymatrix Corp. .............................. 6.75 06/15/03 2,052,000
---------
4,876,272
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Medical Electronics (0.4%)
$ 2,100 ThermoTrex Corp. ............................. 3.25% 11/01/07 $1,523,508
----------
Office Equipment & Supplies (0.7%)
4,750 Danka Business Systems, PLC
(United Kingdom) ............................. 6.75 04/01/02 3,090,492
----------
Real Estate Investment Trust (1.6%)
3,800 Capstar Hotel Corp. .......................... 4.75 10/15/04 2,539,426
4,425 Capstone Capital Corp. ....................... 6.55 03/14/02 4,211,892
----------
6,751,318
----------
Services to the Health Industry (0.4%)
1,380 Pharmaceutical Marketing Services, Inc. 6.25 02/01/03 1,204,354
675 Pharmaceutical Marketing Services, Inc.
(Eurobond) ................................... 6.25 02/01/03 590,625
----------
1,794,979
----------
Shoe Manufacturing (1.0%)
2,300 Nine West Group, Inc. ........................ 5.50 07/15/03 1,520,507
4,300 Nine West Group, Inc. -- 144A* ............... 5.50 07/15/03 2,842,687
----------
4,363,194
----------
TOTAL CONVERTIBLE BONDS
(Identified Cost $64,902,503) .......................................... 52,563,600
----------
NON-CONVERTIBLE BONDS (21.4%)
Books/Magazine (0.7%)
2,200 Big Flower Press, Inc. ....................... 8.875 07/01/07 2,145,000
1,000 Hollinger International Publishing, Inc. 9.25 02/01/06 1,025,000
----------
3,170,000
----------
Broadcasting (2.0%)
3,000 JCAC Inc. .................................... 10.125 06/15/06 3,285,000
5,060 Young Broadcasting Corp. ..................... 11.75 11/15/04 5,388,900
----------
8,673,900
----------
Building Materials (0.7%)
2,850 USG Corp. (Series B) ......................... 9.25 09/15/01 3,113,824
----------
Cable/Cellular (3.8%)
12,950 Continental Cablevision, Inc. ................ 11.00 06/01/07 14,073,801
2,000 Tele-Communications, Inc. .................... 9.25 04/15/02 2,259,520
----------
16,333,321
----------
Casino/Gambling (1.0%)
4,200 Casino Magic Finance Corp. ................... 11.50 10/15/01 4,200,000
----------
Diversified Financial Services (3.6%)
14,060 Groupe Videotron Ltee (Canada) ............... 10.625 02/15/05 15,413,275
----------
Drug Store Chain (0.5%)
1,950 Thrifty PayLess Holdings, Inc. ............... 12.25 04/15/04 2,132,813
----------
Major Chemicals (1.7%)
7,000 Harris Chemical North America, Inc. .......... 10.75 10/15/03 7,245,000
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Managed Health Care (1.0%)
$ 4,000 Healthsouth Rehabilitation Corp. ............ 9.50% 04/01/01 $ 4,130,000
------------
Media Conglomerates (0.7%)
3,000 Garden State Newspapers, Inc. ............... 12.00 07/01/04 3,240,000
------------
Miscellaneous (2.3%)
6,960 Huntsman Polymers Corp. ..................... 11.75 12/01/04 7,273,200
2,900 Ivaco, Inc. (Canada) ........................ 11.50 09/15/05 2,784,000
------------
10,057,200
------------
Movies/Entertainment (0.5%)
2,000 Time Warner, Inc. ........................... 9.625 05/01/02 2,269,180
------------
Specialty Steel (1.9%)
8,000 AK Steel Corp. .............................. 10.75 04/01/04 8,320,000
------------
Textiles (1.0%)
4,300 Dan River, Inc. ............................. 10.125 12/15/03 4,450,500
------------
TOTAL NON-CONVERTIBLE BONDS
(Identified Cost $95,138,077)........................................ 92,749,013
------------
TOTAL CORPORATE BONDS
(Identified Cost $160,040,580)....................................... 145,312,613
------------
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT
1,701 The Bank of New York (dated
09/30/98; proceeds $1,701,930) (b)
(Identified Cost $1,701,694)................. 5.00 10/01/98 1,701,694
------------
TOTAL INVESTMENTS
(Identified Cost $452,694,639) (c)..................... 98.5% 426,717,021
OTHER ASSETS IN EXCESS OF LIABILITIES ................ 1.5 6,513,009
------------
NET ASSETS ............................................ 100.0% $433,230,030
============
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Resale is restricted to qualified institutional investors.
++ Consists of more than one class of securities traded together as a
unit; stocks with attached warrants.
(a) Non-income producing security; bond in default.
(b) Collateralized by $1,627,093 U.S. Treasury Note 6.25% due
01/31/02 valued at $1,735,727.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$24,041,088 and the aggregate gross unrealized depreciation is
$50,018,706, resulting in net unrealized depreciation of
$25,977,618.
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (identified cost $452,694,639)........ $ 426,717,021
Receivable for:
Interest .............................................................. 4,016,177
Investments sold ...................................................... 3,162,862
Dividends ............................................................. 753,565
Shares of beneficial interest sold .................................... 562,079
Deferred organizational expenses ......................................... 89,536
Prepaid expenses and other assets ........................................ 66,495
-------------
TOTAL ASSETS ........................................................... 435,367,735
-------------
LIABILITIES:
Payable for:
Investments purchased ................................................. 1,025,876
Plan of distribution fee .............................................. 357,189
Shares of beneficial interest repurchased ............................. 287,751
Investment management fee ............................................. 267,986
Dividends and distributions to shareholders ........................... 91,008
Accrued expenses and other payables ...................................... 107,895
-------------
TOTAL LIABILITIES ...................................................... 2,137,705
-------------
NET ASSETS ............................................................. $ 433,230,030
=============
COMPOSITION OF NET ASSETS:
Paid-in-capital .......................................................... $ 434,715,783
Net unrealized depreciation .............................................. (25,977,618)
Accumulated undistributed net investment income .......................... 3,454,171
Accumulated undistributed net realized gain .............................. 21,037,694
-------------
NET ASSETS ............................................................. $ 433,230,030
=============
CLASS A SHARES:
Net Assets ............................................................... $10,073,263
Shares Outstanding (unlimited authorized, $.01 par value)................. 900,992
NET ASSET VALUE PER SHARE .............................................. $11.18
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ...................... $11.80
======
CLASS B SHARES:
Net Assets ............................................................... $416,908,604
Shares Outstanding (unlimited authorized, $.01 par value) ................ 37,280,650
NET ASSET VALUE PER SHARE .............................................. $11.18
======
CLASS C SHARES:
Net Assets ............................................................... $5,630,261
Shares Outstanding (unlimited authorized, $.01 par value) ................ 504,418
NET ASSET VALUE PER SHARE .............................................. $11.16
======
CLASS D SHARES:
Net Assets ............................................................... $617,902
Shares Outstanding (unlimited authorized, $.01 par value) ................ 55,258
NET ASSET VALUE PER SHARE .............................................. $11.18
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended September 30, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest .................................................. $ 14,163,882
Dividends (net of $2,739 foreign withholding tax) ......... 11,937,421
-------------
TOTAL INCOME ............................................ 26,101,303
-------------
EXPENSES
Plan of distribution fee (Class A shares) ................. 18,844
Plan of distribution fee (Class B shares) ................. 3,886,869
Plan of distribution fee (Class C shares) ................. 41,480
Investment management fee ................................. 3,387,158
Transfer agent fees and expenses .......................... 380,586
Registration fees ......................................... 165,230
Shareholder reports and notices ........................... 66,522
Professional fees ......................................... 50,805
Custodian fees ............................................ 47,954
Organizational expenses ................................... 32,715
Trustees' fees and expenses ............................... 11,998
Other ..................................................... 20,188
-------------
TOTAL EXPENSES .......................................... 8,110,349
-------------
NET INVESTMENT INCOME ................................... 17,990,954
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain ......................................... 21,800,391
Net change in unrealized appreciation ..................... (68,902,232)
-------------
NET LOSS ................................................ (47,101,841)
-------------
NET DECREASE .............................................. $ (29,110,887)
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997*
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................ $ 17,990,954 $ 10,365,875
Net realized gain .................................... 21,800,391 17,728,044
Net change in unrealized appreciation ................ (68,902,232) 39,732,802
------------- ------------
NET INCREASE (DECREASE) ............................ (29,110,887) 67,826,721
------------- ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares .................................... (344,600) (7,078)
Class B shares .................................... (15,186,529) (9,398,309)
Class C shares .................................... (153,463) (7,487)
Class D shares .................................... (16,323) (193)
Net realized gain
Class A shares .................................... (264,926) --
Class B shares .................................... (18,061,378) (157,191)
Class C shares .................................... (92,820) --
Class D shares .................................... (1,956) --
------------- ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS .................. (34,121,995) (9,570,258)
------------- ------------
Net increase from transactions in shares of beneficial
interest ........................................... 135,434,833 154,629,702
------------- ------------
NET INCREASE ....................................... 72,201,951 212,886,165
NET ASSETS:
Beginning of period .................................. 361,028,079 148,141,914
------------- ------------
END OF PERIOD
(Including undistributed net investment income of
$3,454,171 and $1,125,380, respectively) .......... $ 433,230,030 $361,028,079
============= ============
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Income Builder Fund (the "Fund"), formerly Dean
Witter Income Builder Fund, is registered under the Investment Company Act of
1940, as amended (the "Act"), as a diversified, open-end management investment
company. The Fund's primary investment objective is to seek reasonable income
and, as a secondary objective, growth of capital. The Fund seeks to achieve its
objective by investing primarily in income-producing equity securities,
including common and preferred stocks as well as convertible securities. The
Fund was organized as a Massachusetts business trust on March 21, 1996 and
commenced operations on June 26, 1996. On July 28, 1997, the Fund commenced
offering three additional classes of shares, with the then current shares
designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price
(in cases where securities are traded on more than one exchange, the security
is valued on the exchange designated as the primary market pursuant to
procedures adopted by the Trustees); (2) all other portfolio securities for
which over-the-counter market quotations are readily available are valued at
the latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager"), formerly Dean Witter InterCapital Inc., that sale or bid prices are
not reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by
and under the general supervision of the Trustees (valuation of debt securities
for which market quotations are not readily available may be based upon current
market prices of securities which are comparable in coupon, rating and maturity
or an appropriate matrix utilizing similar factors); (4) certain portfolio
securities may be valued by an outside pricing service approved by
47
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued
the Trustees. The pricing service may utilize 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, if available, in determining what it believes is the
fair valuation of the securities valued by such pricing service; and (5)
short-term debt securities having a maturity date of more than sixty days at
time of purchase are valued on a mark-to-market basis until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends on foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. Discounts are accreted over
the life of the respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date
such items are recognized. Distribution fees are charged directly to the
respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amounts of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
48
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued
F. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $164,000 which have been
reimbursed for the full amount thereof. Such expenses have been deferred and
are being amortized on the straight-line method over a period not to exceed
five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.75% to the net assets of the Fund determined as of the close
of each business day. Effective May 1, 1998 the Agreement was amended to reduce
the annual rate to 0.725% of the portion of daily net assets in excess of $500
million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Class B
shares since the inception of the Fund (not including reinvestment of dividend
or capital gain distributions) less the average daily aggregate net asset value
of the Class B shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or waived; or (b) the average
daily net assets of Class B; and (iii) Class C -- up to 1.0% of the average
daily net assets of Class C. In the case of Class A shares, amounts paid under
the Plan are paid to the Distributor for services provided. In the case of
Class B and Class C shares, amounts paid under the Plan are paid to the
Distributor for (1) services provided and the expenses borne by it and others
in the distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter Financial Advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; (2) printing and
distribution of prospectuses and reports used in connection with the offering
of these shares to other than current shareholders; and (3) preparation,
printing and distribution
49
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued
of sales literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan, in the case of Class B shares, to
compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment
Manager and Distributor, and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the Distributor
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. The Distributor has advised the Fund that such excess amounts,
including carrying charges, totaled $18,378,964 at September 30, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended September 30, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the year ended September 30,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B and Class C shares of $1,076,184 and $4,960, respectively
and received $99,718 in front-end sales charges from sales of the Fund's Class
A shares. The respective shareholders pay such charges which are not an expense
of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for year the ended September 30, 1998
aggregated $370,672,491 and $254,895,716, respectively.
For the year ended September 30, 1998, the Fund incurred $141,296 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
At September 30, 1998, the Fund's receivable for investments sold and payable
for investments purchased included unsettled trades with DWR of $1,671,518 and
$889,375, respectively.
50
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued
For the year ended September 30, 1998, the Fund incurred $6,600 in brokerage
commissions with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager and Distributor, for portfolio transactions executed on behalf of the
Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At September 30, 1998, the Fund
had transfer agent fees and expenses payable of approximately $5,100.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997*
--------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ................................................ 887,465 $ 11,197,972 84,697 $ 1,060,929
Reinvestment of dividends and distributions ......... 26,670 324,319 297 3,779
Redeemed ............................................ (94,880) (1,168,724) (3,257) (41,000)
------- ------------- ------ -------------
Net increase - Class A .............................. 819,255 10,353,567 81,737 1,023,708
------- ------------- ------ -------------
CLASS B SHARES
Sold ................................................ 14,488,236 183,541,957 16,601,412 187,858,686
Reinvestment of dividends and distributions ......... 2,214,603 27,031,378 629,815 7,297,503
Redeemed ............................................ (7,439,745) (91,648,973) (3,697,289) (42,533,458)
---------- ------------- ---------- -------------
Net increase - Class B .............................. 9,263,094 118,924,362 13,533,938 152,622,731
---------- ------------- ---------- -------------
CLASS C SHARES
Sold ................................................ 513,124 6,515,096 80,094 1,000,747
Reinvestment of dividends and distributions ......... 17,520 213,338 519 6,601
Redeemed ............................................ (103,278) (1,268,428) (3,561) (44,293)
---------- ------------- ---------- -------------
Net increase - Class C .............................. 427,366 5,460,006 77,052 963,055
---------- ------------- ---------- -------------
CLASS D SHARES
Sold ................................................ 57,284 742,379 1,633 20,015
Reinvestment of dividends and distributions ......... 492 6,014 15 193
Redeemed ............................................ (4,166) (51,495) -- --
---------- ------------- ---------- -------------
Net increase - Class D .............................. 53,610 696,898 1,648 20,208
---------- ------------- ---------- -------------
Net increase in Fund ................................ 10,563,325 $ 135,434,833 13,694,375 $ 154,629,702
========== ============= ========== =============
</TABLE>
- ---------------
* For Class A, C and D, for the period July 28, 1997 (issue date) through
September 30, 1997.
6. FEDERAL INCOME TAX STATUS
As of September 30, 1998, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences attributable to nondeductible expenses. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged and accumulated undistributed net investment income was credited
$38,752.
51
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JUNE 26, 1996*
ENDED ENDED THROUGH
SEPTEMBER 30, 1998++ SEPTEMBER 30, 1997**++ SEPTEMBER 30, 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $ 12.81 $ 10.23 $ 10.00
--------- -------- --------
Net investment income ........................... 0.50 0.46 0.08
Net realized and unrealized gain (loss) ......... (1.11) 2.54 0.23
--------- -------- --------
Total from investment operations ................ (0.61) 3.00 0.31
--------- -------- --------
Less dividends and distributions from:
Net investment income .......................... (0.43) (0.41) (0.08)
Net realized gain .............................. (0.59) (0.01) --
--------- -------- --------
Total dividends and distributions ............... (1.02) (0.42) (0.08)
--------- -------- --------
Net asset value, end of period .................. $ 11.18 $ 12.81 $ 10.23
========= ======== ========
TOTAL INVESTMENT RETURN+ ........................ (5.29)% 29.83% 3.10%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.80%(3) 1.85% 2.25%(2)
Net investment income ........................... 3.98%(3) 4.16% 3.60%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $416,909 $358,973 $148,142
Portfolio turnover rate ......................... 58% 74% 7%(1)
</TABLE>
- -------------
* Commencement of operations.
** Prior to July 28, 1997 the Fund issued one class of shares. All shares
held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
SEPTEMBER 30, 1998++ SEPTEMBER 30, 1997++
---------------------- ---------------------
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $ 12.81 $ 12.20
-------- --------
Net investment income ........................... 0.59 0.12
Net realized and unrealized gain (loss) ......... (1.12) 0.61
-------- --------
Total from investment operations ................ (0.53) 0.73
-------- --------
Less dividends and distributions from:
Net investment income .......................... (0.51) (0.12)
Net realized gain .............................. (0.59) --
-------- --------
Total dividends and distributions ............... (1.10) (0.12)
-------- --------
Net asset value, end of period .................. $ 11.18 $ 12.81
======== ========
TOTAL INVESTMENT RETURN+ ........................ (4.67)% 5.95%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.17%(3) 1.28%(2)
Net investment income ........................... 4.61%(3) 5.77%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $10,073 $ 1,047
Portfolio turnover rate ......................... 58% 74%
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $ 12.80 $ 12.20
-------- --------
Net investment income ........................... 0.50 0.10
Net realized and unrealized gain (loss) ......... (1.12) 0.61
-------- --------
Total from investment operations ................ (0.62) 0.71
-------- --------
Less dividends and distributions from:
Net investment income .......................... (0.43) (0.11)
Net realized gain .............................. (0.59) --
-------- --------
Total dividends and distributions ............... (1.02) (0.11)
-------- --------
Net asset value, end of period .................. $ 11.16 $ 12.80
======== ========
TOTAL INVESTMENT RETURN+ ........................ (5.38)% 5.79%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.92%(3) 1.98%(2)
Net investment income ........................... 3.86%(3) 4.61%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $ 5,630 $ 987
Portfolio turnover rate ......................... 58% 74%
</TABLE>
- -------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
SEPTEMBER 30, 1998++ SEPTEMBER 30, 1997++
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $ 12.82 $ 12.20
------- --------
Net investment income ........................... 0.64 0.12
Net realized and unrealized gain (loss) ......... (1.15) 0.62
------- --------
Total from investment operations ................ (0.51) 0.74
------- --------
Less dividends and distributions from:
Net investment income .......................... (0.54) (0.12)
Net realized gain .............................. (0.59) --
------- --------
Total dividends and distributions ............... (1.13) (0.12)
------- --------
Net asset value, end of period .................. $ 11.18 $ 12.82
======= ========
TOTAL INVESTMENT RETURN+ ........................ (4.46)% 5.98%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 0.92%(3) 0.96%(2)
Net investment income ........................... 4.86%(3) 5.41%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $ 618 $ 21
Portfolio turnover rate ......................... 58% 74%
</TABLE>
- -------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Income
Builder Fund (the "Fund"), formerly Dean Witter Income Builder, at September
30, 1998, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at September 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 6, 1998
- -------------------------------------------------------------------------------
1998 FEDERAL TAX NOTICE (unaudited)
During the year ended September 30, 1998, the Fund paid to its shareholders
$0.06 per share from long-term capital gains. Of this $0.06 distribution, $0.04
is taxable as 28% rate gain and $0.02 is taxable as 20% rate gain. For such
period, 39.97% of the income paid qualified for the dividends received
deduction available to corporations.
- -------------------------------------------------------------------------------
55
<PAGE>
TCW/DW
INCOME AND
GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 31, 1998
- --------------------------------------------------------------------------------
TCW/DW Income and Growth Fund (the "Fund") is an open-end, non-diversified
management investment company, whose investment objective is to generate high
total return by providing a high level of current income and the potential for
capital appreciation. The Fund seeks to achieve its investment objective by
investing primarily in convertible securities, fixed-income securities and
common stocks. See "Investment Objective and Policies."
A Prospectus for the Fund dated March 31, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below or
from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean Witter
Reynolds Inc. at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
TCW/DW INCOME AND GROWTH FUND
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund and its Management................................................. 3
Trustees and Officers....................................................... 6
Investment Practices and Policies........................................... 13
Investment Restrictions..................................................... 26
Portfolio Transactions and Brokerage........................................ 27
The Distributor............................................................. 29
Determination of Net Asset Value............................................ 32
Purchase of Fund Shares..................................................... 33
Shareholder Services........................................................ 35
Repurchases and Redemptions................................................. 39
Dividends, Distributions and Taxes.......................................... 41
Performance Information..................................................... 42
Description of Shares....................................................... 44
Custodian and Transfer Agent................................................ 44
Independent Accountants..................................................... 44
Reports to Shareholders..................................................... 45
Legal Counsel............................................................... 45
Experts..................................................................... 45
Registration Statement...................................................... 45
Report of Independent Accountants........................................... 46
Financial Statements--January 31, 1998...................................... 47
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
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
November 23, 1992. The Fund is one of the TCW/DW Funds, which currently
consist, in addition to the Fund, of TCW/DW North American Government Income
Trust, TCW/DW Latin American Growth Fund, TCW/DW Small Cap Growth Fund, TCW/DW
Mid-Cap Equity Trust, TCW/DW Global Telecom Trust, TCW/DW Term Trust 2000,
TCW/DW Term Trust 2002, TCW/DW Term Trust 2003, TCW/DW Emerging Markets
Opportunities Trust and TCW/DW Total Return Trust.
THE MANAGER
Dean Witter Services Company Inc. (the "Manager"), a Delaware corporation,
whose address is Two World Trade Center, New York, New York 10048, is the
Fund's Manager. The Manager is a wholly-owned subsidiary of Dean Witter
InterCapital Inc. ("InterCapital"), a Delaware corporation. InterCapital is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"), a
Delaware corporation. In an internal reorganization which took place in
January, 1993, InterCapital assumed the investment advisory, administrative and
management activities previously performed by the InterCapital Division of Dean
Witter Reynolds Inc. ("DWR"), a broker-dealer affiliate of the Manager. (As
hereinafter used in this Statement of Additional Information, the term
"InterCapital" refers to DWR's InterCapital Division prior to the internal
reorganization and to Dean Witter InterCapital Inc. thereafter.) The daily
management of the Fund is conducted by or under the direction of officers of
the Fund and of the Manager and Adviser (see below), subject to review by the
Fund's Board of Trustees. Information as to these Trustees and officers is
contained under the caption "Trustees and Officers."
Pursuant to a management agreement (the "Management Agreement") with the
Manager, the Fund has retained the Manager to manage the Fund's business
affairs, supervise the overall day-to-day operations of the Fund (other than
rendering investment advice) and provide all administrative services to the
Fund. Under the terms of the Management Agreement, the Manager also maintains
certain of the Fund's books and furnishes, at its own expense, such office
space, facilities, equipment, supplies, clerical help and bookkeeping and legal
services as the Fund may reasonably require in the conduct of its business,
including the preparation of prospectuses, statements of additional
information, proxy statements and reports required to be filed with the federal
and state securities commissions (except insofar as the participation or
assistance of independent accountants and attorneys is, in the opinion of the
Manager, necessary or desirable). In addition, the Manager pays the salaries of
all personnel, including officers of the Fund, who are employees of the
Manager. The Manager also bears the cost of the Fund's telephone service, heat,
light, power and other utilities.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Manager, the Fund pays the Manager
monthly compensation calculated daily by applying the following annual rates to
the net assets of the Fund determined as of the close of each business day:
0.45% of the portion of daily net assets not exceeding $500 million; and 0.42%
of the portion of daily net assets exceeding $500 million. While the total fees
payable under the Management Agreement and the Advisory Agreement (described
below) are higher than that paid by most other investment companies for similar
services, the Board of Trustees determined that the total fees payable under
the Management Agreement and the Advisory Agreement are reasonable in relation
to the scope and quality of services to be provided thereunder. In this regard,
in evaluating the Management Agreement and the Advisory Agreement, the Board of
Trustees recognized that the Manager and the Adviser had, pursuant to an
agreement described under the section entitled "The Adviser," agreed to a
division as between themselves of the total fees necessary for the management
of the business affairs of and the furnishing of investment advice to the Fund.
Accordingly, in reviewing the Management Agreement and Advisory Agreement, the
Board viewed as most significant the question as to whether the total fees
payable under the Management and Advisory Agreements were in the aggregate
reasonable in relation to the services to be provided thereunder. For the
fiscal years ended
3
<PAGE>
January 31, 1996, January 31, 1997 and January 31, 1998, the Fund accrued to
the Manager and InterCapital total compensation under the Management Agreement
(and the prior management agreements described below) of $247,315, $260,240 and
$275,518, respectively. The management fee is allocated among the Classes pro
rata based on the net assets of the Fund attributable to each Class.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Manager is not liable to the Fund or any of its
investors for any act or ommission by the Manager or for any losses sustained
by the Fund or its investors. The Management Agreement in no way restricts the
Manager from acting as manager to others.
InterCapital paid the organizational expenses of the Fund incurred prior to
the offering of the Fund's shares. The Fund has reimbursed InterCapital for
$200,000 of such expenses, in accordance with the terms of the Underwriting
Agreement between the Fund and Dean Witter Distributors Inc. The Fund has
deferred and is amortizing the reimbursed expenses on the straight line method
over a period not to exceed five years from the date of commencement of the
Fund's operations.
The Management Agreement was initially approved by the Trustees on June 4,
1994 and became effective on April 17, 1995. The Management Agreement replaced
a prior management agreement in effect between the Fund and the Manager, which
in turn replaced a management agreement between the Fund and InterCapital, the
parent company of the Manager. The nature and scope of services provided to the
Fund, and the formula to determine fees paid by the Fund under the Management
Agreement, are identical to those of the previous agreement. (The prior
management agreement, in turn, had replaced, on June 30, 1993, upon the
spin-off by Sears, Roebuck and Co. of its remaining shares of DWDC, an earlier
substantially identical management agreement which was approved by the Trustees
on January 21, 1993 and by InterCapital as the then sole shareholder on January
22, 1993.) The Management Agreement may be terminated at any time, without
penalty, on thirty days' notice by the Trustees of the Fund, or by the Manager.
Under its terms, the Management Agreement had an initial term ending April
30, 1995, and provides that it will continue in effect from year to year
thereafter, provided continuance of the Agreement is approved at least annually
by the Trustees of the Fund, including the vote of a majority of the Trustees
of the Fund who are not parties to the Management or Advisory Agreement or
"interested persons" (as defined in the Investment Company Act of 1940, as
amended (the "Act")), of any such party (the "Independent Trustees").
Continuation of the Management Agreement for one year, until April 30, 1998,
was approved by the Trustees, including a majority of the Independent Trustees,
at a meeting called for that purpose on April 24, 1997.
THE ADVISER
TCW Funds Management, Inc. (the "Adviser") is a wholly-owned subsidiary of
The TCW Group, Inc. ("TCW"), whose subsidiaries, including Trust Company of the
West and TCW Asset Management Company, provide a variety of trust, investment
management and investment advisory services. As of June 30, 1997, the Adviser
and its affiliates had over $50 billion under management or committed to
management. The Adviser is headquartered at 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017 and is registered as an investment adviser
under the Investment Advisers Act of 1940. In addition to the Fund, the Adviser
serves as investment adviser to ten other TCW/DW Funds: TCW/DW North American
Government Income Trust, TCW/DW Latin American Growth Fund, TCW/DW Small Cap
Growth Fund, TCW/DW Mid-Cap Equity Trust, TCW/DW Term Trust 2000, TCW/DW Term
Trust 2002, TCW/DW Term Trust 2003, TCW/DW Emerging Markets Opportunities
Trust, TCW/DW Global Telecom Trust, and TCW/DW Total Return Trust. The Adviser
also serves as investment adviser to TCW Convertible Securities Fund, Inc., a
closed-end investment company traded on the New York Stock Exchange, and to TCW
Galileo Funds, Inc., an open-end investment company, and acts as adviser or
sub-adviser to other investment companies.
Robert A. Day, who is Chairman of the Board of Directors of TCW, may be
deemed to be a control person of the Adviser by virtue of the aggregate
ownership of Mr. Day and his family of more than 25% of the outstanding voting
stock of TCW.
4
<PAGE>
Pursuant to an investment advisory agreement (the "Advisory Agreement")
with the Adviser, the Fund has retained the Adviser to invest the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. The Adviser obtains and evaluates such information and advice
relating to the economy, securities markets, and specific securities as it
considers necessary or useful to continuously manage the assets of the Fund in
a manner consistent with its investment objective. In addition, the Adviser
pays the salaries of all personnel, including officers of the Fund, who are
employees of the Adviser.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Adviser, the Fund pays the Adviser
monthly compensation calculated daily by applying the following annual rates to
the net assets of the Fund determined as of the close of each business day:
0.30% of the portion of daily net assets not exceeding $500 million; and 0.28%
of the portion of daily net assets exceeding $500 million. For the fiscal years
ended January 31, 1996, January 31, 1997 and January 31, 1998, the Fund accrued
to the Adviser total compensation under the Advisory Agreement of $164,877,
$173,493 and $183,678, respectively. The advisory fee is allocated among the
Classes pro rata based on the net assets of the Fund attributable to each Class.
The Advisory Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations
thereunder, the Adviser is not liable to the Fund or any of its investors for
any act or omission by the Adviser or for any losses sustained by the Fund or
its Investors. The Advisory Agreement in no way restricts the Adviser from
acting as investment adviser to others.
The Advisory Agreement was initially approved by the Trustees on January
21, 1993 and by InterCapital as then sole shareholder on January 22, 1993. The
Advisory Agreement may be terminated at any time, without penalty, on thirty
days' notice by the Trustees of the Fund, by the holders of a majority, as
defined in the Act, of the outstanding shares of the Fund, or by the Adviser.
The Agreement will automatically terminate in the event of its assignment (as
defined in the Act).
Under its terms, the Advisory Agreement continued in effect until April 30,
1994, and provides that it will continue from year to year thereafter, provided
continuance of the Agreement is approved at least annually by the vote of the
holders of a majority, as defined in the Act, of the outstanding shares of the
Fund, or by the Trustees of the Fund; provided that in either event such
continuance is approved annually by the vote of a majority of the Independent
Trustees of the Fund, which vote must be cast in person at a meeting called for
the purpose of voting on such approval. Continuation of the Advisory Agreement
until April 30, 1998 was approved by the Trustees, including a majority of the
Independent Trustees, at a meeting called for that purpose on April 24, 1997.
Expenses not expressly assumed by the Manager under the Management
Agreement, by the Adviser under the Advisory Agreement or by the Distributor of
the Fund's shares, Dean Witter Distributors Inc. ("Distributors" or the
"Distributor") (see "The Distributor"), will be paid by the Fund. These
expenses will be allocated among four classes of shares of the Fund (each, a
"Class") pro rata based on the net assets of the Fund attributable to each
Class, except as described below. Such expenses include, but are not limited
to: expenses of the Plan of Distribution pursuant to Rule 12b-1 (the "12b-1
fee") (see "The Distributor"); charges and expenses of any registrar;
custodian, stock transfer and dividend disbursing agent; brokerage commissions
and securities transaction costs; taxes; engraving and printing of share
certificates; registration costs of the Fund and its shares under federal and
state securities laws; the cost and expense of printing, including typesetting,
and distributing Prospectuses and Statements of Additional Information of the
Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees of
the Manager or Adviser or any corporate affiliate of either; all expenses
incident to any dividend, withdrawal or redemption options; charges and
expenses of any outside service used for pricing of the Fund's shares; fees and
expenses of legal counsel, including counsel to the Trustees who are not
interested persons of the Fund or of the Manager or the Adviser (not including
compensation or expenses of attorneys who are employees of the Manager or the
Adviser) and independent accountants; membership dues of industry associations;
interest on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and Trustees) of the Fund which inure to its
benefit; extraordinary expenses
5
<PAGE>
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification relating thereto); and all other costs of the
Fund's operation. The 12b-1 fees relating to a particular Class will be
allocated directly to that Class. In addition, other expenses associated with a
particular Class (except advisory or custodial fees) may be allocated directly
to that Class, provided that such expenses are reasonably identified as
specifically attributable to that Class and the direct allocation to that Class
is approved by the Trustees.
The Fund has acknowledged that each of DWR and TCW owns its own name,
initials and logo. The Fund has agreed to change its name at the request of
either the Manager or the Adviser, or if the Management Agreement between the
Manager and the Fund or the Advisory Agreement between the Adviser and the Fund
is terminated.
The following owned 5% or more of the outstanding shares of Class A on
February 28, 1998: Dean Witter InterCapital, Inc., Attn: Maurice Bendrihem, 2
World Trade Center 73rd Fl., New York, NY 10048-0203--38.07%; Tecla Marie Baker
TTEE of the Tecla Marie Baker TR DTD 7-24-79 as amended 12-23-97, 21821
Summerwind Lane, Huntington Beach, CA 92646-8265--27.26%; Dean Witter Reynolds
Cust for Rick D. Schwab IRA Rollover Dated 11/05/97, 9914 N 57th Drive,
Glendale AZ 85302-1339--18.73%; Dean Witter Reynolds Cust for Agatha M. Bailey
IRA Rollover Dated 01/22/98, 3820 E Southern Ave, Phoenix AZ 85040-3960--12.1%.
The following owned 5% or more of the outstanding shares of Class D on
February 28, 1998: Dean Witter InterCapital, Inc., Attn: Maurice Bendrihem, 2
World Trade Center 73rd Fl. New York, NY 10048-0203--99.86%.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Manager or the Adviser, and the affiliated companies of either, and with the 11
TCW/DW Funds and with the 86 investment companies of which InterCapital serves
as investment manager (or investment adviser and administrator) (the "Dean
Witter Funds"), are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ---------------------------------------------
<S> <C>
John C. Argue (66) Of Counsel, Argue Pearson Harbison & Myers
Trustee (law firm); Director, Avery Dennison Corpora-
c/o Argue Pearson Harbison & Myers tion (manufacturer of self-adhesive products
801 South Flower Street and office supplies) and CalMat Company
Los Angeles, California (producer of aggregates, asphalt and ready
mixed concrete); Chairman, The Rio Hondo
Memorial Foundation (charitable foundation);
advisory director, LAACO Ltd. (owner and
operator of private clubs and real estate);
director or trustee of various business and
not-for-profit corporations; Director, TCW
Convertible Securities Fund, Inc.; Director,
TCW Galileo Funds, Inc.; Director, Apex
Mortgage Capital, Inc. and Nationwide Health
Properties, Inc. (real estate investment
trusts); Trustee of the TCW/DW Funds.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Richard M. DeMartini* (45) President and Chief Operating Officer of Dean
Trustee Witter Capital, a division of DWR; Director
Two World Trade Center of DWR, the Manager, InterCapital,
New York, New York Distributors and Morgan Stanley Dean Witter
Trust FSB ("MSDW Trust"); Trustee of the
TCW/DW Funds; formerly Vice Chairman of the
Board of the National Association of
Securities Dealers, Inc.; formerly Chairman
of the Board of Directors of the NASDAQ
Market, Inc.
Charles A. Fiumefreddo* (64) Chairman, Chief Executive Officer and
Chairman of the Board, Chief Director of the Manager, InterCapital and
Executive Officer and Trustee Distributors; Executive Vice President and
Two World Trade Center Director of DWR; Chairman of the Board,
New York, New York Chief Executive Officer and Trustee of the
TCW/DW Funds; Chairman of the Board,
Director or Trustee, President and Chief
Executive Officer of the Dean Witter Funds;
Chairman and Director of MSDW Trust;
Director and/or officer of various MSDW
subsidiaries.
John R. Haire (73) Chairman of the Audit Committee and Chairman
Trustee of the Committee of the Independent Trustees
Two World Trade Center and Trustee of the TCW/DW Funds; Chairman of
New York, New York the Audit Committee and Chairman of the
Committee of Independent Directors or
Trustees of each of the Dean Witter Funds;
formerly President, Council for Aid to
Education (1978-1989) and Chairman and Chief
Executive Officer of Anchor Corporation, an
Investment Adviser (1964-1978).
Dr. Manuel H. Johnson (49) Senior Partner, Johnson Smick International,
Trustee Inc., a consulting firm; Trustee of the
c/o Johnson Smick International, Inc. TCW/DW Funds; Director or Trustee of the
1133 Connecticut Avenue, N.W. Dean Witter Funds; Chairman and Trustee of
Washington, D.C. the Financial Accounting Foundation
(oversight organization of the Financial
Accounting Standards Board); Co-Chairman and
a founder of the Group of Seven Council
(G7C), an international economic commission
(since 1990); Director of NASDAQ (since
June, 1995); Director of Greenwich Capital
Markets, Inc. (broker-dealer); formerly Vice
Chairman of the Board of Governors of the
Federal Reserve System (1986-1990) and
Assistant Secretary of the U.S. Treasury
(1982-1986).
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Thomas E. Larkin, Jr.* (58) Executive Vice President and Director, The
President and Trustee TCW Group, Inc.; President and Director of
865 South Figueroa Street Trust Company of the West; Vice Chairman and
Los Angeles, California Director of TCW Asset Management Company;
Chairman of the Adviser; Member of the Board
of Trustees of the University of Notre Dame;
Director of Orthopaedic Hospital of Los Ange-
les; President and Director of TCW Galileo
Funds, Inc.; Senior Vice President of TCW
Convertible Securities Fund, Inc.; President
and Trustee of the TCW/DW Funds.
Michael E. Nugent (61) General Partner, Triumph Capital, L.P., a
Trustee private investment partnership; formerly
c/o Triumph Capital, L.P. Vice President, Bankers Trust Company and BT
237 Park Avenue Capital Corporation (1984-1988); Director of
New York, New York various business organizations; Trustee of
the TCW/DW Funds; Director or Trustee of the
Dean Witter Funds.
John L. Schroeder (67) Retired; Director or Trustee of the Dean
Trustee Witter Funds; Trustee of the TCW/DW Funds;
c/o Gordon Altman Butowsky Weitzen Director of Citizens Utilities Company;
Shalov & Wein formerly Executive Vice President and Chief
Counsel to the Independent Trustees Investment Officer of the Home Insurance
114 West 47th Street Company (August, 1991-September, 1995).
New York, New York
Marc I. Stern* (53) Vice President of the Fund; President and
Trustee Director, The TCW Group, Inc.; President and
865 South Figueroa Street Director of the Adviser; Vice Chairman and
Los Angeles, California Director of TCW Asset Management Company;
Executive Vice President and Director of
Trust Company of the West; Chairman and
Director of TCW Galileo Funds, Inc; Trustee
of the TCW/DW Funds; Chairman of TCW
Americas Development, Inc.; Chairman of TCW
Asia, Limited (since January 1993); Chairman
of TCW London International, Limited (since
March, 1993); Chairman of Apex Mortgage
Capital, Inc. (since 1995); formerly
President and Director of SunAmerica, Inc.
(financial services company); Director of
Qualcomm, Incorporated (wireless
communications); Director or Trustee of
various not-for-profit organizations.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Barry Fink (43) Senior Vice President (since March, 1997) and
Vice President, Secretary and General Counsel Secretary and General Counsel (since
Two World Trade Center February, 1997) of InterCapital and the
New York, New York Manager; Senior Vice President (since March,
1997) and Assistant Secretary and Assistant
General Counsel (since February, 1997) of
Distributors; Assistant Secretary of DWR
(since August, 1996); Vice President,
Secretary and General Counsel of the Dean
Witter Funds and the TCW/DW Funds (since
February, 1997); previously First Vice
President (June 1993-February, 1997), Vice
President (until June, 1993) and Assistant
Secretary and Assistant General Counsel of
InterCapital and the Manager and Assistant
Secretary of the Dean Witter Funds and the
TCW/DW Funds.
Robert M. Hanisee (59) Managing Director of the Adviser; Managing
Vice President Director, Director of Research and Chairman
865 South Figueroa Street of the Equity Policy Committee of Trust
Los Angeles, California Company of the West and TCW Asset Management
Company.
Kevin A. Hunter (38) Managing Director of the Adviser, Trust Com-
Vice President pany of the West and TCW Asset Management
865 South Figueroa Street Company.
Los Angeles, California
Mark Attanasio (39) Group Managing Director of TCW Group Inc.;
Vice President formerly Co-Chief Executive Officer and Chief
865 South Figueroa Street Portfolio Strategist of Crescent Capital
Los Angeles, California Corporation (April 1991-April 1995).
Melissa Weiler (32) Senior Vice President of the Adviser, Trust
Vice President Company of the West and TCW Asset Management
865 South Figueroa Street Company; Vice President and Portfolio Manager
Los Angeles, California of Crescent Capital Management (an investment
adviser) (since February, 1992).
Thomas F. Caloia (52) First Vice President and Assistant Treasurer
Treasurer of the Manager and InterCapital and
Two World Trade Center Treasurer of the TCW/DW Funds and the Dean
New York, New York Witter Funds; previously Vice President of
InterCapital.
</TABLE>
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
the Manager, InterCapital, Executive Vice President of Distributors and MSDW
Trust and Director of MSDW Trust, Mitchell M. Merin, President and Chief
Strategic Officer of InterCapital and DWSC, Executive Vice President of
Distributors and MSDW Trust and Director of MSDW Trust, Executive Vice
President, Chief Administrative Officer and Director of DWR and Director of SPS
Transaction Services, Inc. and various other MSDW subsidiaries, and Robert S.
Giambrone, Senior Vice President of InterCapital, DWSC, Distributors and MSDW
Trust, are Vice Presidents of the Fund, and Marilyn K. Cranney, First Vice
President and Assistant General Counsel of the Manager and InterCapital and,
Lou Anne D. McInnis, Carsten Otto and Ruth Rossi, Vice Presidents and Assistant
General Counsels
9
<PAGE>
of the Manager and InterCapital and Frank Bruttomesso and Todd Lebo, Staff
Attorneys with InterCapital, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same individuals
also serve as trustees for all of the TCW/DW Funds. As of the date of this
Statement of Additional Information, there are a total of 11 TCW/DW Funds. As
of February 28, 1998, the TCW/DW Funds had total net assets of approximately
$4.3 billion and approximately a quarter of a million shareholders.
Five Trustees (56% of the total number) have no affiliation or business
connection with TCW Funds Management, Inc. or Dean Witter Services Company Inc.
or any of their affiliated persons and do not own any stock or other securities
issued by MSDW or TCW, the parent companies of Dean Witter Services Company
Inc. and TCW Funds Management, Inc., respectively. These are the
"disinterested" or "independent" Trustees. The other four Trustees (the
"management Trustees") are affiliated with either Dean Witter Services Company
Inc. or TCW. Four of the five independent Trustees are also Independent
Trustees of the Dean Witter Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The TCW/DW Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Trustees who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee and
the Committee of the Independent Trustees. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1997,
the three Committees held a combined total of sixteen meetings. The Committees
hold some meetings at the offices of the Manager or Adviser and some outside
those offices. Management Trustees or officers do not attend these meetings
unless they are invited for purposes of furnishing information or making a
report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to
time. The Independent Trustees are required to select and nominate individuals
to fill any Independent Trustee vacancy on the Board of any Fund that has a Rule
12b-1 plan of distribution. Each of the open-end TCW/DW Funds has such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
10
<PAGE>
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT COMMITTEE
The Chairman of the Committees maintains an office at the Funds'
headquarters in New York. He is responsible for keeping abreast of regulatory
and industry developments and the Funds' operations and management. He screens
and/or prepares written materials and identifies critical issues for the
Independent Trustees to consider, develops agendas for Committee meetings,
determines the type and amount of information that the Committees will need to
form a judgment on various issues, and arranges to have that information
furnished to Committee members. He also arranges for the services of independent
experts and consults with them in advance of meetings to help refine reports and
to focus on critical issues. Members of the Committees believe that the person
who serves as Chairman of both Committees and guides their efforts is pivotal to
the effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment advisory, management and other
operating contracts of the Funds and, on behalf of the Committees, conducts
negotiations with the Investment Adviser and the Manager and other service
providers. In effect, the Chairman of the Committees serves as a combination of
chief executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the TCW/DW Funds and as Chairman of the Committee of the Independent
Trustees and the Audit Committee and Independent Director or Trustee of the Dean
Witter Funds. The current Committee Chairman has had more than 35 years
experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL TCW/DW
FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the TCW/DW Funds avoids the duplication
of effort that would arise from having different groups of individuals serving
as Independent Trustees for each of the Funds or even of sub-groups of Funds.
They believe that having the same individuals serve as Independent Trustees of
all the Funds tends to increase their knowledge and expertise regarding matters
which affect the Fund complex generally and enhances their ability to negotiate
on behalf of each Fund with the Fund's service providers. This arrangement also
precludes the possibility of separate groups of Independent Trustees arriving
at conflicting decisions regarding operations and management of the Funds and
avoids the cost and confusion that would likely ensue. Finally, having the same
Independent Trustees serve on all Fund Boards enhances the ability of each Fund
to obtain, at modest cost to each separate Fund, the services of Independent
Trustees, and a Chairman of their Committees, of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
TCW/DW Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $2,225 plus a per
meeting fee of $200 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee of
the Independent Trustees an additional annual fee of $1,200). If a Board meeting
and a Committee Meeting, or more than one Committee meeting, take place on a
single day, the Trustees are paid a single meeting fee by the Fund. The Fund
also reimburses such Trustees for travel and other out-of-pocket expenses
incurred by them in connection with attending such meetings. Trustees and
officers of the Fund who are or have been employed by the Manager or the
Adviser or an affiliated company of either receive no compensation or expense
reimbursement from the Fund. The Trustees of the TCW/DW Funds do not have
retirement or deferred compensation plans.
11
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended January 31, 1998.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- -------------
<S> <C>
John C. Argue.............................................. $ 5,425
John R. Haire.............................................. 7,575
Dr. Manuel H. Johnson...................................... 5,425
Michael E. Nugent.......................................... 5,625
John L. Schroeder.......................................... 5,625
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for services
to the 14 TCW/DW Funds and, in the case of Messrs. Haire, Johnson, Nugent and
Schroeder, the 84 Dean Witter Funds that were in operation at December 31,
1997, and, in the case of Mr. Argue, TCW Galileo Funds, Inc. and TCW Convertible
Securities Fund, Inc. With respect to Messrs. Haire, Johnson, Nugent and
Schroeder, the Dean Witter Funds are included solely because of a limited
exchange privilege between various TCW/DW Funds and five Dean Witter Money
Market Funds. With respect to Mr. Argue, TCW Galileo Funds, Inc. and TCW
Convertible Securities Fund, Inc. are included solely because the Fund's
Adviser, TCW Funds Management, Inc., also serves as Adviser to those investment
companies.
CASH COMPENSATION FROM FUND GROUPS
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION
FOR SERVICES
FOR SERVICE AS TO 84 DEAN
FOR SERVICE AS CHAIRMAN OF WITTER FUNDS,
CHAIRMAN OF COMMITTEES OF 14 TCW/DW
FOR SERVICE AS COMMITTEES OF INDEPENDENT FUNDS AND
DIRECTOR OR INDEPENDENT DIRECTORS/ TCW GALILEO
FOR SERVICE AS TRUSTEE AND TRUSTEES AND TRUSTEES AND FUNDS, INC.
TRUSTEE AND COMMITTEE FOR SERVICE AS AUDIT AUDIT AND TCW
COMMITTEE MEMBER OF 84 DIRECTOR OF TCW COMMITTEES OF COMMITTEES OF CONVERTIBLE
NAME OF INDEPENDENT MEMBER OF 14 DEAN WITTER GALILEO FUNDS, 14 TCW/DW 84 DEAN SECURITIES
TRUSTEE TCW/DW FUNDS FUNDS INC. FUNDS WITTER FUNDS FUND, INC.
- ------------------------ ---------------- ---------------- ---------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
John C. Argue........... $ 71,125 -- $43,250 -- -- $114,375
John R. Haire........... 73,725 $149,702 -- $ 25,350 $157,463 406,240
Dr. Manuel H. Johnson... 71,125 145,702 -- -- -- 216,827
Michael E. Nugent....... 73,725 149,702 -- -- -- 223,427
John L. Schroeder....... 73,725 149,702 -- -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds have adopted a retirement program under which an Independent
Trustee who retires after serving for at least five years (or such lesser
period as may be determined by the Board) as an Independent Director or Trustee
of any Dean Witter Fund that has adopted the retirement program (each such Fund
referred to as an "Adopting Fund" and each such Trustee referred to as an
"Eligible Trustee") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments are
based upon length of service. Currently, upon retirement, each Eligible Trustee
is entitled to receive from the Adopting Fund, commencing as of his or her
retirement date and continuing for the remainder of his or her life, an annual
retirement benefit (the "Regular Benefit") equal to 25.0% of his or her
Eligible Compensation plus 0.4166666% of such Eligible Compensation for each
full month of service as an Independent Director or Trustee of any Adopting
Fund in excess of five years up to a maximum of 50.0% after ten years of
service. The foregoing percentages may be changed by the Board.(1)"Eligible
Compensation" is one-fifth of the total com-
- ------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement.
The amount estimated to be payable under this method, through the
remainder of the later of the lives of such Eligible Trustee and spouse,
will be the actuarial equivalent of the Regular Benefit. In addition, the
Eligible Trustee may elect that the surviving spouse's periodic payment
of benefits will be equal to either 50% or 100% of the previous periodic
amount, an election that, respectively, increases or decreases the
previous periodic amount so that the resulting payments will be the
actuarial equivalent of the Regular Benefit.
12
<PAGE>
pensation earned by such Eligible Trustee for service to the Adopting Fund in
the five year period prior to the date of the Eligible Trustee's retirement.
Benefits under the retirement program are not secured or funded by the Adopting
Funds.
The following table illustrates the retirement benefits accrued to Messrs.
Haire, Johnson, Nugent and Schroeder by the 57 Dean Witter Funds for the year
ended December 31, 1997, and the estimated retirement benefits for Messrs.
Haire, Johnson, Nugent and Schroeder, to commence upon their retirement, from
the 57 Dean Witter Funds as of December 31, 1997.
RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
ANNUAL
BENEFITS
ESTIMATED UPON
CREDITED YEARS ESTIMATED RETIREMENT
OF SERVICE AT PERCENTAGE OF RETIREMENT BENEFITS FROM ALL
RETIREMENT ELIGIBLE ACCRUED AS EXPENSES ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION BY ALL ADOPTING FUNDS FUNDS(2)
- --------------------------- ------------------ ----------------- --------------------- ----------
<S> <C> <C> <C> <C>
John R. Haire.............. 10 50.0% $(19,823)(3) $127,897
Dr. Manuel H. Johnson...... 10 50.0 12,832 47,025
Michael E. Nugent.......... 10 50.0 22,546 47,025
John L. Schroeder.......... 8 41.7 39,350 39,504
</TABLE>
- ---------------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
(3) This number reflects the extension of Mr. Haire's term as Director or
Trustee until June 1, 1998.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES
As discussed in the Prospectus, the Fund may invest in, among other
securities, securities issued by the U.S. Government, its agencies or
instrumentalities. Such securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration, the General Services
Administration, the Maritime Administration and the Small Business
Administration. The maturities of such obligations range from three months
to 30 years.
(3) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but 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. Among the agencies
and instrumentalities issuing such obligations are the Tennessee Valley
Authority, the Federal National Mortgage Association ("FNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC") and the U.S. Postal Service.
13
<PAGE>
(4) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but which are
backed by the credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are the Federal
Farm Credit System and the Federal Home Loan Banks.
Neither the value nor the yield of the U.S. Government securities which may
be invested in by the Fund are guaranteed by the U.S. Government. Such values
and yield will fluctuate with changes in prevailing interest rates and other
factors. Generally, as prevailing interest rates rise, the value of any U.S.
Government securities held by the Fund will fall. Such securities with longer
maturities generally tend to produce higher yields and are subject to greater
market fluctuation as a result of changes in interest rates than debt
securities with shorter maturities. The Fund is not limited as to the
maturities of the U.S. Government securities in which it may invest.
MONEY MARKET SECURITIES
As stated in the Prospectus, the U.S. money market instruments which the
Fund may purchase include U.S. Government securities, bank obligations,
Eurodollar certificates of deposit, obligations of savings institutions, fully
insured certificates of deposit and commercial paper. Such securities are
limited to:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government and
having total assets of $1 billion or more, and instruments secured by such
obligations, not including obligations of foreign branches of domestic banks
except to the extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more (investments in Eurodollar certificates may be affected by changes in
currency rates or exchange control regulations, or changes in governmental
administration or economic or monetary policy in the United States and abroad);
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more (investments in savings institutions above $100,000 in principal amount
are not protected by Federal deposit insurance);
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks
and savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is insured by the Bank Insurance Fund or the
Savings Association Insurance Fund (each of which is administered by the
Federal Deposit Insurance Corporation), limited to $100,000 principal amount
per certificate and to 15% or less of the Fund's net assets in all such
obligations and in all illiquid assets, in the aggregate; and
COMMERCIAL PAPER. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation or by Moody's Investors Service, Inc. or, if not
rated, issued by a company having an outstanding debt issue rated at least AAA
by Standard & Poor's or Aaa by Moody's.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested
or used for payments of obligations of the Fund. These agreements, which may be
viewed as a type of secured lending by the Fund, 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
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of purchase. The collateral will be maintained in a segregated account and will
be marked to market daily to determine that the value of the collateral, as
specified in the agreement, does not decrease below the purchase price plus
accrued interest. If such decrease occurs, additional collateral will be
requested and, when received, added to the account to maintain full
collateralization. The Fund will accrue interest from the institution until the
time when the repurchase is to occur. Although such date is deemed by the Fund
to be the maturity date of a repurchase agreement, the maturities of securities
subject to repurchase agreements are not subject to any limits and may exceed
one year.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
whose financial condition will be continually monitored by the Adviser subject
to procedures established by the Board of Trustees of the Fund. In addition, as
described above, the value of the collateral underlying the repurchase
agreement will be at least equal to the repurchase price, including any accrued
interest earned on the repurchase agreement. In the event of a default or
bankruptcy by a selling financial institution, the Fund will seek to liquidate
such collateral. However, the exercising of the Fund's right to liquidate such
collateral could involve certain costs or delays and, to the extent that
proceeds from any sale upon a default of the obligation to repurchase were less
than the repurchase price, the Fund could suffer a loss. It is the current
policy of the Fund not to invest in repurchase agreements that do not mature
within seven days if any such investment, together with any other illiquid
assets held by the Fund, amounts to more than 15% of its net assets. For the
fiscal year ended January 31, 1998, the Fund did not enter into repurchase
agreements in an amount exceeding 5% of its net assets.
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 and 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. The
securities so purchased or sold are subject to market fluctuation and no
interest or dividends accrue to the purchaser prior to the settlement date.
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. At the time the Fund makes the commitment to purchase or sell
securities on a when-issued, delayed delivery or forward commitment basis, the
Fund 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, the
value may be more or less than the purchase or sale price. The Fund will also
establish a segregated account with the Fund's custodian bank in which it will
continuously maintain cash or U.S. Government securities or other liquid
portfolio securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis; subject to this
requirement, the Fund may purchase securities on such basis without limit. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Fund's net asset value. The Adviser does not believe that the
Fund's net asset value or income will be adversely affected by its purchase of
securities on such basis. For the fiscal year ended January 31, 1998, the Fund
did not purchase securities on a when-issued and delayed delivery basis.
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. The commitment for the purchase of any such security
will not be recognized in the portfolio of the Fund until the Adviser determines
that issuance of the security is probable. At such time, the Fund will record
the transaction and, in determining its net asset value, will reflect the value
of the security daily. At such time, the Fund will
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also establish a segregated account with its custodian bank in which it will
continuously maintain cash or U.S. Government securities or other liquid
portfolio securities equal in value to recognized commitments for such
securities. Settlement of the trade will occur within five business days of the
occurrence of the subsequent event. Once a segregated account has been
established, if the anticipated event does not occur and the securities are not
issued the Fund will have lost an investment opportunity. The Fund may purchase
securities on such basis without limit. 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. The Adviser
does not believe that the net asset value of the Fund will be adversely
affected by its purchase of securities on such basis. The Fund may also sell
securities on a "when, as and if issued" basis provided that the issuance of
the security will result automatically from the exchange or conversion of a
security owned by the Fund at the time of the sale. During the fiscal year
ended January 31, 1998, the Fund did not purchase any securities on a when, as
and if issued basis.
OPTIONS AND FUTURES TRANSACTIONS
As discussed in the Prospectus, the Fund may write covered call options
against securities held in its portfolio and covered put options on eligible
portfolio securities and purchase options of the same series to effect closing
transactions, and may hedge against potential changes in the market value of
its investments (or anticipated investments) by purchasing put and call options
on portfolio (or eligible portfolio) securities (and the currencies in which
they are denominated) and engaging in transactions involving futures contracts
and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills are listed on
several securities exchanges and 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 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. The writer (seller) of the
option would then have the obligation to sell, to the OCC or other clearing
corporation or exchange, the underlying security or currency at that exercise
price prior to the expiration date of the option, regardless of its then
current market price. Ownership of a listed put option would give the Fund the
right to sell the underlying security to the OCC or other clearing corporation
or exchange at the stated exercise price. Upon notice of exercise of the put
option, the writer of the option would have the obligation to purchase the
underlying security or currency from the OCC (in the U.S.) or other clearing
corporation or exchange at the exercise price.
OTC OPTIONS. Exchange-listed options are issued by the OCC or other
clearing corporation or exchange which assures that all transactions in such
options are properly executed. 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. If the
transacting dealer fails to make or take delivery of the securities or amount
of foreign currency underlying an option it has written, in accordance with the
terms of that option, the Fund would lose the premium paid for the option as
well as any anticipated benefit of the transaction. The Fund will engage in OTC
option transactions only with member banks of the Federal Reserve System or
primary dealers in U.S. Government securities or with affiliates of such banks
or dealers which have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million.
COVERED CALL WRITING. As stated in the Prospectus, the Fund is permitted
to write covered call options on portfolio securities and on the U.S. Dollar,
without limit, in order to aid in achieving its investment objective.
Generally, a call option is "covered" if the Fund owns, or has the right to
acquire, without additional cash consideration (or for additional cash
consideration held for the Fund
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by its Custodian in a segregated account) the underlying security (currency)
subject to the option except that in the case of call options on U.S. Treasury
Bills, the Fund might own U.S. Treasury Bills of a different series from those
underlying the call option, but with a principal amount and value corresponding
to the exercise price and a maturity date no later than that of the security
(currency) deliverable under the call option. A call option is also covered if
the Fund holds a call on the same security as the underlying security
(currency) of the written option, where the exercise price of the call used for
coverage is equal to or less than the exercise price of the call written or
greater than the exercise price of the call written if the mark to market
difference is maintained by the Fund in cash, U.S. Government securities or
other liquid portfolio securities which the Fund holds in a segregated account
maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to earn a higher level of current income than it
would earn from holding the underlying securities (currencies) alone. Moreover,
the premium received will offset a portion of the potential loss incurred by
the Fund if the securities (currencies) underlying the option are ultimately
sold (exchanged) by the Fund at a loss. Furthermore, a premium received on a
call written on a foreign currency will ameliorate any potential loss of value
on the portfolio security due to a decline in the value of the currency.
However, during the option period, the covered call writer has, in return for
the premium or the option, given up the opportunity for capital appreciation
above the exercise price should the market price of the underlying security (or
the exchange rate of the currency in which it is denominated) increase, but has
retained the risk of loss should the price of the underlying security (or the
exchange rate of the currency in which it is denominated) decline. The premium
received will fluctuate with varying economic market conditions. If the market
value of the portfolio securities (or the currencies in which they are
denominated) upon which call options have been written increases, the Fund may
receive a lower total return from the portion of its portfolio upon which calls
have been written than it would have had such calls not been written.
As regards listed options and certain OTC options, during the option
period, the Fund may be required, at any time, to deliver the underlying
security (currency) against payment of the exercise price on any calls it has
written (exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing
purchase transaction. A closing purchase transaction is accomplished by
purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit
on an outstanding call option, to prevent an underlying security (currency)
from being called, to permit the sale of an underlying security (or the
exchange of the underlying currency) or to enable the Fund to write another
call option on the underlying security (currency) with either a different
exercise price or expiration date or both. The Fund may realize a net gain or
loss from a closing purchase transaction depending upon whether the amount of
the premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be wholly or partially offset by unrealized
appreciation in the market value of the underlying security (currency).
Conversely, a gain resulting from a closing purchase transaction could be
offset in whole or in part or exceeded by a decline in the market value of the
underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised, the
Fund realizes a gain or loss from the sale of the underlying security
(currency) equal to the difference between the purchase price of the underlying
security (currency) and the proceeds of the sale of the security (currency)
plus the premium received on the option less the commission paid.
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Options written by the Fund will normally have expiration dates of up to
eighteen months from the date written. The exercise price of a call option may
be below, equal to or above the current market value of the underlying security
at the time the option is written. See "Risks of Options and Futures
Transactions," below.
COVERED PUT WRITING. As stated in the Prospectus, as a writer of a covered
put option, the Fund incurs an obligation to buy the security 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). A put is "covered" if, at all times, the Fund maintains,
in a segregated account maintained on its behalf at the Fund's Custodian, cash,
U.S. Government securities or other liquid portfolio securities in an amount
equal to at least the exercise price of the option, at all times during the
option period. Similarly, a short put position could be covered by the Fund by
its purchase of a put option on the same security (currency) as the underlying
security of the written option, where the exercise price of the purchased
option is equal to or more than the exercise price of the put written or less
than the exercise price of the put written if the marked to market difference
is maintained by the Fund in cash, U.S. Government Securities or other liquid
portfolio securities which the Fund holds in a segregated account maintained at
its Custodian. In writing puts, the Fund assumes the risk of loss should the
market value of the underlying security (currency) decline below the exercise
price of the option (any loss being decreased by the receipt of the premium on
the option written). In the case of listed options, during the option period,
the Fund may be required, at any time, to make payment of the exercise price
against delivery of the underlying security (currency). The operation of and
limitations on covered put options in other respects are substantially
identical to those of call options.
The Fund will write put options for three purposes: (1) to receive the
income derived from the premiums paid by purchasers; (2) when the Adviser
wishes to purchase the security (or a security denominated in the currency
underlying the option) 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 potential gain on a covered put option is limited to the
premium received on the option (less the commissions paid on the transaction)
while the potential loss equals the differences between the exercise price of
the option and the current market price of the underlying securities
(currencies) when the put is exercised, offset by the premium received (less
the commissions paid on the transaction). 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. As stated in the Prospectus, 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 a call option in order to close out a
covered call position (see "Covered Call Writing" above), to protect against an
increase in price of a security it anticipates purchasing or, in the case of a
call option on foreign currency, to hedge against an adverse exchange rate move
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 purchase
of the call option to effect a closing transaction on a call written over-the-
counter may be a listed or an OTC option. In either case, the call purchased is
likely to be on the same securities (currencies) and have the same terms as the
written option. If purchased over-the-counter, the option would generally be
acquired from the dealer or financial institution which purchased the call
written by the Fund.
The Fund may purchase put options on securities (currencies) which it holds
in its portfolio to protect itself against a decline in the value of the
security and to close out written put option positions. If the value of the
underlying security (currency) were to fall below the exercise price of the put
purchased in an amount greater than the premium paid for the option, the Fund
would incur no additional loss. In addition, the Fund may sell a put option
which it has previously purchased prior to the sale of the securities
(currencies) underlying such option. Such a sale would result in a net gain or
loss depending on whether the amount received on the sale is more or less than
the premium and
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other transaction costs paid on the put option which is sold. And such gain or
loss could be offset in whole or in part by a change in the market value of the
underlying security (currency). If a put option purchased by the Fund expired
without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of
the underlying security (or the value of its denominated currency) increase,
but has retained the risk of loss should the price of the underlying security
(or the value of its denominated currency) decline. The writer has no control
over the time when it may be required to fulfill its obligation as a writer of
the option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver or receive the underlying securities at the
exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting OTC option, it cannot sell the underlying security until the
option expires or the option is exercised. Accordingly, a covered call option
writer may not be able to sell an underlying security at a time when it might
otherwise be advantageous to do so. A secured put option writer who is unable
to effect a closing purchase transaction or to purchase an offsetting OTC
option would continue to bear the risk of decline in the market price of the
underlying security until the option expires or is exercised. In addition, a
secured put writer would be unable to utilize the amount held in cash or U.S.
Government or other liquid portfolio securities as security for the put option
for other investment purposes until the exercise or expiration of the option.
As discussed in the Prospectus, the Fund's ability to close out its
position as a writer of an option is dependent upon the existence of a liquid
secondary market on Option Exchanges. 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. However, the Fund may be able to purchase an
offsetting option which does not close out its position as a writer but
constitutes an asset of equal value to the obligation under the option written.
If the Fund is not able to either enter into a closing purchase transaction or
purchase an offsetting position, it will be required to maintain the securities
subject to the call, or the collateral underlying the put, even though it might
not be advantageous to do so, until a closing transaction can be entered into
(or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an Exchange or
the OCC to handle current trading volume; or (vi) a decision by one or more
Exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the OCC as a result of trades
on that Exchange would generally continue to be exercisable in accordance with
their terms.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by the Fund,
the Fund could experience a loss of all or part of the value of the option.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Fund's management.
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Each of the Exchanges has established limitations governing the maximum
number of options on the same underlying security or futures contract (whether
or not covered) which may be written by a single investor, whether acting alone
or in concert with others (regardless of whether such options are written on the
same or different Exchanges or are held or written on one or more accounts or
through one or more brokers). An Exchange may order the liquidation of positions
found to be in violation of these limits and it may impose other sanctions or
restrictions. These position limits may restrict the number of listed options
which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
The extent to which the Fund may enter into transactions involving options
may be limited by the Internal Revenue Code's requirements for qualification as
a regulated investment company and the Fund's intention to qualify as such (see
"Dividends, Distributions and Taxes").
STOCK INDEX OPTIONS. Options on stock indexes are similar to options on
stock except that, rather than the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the stock index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option. This
amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The multiplier for an index option
performs a function similar to the unit of trading for a stock option. It
determines the total dollar value per contract of each point in the difference
between the exercise price of an option and the current level of the underlying
index. A multiplier of 100 means that a one-point difference will yield $100.
Options on different indexes may have different multipliers. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Unlike stock options, all settlements are in cash and a gain or
loss depends on price movements in the stock market generally (or in a
particular segment of the market) rather than the price movements in individual
stocks. Currently, options are traded on the S&P 100 Index and the S&P 500
Index on the Chicago Board Options Exchange, the Major Market Index and the
Computer Technology Index, Oil Index and Institutional Index on the American
Stock Exchange and the NYSE Index and NYSE Beta Index on the New York Stock
Exchange, The Financial News Composite Index on the Pacific Stock Exchange and
the Value Line Index, National O-T-C Index and Utilities Index on the
Philadelphia Stock Exchange, each of which and any similar index on which
options are traded in the future which include stocks that are not limited to
any particular industry or segment of the market is referred to as a "broadly
based stock market index." The Fund will invest only in broadly based indexes.
Options on broad-based stock indexes provide the Fund with a means of
protecting the Fund against the risk of market wide price movements. If the
Adviser anticipates a market decline, the Fund could purchase a stock index put
option. If the expected market decline materialized, the resulting decrease in
the value of the Fund's portfolio would be offset to the extent of the increase
in the value of the put option. If the Adviser anticipates a market rise, the
Fund may purchase a stock index call option to enable the Fund to participate
in such rise until completion of anticipated common stock purchases by the Fund.
Purchases and sales of stock index options also enable the Adviser to more
speedily achieve changes in the Fund's equity positions.
The Fund will write put options on stock indexes only if such positions are
covered by cash, U.S. Government securities or other liquid portfolio
securities equal to the aggregate exercise price of the puts, or by a put
option on the same stock index with a strike price no lower than the strike
price of the put option sold by the Fund, which cover is held for the Fund in a
segregated account maintained for it by the Fund's Custodian. All call options
on stock indexes written by the Fund will be covered either by a portfolio of
stocks substantially replicating the movement of the index underlying the call
option or by holding a separate call option on the same stock index with a
strike price no higher than the strike price of the call option sold by the
Fund.
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RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are
settled in cash, call writers such as the Fund cannot provide in advance for
their potential settlement obligations by acquiring and holding the underlying
securities. A call writer can offset some of the risk of its writing position
by holding a diversified portfolio of stocks similar to those on which the
underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the
securities held will vary from the value of the index. Even if an index call
writer could assemble a stock portfolio that exactly reproduced the composition
of the underlying index, the writer still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, the writer will not learn that it has been assigned
until the next business day, at the earliest. The time lag between exercise and
notice of assignment poses no risk for the writer of a covered call on a
specific underlying security, such as a common stock, because there the
writer's obligation is to deliver the underlying security, not to pay its value
as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds stocks that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those stocks against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date; and by the time it learns that it has been assigned, the index
may have declined, with a corresponding decrease in the value of its stock
portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is
interrupted, or if trading is interrupted in stocks accounting for a
substantial portion of the value of an index, the trading of options on that
index will ordinarily be halted. If the trading of options on an underlying
index is halted, an exchange may impose restrictions prohibiting the exercise
of such options.
FUTURES CONTRACTS. As stated in the Prospectus, the Fund may purchase and
sell interest rate, currency, and index futures contracts ("futures
contracts"), that are traded on commodity exchanges, on such underlying
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 securities as may exist or come
into being ("index" futures).
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.
If the Adviser anticipates that interest rates may rise and, concomitantly, the
price of certain of its portfolio securities fall, the Fund may sell an
interest rate futures contract. If declining interest rates are anticipated,
the Fund may purchase an interest rate futures contract to protect against a
potential increase in the price of securities the Fund intends to purchase.
Subsequently, appropriate securities may be purchased by the Fund in an orderly
fashion; as securities are purchased, corresponding futures positions would be
terminated by offsetting sales of contracts.
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. If the Adviser anticipates that the prices of
securities held by the Fund may fall, the Fund may sell an index futures
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contract. Conversely, if the Fund wishes to hedge against anticipated price
rises in those securities which the Fund intends to purchase, the Fund may
purchase an index futures contract.
In addition to the above, interest rate, index futures will be bought or
sold in order to close out a short or long position maintained by the Fund in a
corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. A futures contract
sale is closed out by effecting a futures contract purchase for the same
aggregate amount of the specific type of security (currency) and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of security (currency) and the same delivery date. If the offsetting sale
price exceeds the purchase price, the purchaser would realize a gain, whereas
if the purchase price exceeds the offsetting sale price, the purchaser would
realize a loss. There is no assurance that the Fund will be able to enter into
a closing transaction.
INTEREST RATE FUTURES CONTRACTS. When the Fund enters into an interest
rate futures contract, it is initially required to deposit with the Fund's
Custodian, in a segregated account in the name of the broker performing the
transaction, an "initial margin" of cash or U.S. Government securities or other
liquid portfolio securities equal to approximately 2% of the contract amount.
Initial margin requirements are established by the Exchanges on which futures
contracts trade and may, from time to time, change. In addition, brokers may
establish margin deposit requirements in excess of those required by the
Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a brokers' client but is, rather, a good faith deposit on the
futures contract which will be returned to the Fund upon the proper termination
of the futures contract. The margin deposits made are marked to market daily
and the Fund may be required to make subsequent deposits called "variation
margin," with the Fund's futures contract clearing broker, which are reflective
of price fluctuations in the futures contract.
INDEX FUTURES CONTRACTS. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future time.
An index futures contract purchase would create an obligation by the Fund, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. In addition, due to
current industry practice, daily variations in gains and losses on open
contracts are required to be reflected in cash in the form of variation margin
payments. The Fund may be required to make additional margin payments during
the term of the contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or gain.
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. Upon
exercise of the option, the delivery of the futures position by the
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writer of the option to the holder of the option is accompanied by delivery of
the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract at the
time of exercise exceeds, in case of a call, or is less than, in the case of a
put, the exercise price of the option on the futures contract.
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. If, for example, the Adviser
wished to protect against an increase in interest rates and the resulting
negative impact on the value of a portion of its fixed-income portfolio, it
might write a call option on an interest rate futures contract, the underlying
security of which correlates with the portion of the portfolio the Adviser
seeks to hedge. Any premiums received in the writing of options on futures
contracts may, of course, provide a further hedge against losses resulting from
price declines in portions of the Fund's portfolio.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid for
premiums for unexpired options on futures contracts exceeds 5% of the value of
the Fund's total assets, after taking into account unrealized gains and
unrealized losses on such contracts it has entered into, provided, however,
that in the case of an option that is in-the-money (the exercise price of the
call (put) option is less (more) than the market price of the underlying
security) at the time of purchase, the in-the-money amount may be excluded in
calculating the 5%. However, there is no overall limitation on the percentage
of the Fund's assets which may be subject to a hedge position. Except as
described above, there are no other limitations on the use of futures and
options thereon by the Fund.
The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an
option on a futures contract are included in initial margin deposits.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. As stated
in the Prospectus, the Fund may sell a futures contract to protect against the
decline in the value of securities (or the currency in which they are
denominated) held by the Fund. However, it is possible that the futures market
may advance and the value of securities (or the currency in which they are
denominated) held in the portfolio of the Fund may decline. If this occurred,
the Fund would lose money on the futures contract and also experience a decline
in value of its portfolio securities. However, while this could occur for a
very brief period or to a very small degree, over time the value of a
diversified portfolio will tend to move in the same direction as the futures
contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy (or the currency in which they are
denominated), and the value of such securities (currencies) decreases, then the
Fund may determine not to invest in the securities as planned and will realize
a loss on the futures contract that is not offset by a reduction in the price
of the securities.
If the Fund has sold a call option on a futures contract, it will cover
this position by holding in a segregated account maintained at its Custodian,
cash, U.S. Government Securities or other liquid portfolio securities equal in
value (when added to any initial or variation margin on deposit) to the market
value of the securities (currencies) underlying the futures contract or the
exercise price of the option. Such a position may also be covered by owning the
securities (currencies) underlying the futures contract, or by holding a call
option permitting the Fund to purchase the same contract at a price no higher
than the price at which the short position was established.
In addition, if the Fund holds a long position in a futures contract it
will hold cash, U.S. Government securities or other liquid portfolio securities
equal to the purchase price of the contract (less the amount of initial or
variation margin on deposit) in a segregated account maintained for the Fund by
its Custodian. Alternatively, the Fund could cover its long position by
purchasing a put
23
<PAGE>
option on the same futures contract with an exercise price as high or higher
than the price of the contract held by the Fund.
Exchanges limit the amount by which the price of a futures contract 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. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition,
the Fund may be required to take or make delivery of the instruments underlying
interest rate futures contracts it holds at a time when it is disadvantageous
to do so. The inability to close out options and futures positions could also
have an adverse impact on the Fund's ability to effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on
foreign commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage
commissions, clearing costs and other transaction costs may be higher on foreign
exchanges. Greater margin requirements may limit the Fund's ability to enter
into certain commodity transactions on foreign exchanges. Moreover, differences
in clearance and delivery requirements on foreign exchanges may occasion delays
in the settlement of the Fund's transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the
broker and/or incur a loss of all or part of its margin deposits with the
broker. Similarly in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with
brokers or financial institutions deemed creditworthy by the Adviser.
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 which may arise in employing futures contracts to protect against
the price volatility of portfolio securities (and the currencies in which they
are denominated) is that the prices of securities and indexes subject to
futures contracts (and thereby the futures contract prices) may correlate
imperfectly with the behavior of the cash prices of the Fund's portfolio
securities (and the currencies in which they are denominated). 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.
As stated in the Prospectus, there may exist an imperfect correlation
between the price movements of futures contracts purchased by the Fund and the
movements in the prices of the securities (currencies) which are the subject of
the hedge. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin deposit
requirements, distortions in the normal relationship between the debt
securities or currency markets and futures markets could result. Price
distortions could also result if investors in futures contracts opt to make or
take delivery of underlying securities rather than engage in closing
transactions due to the resultant reduction in the liquidity of the futures
market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions. Due
to the possibility of price distortions in the futures market
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<PAGE>
and because of the imperfect correlation between movements in the prices of
securities and movements in the prices of futures contracts, a correct forecast
of interest rate trends may still not result in a successful hedging
transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Fund
may invest. In the event a liquid market does not exist, it may not be possible
to close out a futures position, and in the event of adverse price movements,
the Fund would continue to be required to make daily cash payments of variation
margin. In addition, limitations imposed by an exchange or board of trade on
which futures contracts are traded may compel or prevent the Fund from closing
out a contract which may result in reduced gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to
make or take delivery of the underlying securities (currencies) at a time when
it may be disadvantageous to do so.
The extent to which the Fund may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the Fund's
intention to qualify as such (see "Dividends, Distributions and Taxes").
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not
result in a loss, as in the instance where there is no movement in the prices
of the futures contract or underlying securities.
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
notice provisions described below), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account pursuant
to applicable regulations and that are equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is that
the Fund continues to receive the income on the loaned securities while at the
same time earning interest on the cash amounts deposited as collateral, which
will be invested in short-term obligations. The Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which its shares are qualified for sale and will not lend more
than 25% of the value of its total assets. A loan may be terminated by the
borrower on one business day's notice, or by the Fund on two business days'
notice. If the borrower fails to deliver the loaned securities within two days
after receipt of notice, the Fund could use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Fund's management to be
creditworthy and when the income which can be earned from such loans justifies
the attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price during
the loan period would inure to the Fund. The creditworthiness of firms to which
the Fund lends its portfolio securities will be monitored on an ongoing basis
by the Adviser pursuant to procedures adopted and reviewed, on an ongoing
basis, by the Board of Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment
in such loaned securities. The Fund will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.
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PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate generally will
not exceed 100%. A 100% turnover rate would occur, for example, if 100% of the
securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced within
one year.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. 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. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund.
The Fund may not:
1.Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities secured by
real estate or interests therein.
2.Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
3.Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).
4.Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(3). For the purpose of this restriction, collateral arrangements with
respect to initial or variation margin for futures are not deemed to be
pledges of assets.
5.Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase agreement; (b) purchasing any securities on a
when-issued or delayed delivery basis; (c) purchasing or selling any
financial futures contracts or options thereon; (d) borrowing money in
accordance with restrictions described above; or (e) lending portfolio
securities.
6.Make loans of money or securities, except: (a) by the purchase of
portfolio securities in which the Fund may invest consistent with its
investment objective and policies; (b) by investment in repurchase
agreements; or (c) by lending its portfolio securities.
7.Make short sales of securities.
8.Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts is not considered the purchase of a security on margin.
9.Purchase or sell commodities or commodities contracts except that
the Fund may purchase or sell futures contracts or options on futures.
10.Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security. (The Fund may invest in restricted securities
subject to the non-fundamental limitations contained in the Prospectus.)
11.Invest for the purpose of exercising control or management of any
other issuer.
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<PAGE>
In addition, as a nonfundamental policy, the Fund may not purchase
securities of other investment companies, except in connection with a merger,
consolidation, reorganization or acquisition of assets or by purchase in the
open market of securities of closed-end investment companies where no
underwriter's or dealer's commission or profit, other than customary broker's
commissions, is involved and only if immediately thereafter not more than (a)
5% of the Fund's total assets, taken at market value, would be invested in any
one such company, (b) 10% of the Fund's total assets taken at market value,
would be invested in such securities and (c) 3% of any one such company's voting
securities would be owned by the Fund.
As a non-fundamental policy, the Fund may not invest in other investment
companies in reliance on Sections 12(d)(1)(F), 12(d)(1)(G) or 12(d)(1)(J) of
the Act.
If (except with respect to Restriction 3) 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to the general supervision of the Trustees, the Adviser is
responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. In the over-the-counter market, securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually
includes a profit to the dealer. In addition, securities may be purchased at
times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
Futures transactions will usually be effected through a broker and a commission
will be charged. On occasion, the Fund may also purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid. During the fiscal years ended January 31, 1996, 1997 and 1998, the
Fund paid $6,583, $10,668 and $11,602, respectively, in brokerage commissions.
The Adviser currently serves as investment adviser to a number of clients,
including other investment companies, and may in the future act as investment
adviser to others. It is the practice of the Adviser to cause purchase and sale
transactions to be allocated among the Fund and others whose assets it manages
in such manner as it deems equitable. In making such allocations among the Fund
and other client accounts, the main factors considered are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client accounts.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid
in all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Adviser from obtaining a high quality of brokerage
and research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Adviser relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily
subjective and imprecise, as in most cases an exact dollar value for those
services is not ascertainable.
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In seeking to implement the Fund's policies, the Adviser effects
transactions with those brokers and dealers who the Adviser believes provide
the most favorable prices and are capable of providing efficient executions. If
the Adviser believes such prices and executions are obtainable from more than
one broker or dealer, it may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Adviser. Such services may include, but are not
limited to, any one or more of the following: reports on industries and
companies, economic analyses and review of business conditions, portfolio
strategy, analytic computer software, account performance services, computer
terminals and various trading and/or quotation equipment. They also include
advice from broker-dealers as to the value of securities, availability of
securities, availability of buyers, and availability of sellers. In addition,
they include recommendations as to purchase and sale of individual securities
and timing of such transactions. The Fund will not purchase at a higher price
or sell at a lower price in connection with transactions affected with a
dealer, acting as principal, who furnishes research services to the Fund than
would be the case if no weight were given by the Fund to the dealer's
furnishing of such services. During the fiscal year ended January 31, 1998, the
Fund directed the payment of $731 in brokerage commissions in connection with
transactions in the aggregate amount of $588,847 to brokers because of research
services provided.
The information and services received by the Adviser from brokers and
dealers may be of benefit to the Adviser in the management of accounts of some
of its other clients and may not in all cases benefit the Fund directly. While
the receipt of such information and services is useful in varying degrees and
would generally reduce the amount of research or services otherwise performed
by the Adviser and thereby reduce its expenses, it is of indeterminable value
and the advisory fee paid to the Adviser is not reduced by any amount that may
be attributable to the value of such services. During the fiscal year ended
January 31, 1998, the Fund purchased convertible corporate bonds and
convertible preferred stock issued by Merrill Lynch & Co., Inc., Morgan Stanley
Group Inc. and Salomon Inc. which issuers were among the top ten brokers or the
ten dealers which executed transactions for or with the Fund in the largest
dollar amounts during the year. At January 31, 1998, the Fund held convertible
preferred stock of Merrill Lynch & Co., Inc. with a market value of $392,150,
convertible corporate bonds and convertible preferred stock of Morgan Stanley
Group, Inc. with a market value of $1,272,177 and convertible preferred stock
of Salomon Inc. with a market value of $319,448.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR, Morgan Stanley & Co. Incorporated and other affiliated
brokers and dealers. In order for an affiliated broker or dealer to effect any
portfolio transactions for the Fund, the commissions, fees or other remuneration
received by the affiliated broker or dealer must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers
in connection with comparable transactions involving similar securities being
purchased or sold on an exchange during a comparable period of time. This
standard would allow the affiliated broker or dealer to receive no more than
the remuneration which would be expected to be received by an unaffiliated
broker in a commensurate arm's-length transaction. Furthermore, the Board of
Trustees of the Fund, including a majority of the Trustees who are not
"interested" persons of the Fund, as defined in the Act, have adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to an affiliated broker or dealer are consistent
with the foregoing standard. During the fiscal years ended January 31, 1996 and
1997, the Fund paid no brokerage commissions to an affiliated broker or dealer.
During the period June 1, 1997 through January 31, 1998, the Fund paid a
total of $1,283 in brokerage commissions to Morgan Stanley & Co., Inc., which
broker-dealer became an affiliate of the Distributor on May 31, 1997 upon
consummation of the merger of Dean Witter, Discover & Co. with Morgan Stanley
Group Inc. The brokerage commissions paid to Morgan Stanley & Co., Inc.
represented approximately 11.06% of the total brokerage commissions paid by the
Fund for this period and were paid on account of transactions having an
aggregate dollar value equal to approximately 12.38% of the aggregate dollar
value of all portfolio transactions of the Fund during the period for which
commissions were paid.
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THE DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into a
selected dealer agreement with DWR, which through its own sales organization
sells shares of the Fund, and may enter into selected broker-dealer agreements
with others. The Distributor, a Delaware corporation, is a wholly-owned
subsidiary of MSDW. The Trustees of the Fund, including a majority of the
Independent Trustees, approved, at their meeting on June 30, 1997, the current
Distribution Agreement appointing the Distributor exclusive distributor of the
Fund's shares and providing for the Distributor to bear distribution expenses
not borne by the Fund. By its terms, the Distribution Agreement has an initial
term ending April 30, 1998, and provides that it will remain in effect from year
to year thereafter if approved by the Board.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal securities laws and pays filing fees in accordance with
state securities laws. The Fund and Distributor have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act of 1933, as amended. Under the Distribution Agreement, the Distributor uses
its best efforts in rendering services to the Fund, but in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations, the Distributor is not liable to the Fund or any of its
shareholders for any error of judgment or mistake of law or for any act or
omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION. The Fund has adopted a Plan of Distribution pursuant
to Rule 12b-1 under the Act (the "Plan") pursuant to which each Class, other
than Class D, pays the Distributor compensation accrued daily and payable
monthly at the following annual rates: 0.25%, 0.75% and 0.75% of the average
daily net assets of Class A, Class B and Class C, respectively. The Distributor
also receives the proceeds of front-end sales charges and of contingent deferred
sales charges imposed on certain redemptions of shares, which are separate and
apart from payments made pursuant to the Plan (see "Purchase of Fund Shares" in
the Prospectus). The Distributor has informed the Fund that it and/or DWR
received (a) approximately $0, $7,489 and $356 in contingent deferred sales
charges from Class A, Class B and Class C, respectively, for the fiscal year
ended January 31, 1998, and (b) approximately $808 in front-end sales charges
from Class A for the fiscal year ended January 31, 1998, none of which was
retained by the Distributor.
The Distributor has informed the Fund that the entire fee payable by Class A
and a portion of the fees payable by each of Class B and Class C each year under
the Plan equal to 0.20% of the average daily net assets of Class B and 0.25% of
the average daily net assets of Class C are currently each characterized as a
"service fee" under the Rules of the Association of the National Association of
Securities Dealers (of which the Distributor is a member). The service fee is a
payment made for personal service and/or the maintenance of shareholder
accounts. The remaining portion of the Plan fees payable by a Class, if any, is
characterized an "asset-based sales charge" as such is defined by the
aforementioned Rules of the Association.
The Plan was adopted by a majority vote of the Board of Trustees, including
all of the Trustees of the Fund who are not "interested persons" of the Fund (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of the Plan (the "Independent 12b-1 Trustees"), cast in person at a
meeting called for the purpose of voting on the Plan, on January 22, 1993, and
by InterCapital as the then sole shareholder on January 23, 1993. At their
meeting held on April 28, 1993, the Trustees, including a majority of the
Independent 12b-1 Trustees, approved certain technical amendments to the Plan in
connection with amendments adopted by the National Association of Securities
Dealers, Inc. to its Rules of the Association. At their meeting
29
<PAGE>
held on June 30, 1997, the Trustees, including a majority of the Independent
12b-1 Trustees, approved amendments to the Plan to reflect the multiple-class
structure for the Fund, which took effect on July 28, 1997.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each fiscal quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. In the Trustees' quarterly reviews of the
Plan, they will consider its continued appropriateness and the level of
compensation provided therein. Class C shares of the Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended January
31, 1998, of $437,111. This amount is equal to payments required to be paid
monthly by the Fund which were computed at the annual rate of 0.75% of the
Fund's average daily net assets of Class C. The 12b-1 fee is treated by the Fund
as an expense in the year it is accrued. This amount represents amounts paid by
Class C only; there were no Class A or Class B shares outstanding on such date.
For the fiscal period July 28, 1997 through January 31, 1998, Class A and Class
B shares of the Fund accrued payments under the Plan amounting to $23 and
$21,976, respectively, which amounts are equal to 0.25% and 0.75% of the average
daily net assets of Class A and Class B, respectively, for such period.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a distribution arrangement as set forth in the
Prospectus.
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 4.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.20% of the current value of
the respective accounts for which they are the account executives or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid) or net asset value purchases by employer-sponsored 401(k) and other
plans qualified under Section 401(a) of the Internal Revenue Code ("Qualified
Retirement Plans") for which Morgan Stanley Dean Witter Trust FSB ("MSDW Trust")
serves as Trustee or DWR's Retirement Plan Services serves as recordkeeper
pursuant to a written Recordkeeping Services Agreement, InterCapital compensates
DWR's account executives by paying them, from its own funds, a gross sales
credit of 1.0% of the amount sold.
With respect to Class B shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 4.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission, currently
a residual of up to 0.20% of the current value of the respective accounts for
which they are the account executives of record in all cases. In the case of
Class B shares purchased on or after July 28, 1997 by Qualified Retirement Plans
for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement, DWR
compensates its account executives by paying them, from its own funds, a gross
sales credit of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 0.75% of the current value of
the respective accounts for which they are the account executives of record.
With respect to Class D shares other than shares held by participants in the
InterCapital mutual fund asset allocation program, InterCapital compensates
DWR's account executives by paying them, from its own funds, commissions for the
sale of Class D shares, currently a gross sales credit of up to 1.0% of the
amount sold. There is a chargeback of 100% of the amount paid if the Class D
shares are redeemed in the first year and a chargeback of 50% of the amount paid
if the Class D shares are redeemed in the second year after purchase.
InterCapital also compensates DWR's account executives by paying them, from its
own funds, an annual residual commission, currently a residual of up to 0.10% of
the current value of the respective accounts for which they are the account
executives of record (not including accounts of participants in the InterCapital
mutual fund asset allocation program).
30
<PAGE>
The gross sales credit is a charge which reflects commissions paid by DWR to
its account executives and DWR's Fund-associated distribution-related expenses,
including sales compensation, and overhead and other branch office
distribution-related expenses including (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) travel expenses of mutual
fund sales coordinators to promote the sale of Fund shares and (d) other
expenses relating to branch promotion of Fund sales. The distribution fee that
the Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred under the Plan on behalf of the Fund and, in the
case of Class B shares, opportunity costs, such as the gross sales credit and an
assumed interest charge thereon ("carrying charge"). In the Distributor's
reporting of the distribution expenses to the Fund, in the case of Class B
shares, such assumed interest (computed at the "broker's call rate") has been
calculated on the gross credit as it is reduced by amounts received by the
Distributor under the Plan and any contingent deferred sales charges received by
the Distributor upon redemption of shares of the Fund. No other interest charge
is included as a distribution expense in the Distributor's calculation of its
distribution costs for this purpose. The broker's call rate is the interest rate
charged to securities brokers on loans secured by exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event exceed
an amount equal to a payment at the annual rate of 0.25%, in the case of Class
A, and 0.75%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C will
be reimbursable under the Plan. With respect to Class A, in the case of all
expenses other than expenses representing the service fee, and, with respect to
Class C, in the case of all expenses other than expenses representing a gross
sales credit or a residual to account executives, such amounts shall be
determined at the beginning of each calendar quarter by the Trustees, including,
a majority of the Independent 12b-1 Trustees. Expenses representing the service
fee (for Class A) or a gross sales credit or a residual to account executives
(for Class C) may be reimbursed without prior determination. In the event that
the Distributor proposes that monies shall be reimbursed for other than such
expenses, then in making quarterly determinations of the amounts that may be
reimbursed by the Fund, the Distributor will provide and the Trustees will
review a quarterly budget of projected distribution expenses to be incurred on
behalf of the Fund, together with a report explaining the purposes and
anticipated benefits of incurring such expenses. The Trustees will determine
which particular expenses, and the portions thereof, that may be borne by the
Fund, and in making such a determination shall consider the scope of the
Distributor's commitment to promoting the distribution of the Fund's Class A and
Class C shares.
Each Class paid 100% of the amounts accrued under the Plan with respect to
the Class for the fiscal year ended January 31, 1998 to the Distributor. The
Distributor estimates it has spent, pursuant to the Plan, $84,445 on behalf of
Class B since the inception of the Plan. It is estimated that this amount was
spent in approximately the following ways: (i) 53.15% ($44,883)--advertising and
promotional expenses; (ii) 0.02% ($13)--printing of prospectuses for
distribution to other than current shareholders; and (iii) 46.83%
($39,549)--other expenses, including the gross sales credit and the carrying
charges of which 0.21% ($82) represents carrying charges, 40.32% ($15,945)
represents commission credits to DWR branch offices for payments of commissions
to account executives and 59.47% ($23,522) represents overhead and other branch
office distribution-related expenses. The term "overhead and other branch office
distribution-related expenses" represents (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies; (b) the costs of client sales seminars; (c) travel expenses of Mutual
Fund sales coordinators to promote the sale of Fund shares; and (d) other
expenses relating to branch promotion of Fund share sales. The amounts accrued
by Class A for distribution during the fiscal period July 28, 1997 through
January 31, 1998 were for expenses which relate to compensation of sales
personnel and associated overhead expenses.
31
<PAGE>
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
The Distributor has advised the Fund that in the case of Class B shares, such
excess amount, including the carrying charge designed to approximate the
opportunity costs incurred by DWR which arise from it having advanced monies
without having received the amount of any sales charges imposed at the time of
sale of the Fund's Class B shares, totalled $55,344 at January 31, 1998. Because
there is no requirement under the Plan that the Distributor be reimbursed for
all distribution expenses with respect to Class B shares or any requirement that
the Plan be continued from year to year, this excess amount does not constitute
a liability of the Fund. Although there is no legal obligation for the Fund to
pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
Any cumulative expenses incurred, but not yet recovered through distribution
fees or contingent deferred sales charges, may or may not be recovered through
future distribution fees or contingent deferred sales charges.
No interested person of the Fund, nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or indirect
financial interest in the operation of the Plan except to the extent that DWR,
InterCapital, the Distributor or the Manager or certain of their employees, may
be deemed to have such an interest as a result of benefits derived from the
successful operation of the Plan or as a result of receiving a portion of the
amounts expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending April 30, 1993, and
provides that it will continue from year to year thereafter, provided such
continuance is approved annually by a vote of the Trustees in the manner
described above. Prior to the Board's approval of amendments to the Plan to
reflect the multiple class structure for the Fund, the most recent continuance
of the Plan for one year, until April 30, 1998, was approved by the Board of
Trustees of the Fund, including a majority of the Independent 12b-1 Trustees, at
a Board meeting held on April 24, 1997. Prior to approving the continuation of
the Plan, the Board requested and received from the Distributor and reviewed all
the information which it deemed necessary to arrive at an informed
determination. In making their determination to continue the Plan, the Trustees
considered: (1) the Fund's experience under the Plan and whether such experience
indicates that the Plan is operating as anticipated; (2) the benefits the Fund
had obtained, was obtaining and would be likely to obtain under the Plan; and
(3) what services had been provided and were continuing to be provided under the
Plan by the Distributor, DWR and other selected broker-dealers to the Fund and
its shareholders. Based upon their review, the Trustees of the Fund, including
each of the Independent 12b-1 Trustees, determined that continuation of the Plan
would be in the best interest of the Fund and would have a reasonable likelihood
of continuing to benefit the Fund and its shareholders. This determination was
based upon the conclusion of the Trustees that the Plan provides an effective
means of stimulating sales of shares of the Fund and of reducing or avoiding net
redemptions and the potentially adverse effects that may occur therefrom. In the
Trustees' quarterly review of the Plan, they will consider its continued
appropriateness and the level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
affected Class or Classes of the Fund, and all material amendments of the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Act) on not more
than thirty days written notice to any other party to the Plan. So long as the
Plan is in effect, the election and nomination of Independent Trustees shall be
committed to the discretion of the Independent 12b-1 Trustees.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
As stated in the Prospectus, short-term debt securities with remaining
maturities of 60 days or less at the time of purchase are valued at amortized
cost, unless the Trustees determine such does not reflect the securities'
32
<PAGE>
market value, in which case these securities will be valued at their fair value
as determined by the Trustees. Other short-term debt securities will be valued
on a mark-to-market basis until such time as they reach a remaining maturity of
60 days, whereupon they will be valued at amortized cost using their value on
the 61st day 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. Listed options on debt securities are valued at
the latest sale price on the exchange on which they are listed unless no sales
of such options have taken place that day, in which case they will be valued at
the mean between their latest bid and asked prices. Unlisted options on debt
securities and all options on equity securities are valued at the mean between
their latest bid and asked prices. Futures are valued at the latest sale price
on the commodities exchange on which they trade unless the Trustees determine
that such price does not reflect their market value, in which case they will be
valued at their fair value as determined by the Trustees. All other securities
and other assets are valued at their fair value as determined in good faith
under procedures established by and under the supervision of the Trustees.
The net asset value per share for each Class of shares of the Fund is
determined once daily at 4:00 p.m., New York time (or, on days when the New York
Stock Exchange closes prior to 4:00 p.m., at such earlier time), on each day
that the New York Stock Exchange is open. The New York Stock Exchange currently
observes the following holidays: New Year's Day, Reverend Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
RIGHT OF ACCUMULATION. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other TCW/DW Funds which are multiple class funds
("TCW/DW Multi-Class Funds") purchased at a price including a front-end sales
charge having a current value of $5,000, and purchases $20,000 of additional
shares of the Fund, the sales charge applicable to the $20,000 purchase would be
4.0% of the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if: (a)
such notification is not furnished at the time of the order; or (b) a review of
the records of the Distributor or Morgan Stanley Dean Witter Trust FSB (the
"Transfer Agent") fails to confirm the investor's represented holdings.
LETTER OF INTENT. As discussed in the Prospectus, reduced sales charges are
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Class A shares of the Fund from
the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single purchase. A number of shares equal in value to 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent, in the name
of the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.
33
<PAGE>
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in passing that
level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation," but
there will be no retroactive reduction of sales charges on previous purchases.
For the purpose of determining whether the investor is entitled to a further
reduced sales charge applicable to purchases at or above a sales charge level
which exceeds the stated goal of a Letter of Intent, the cumulative current net
asset value of any shares owned by the investor in any other TCW/DW Multi-Class
Funds held by the shareholder which were previously purchased at a price
including a front-end sales charge (including shares of the Fund, other TCW/DW
Multi-Class Funds or "Exchange Funds" (see "Shareholder Services--Exchange
Privilege") acquired in exchange for those shares, and including in each case
shares acquired through reinvestment of dividends and distributions) will be
added to the cost or net asset value of shares of the Fund owned by the
investor. However, shares of "Exchange Funds" and the purchase of shares of
other TCW/DW Funds will not be included in determining whether the stated goal
of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction. The
5% escrow and minimum purchase requirements will be applicable to the new stated
goal. Investors electing to purchase shares of the Fund pursuant to a Letter of
Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to a
CDSC payable upon most redemptions within six years after purchase. As stated in
the Prospectus, a CDSC will be imposed on any redemption by an investor if after
such redemption the current value of the investor's Class B shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Class B shares during the preceding six years (or, in the case of
shares held by certain Qualified Retirement Plans, three years). However, no
CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption, plus (b) the current net
asset value of shares purchased through reinvestment of dividends or
distributions of the Fund or another TCW/DW Fund (see "Shareholder
Services--Targeted Dividends"), plus (c) increases in the net asset value of the
investor's shares above the total amount of payments for the purchase of Fund
shares made during the preceding six (three) years. The CDSC will be paid to the
Distributor.
In determining the applicability of the CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years (or, in the case of shares held by certain Qualified Retirement
Plans, three years) will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the investor's shares
purchased more than six (three) years prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions. A portion of the
amount redeemed which exceeds an amount which represents both such increase in
value and the value of shares purchased more than six years (or, in the case of
shares held by certain Qualified Retirement Plans, three years) prior to the
redemption and/or shares purchased through reinvestment of dividends or
distributions will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments made
34
<PAGE>
during a month will be aggregated and deemed to have been made on the last day
of the month. The following table sets forth the rates of the CDSC applicable to
most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE CDSC AS A
PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
------------ ---------------
<S> <C>
First.................................................. 5.0%
Second................................................. 4.0%
Third.................................................. 3.0%
Fourth................................................. 2.0%
Fifth.................................................. 2.0%
Sixth.................................................. 1.0%
Seventh and thereafter................................. None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund purchased on or after July 28, 1997 by Qualified Retirement
Plans for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services
serves as recordkeeper pursuant to a written Recordkeeping Services Agreement.
<TABLE>
<CAPTION>
YEAR SINCE CDSC AS A
PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
------------ ---------------
<S> <C>
First.................................................. 2.0%
Second................................................. 2.0%
Third.................................................. 1.0%
Fourth and thereafter.................................. None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
of purchase which are in excess of these amounts and which redemptions do not
qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC of
1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
SHAREHOLDER INVESTMENT ACCOUNT. Upon purchase of shares of the Fund, a
Shareholder Investment Account is opened for the investor on the books of the
Fund, maintained by the Transfer Agent. This is an open account in which shares
owned by the investor are credited by the Transfer Agent in lieu of issuance of
a share certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares and
may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. No certificates will be issued for
fractional shares or to shareholders who have elected the Systematic Withdrawal
Plan for withdrawing cash from their accounts. Whenever a shareholder-instituted
transaction takes place in the Shareholder Investment Account, the shareholder
will be mailed a confirmation of the transaction from the Fund or from DWR or
another selected broker-dealer.
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All dividends and
capital gains distributions are automatically paid in full and fractional shares
of the applicable Class of the Fund, unless the shareholder requests that they
be paid in cash. Each purchase of shares of the Fund is made upon the condition
that the Transfer Agent is thereby automatically appointed as agent of the
investor to receive all dividends and capital
35
<PAGE>
gains distributions on shares owned by the investor. Such dividends and
distributions will be paid in shares of the applicable Class of the Fund (or in
cash if the shareholder so requests) at the net asset value per share as of the
close of business on the record date. At any time an investor may request the
Transfer Agent in writing to have subsequent dividends and/or capital gains
distributions paid in cash rather than shares. To assume sufficient time to
process the change, such request should be received by the Transfer Agent at
least five (5) business days prior to the record date for which it commences to
take effect. In case of recently purchased shares for which registration
instructions have not been received on the record date, cash payments will be
made to DWR or another selected broker-dealer, and will be forwarded to the
shareholder, upon receipt of proper instructions. It has been and remains the
Fund's policy and practice that, if checks for dividends or distributions paid
in cash remain uncashed, no interest will accrue on amounts represented by such
uncashed checks.
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 or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the shareholder's
existing account at the net asset value calculated the same business day the
transfer of funds is effected (subject to any applicable sales charges). For
further information or to subscribe to EasyInvest, shareholders should contact
their DWR or other selected broker-dealer account executive or the Transfer
Agent.
INVESTMENT OF DISTRIBUTIONS RECEIVED IN CASH. As discussed in the
Prospectus, any shareholder who receives a cash payment representing a dividend
or capital gains distribution may invest such dividend or distribution in shares
of the applicable Class at the net asset value per share, without the imposition
of a CDSC upon redemption, by returning the check or the proceeds to the
Transfer Agent within 30 days after the payment date. If the shareholder returns
the proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset value
per share next determined after receipt of the check or the proceeds by the
Transfer Agent.
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
a shareholder may make additional investments in any Class of shares of the Fund
for which they qualify at any time by sending a check in any amount, not less
than $100, payable to TCW/DW Income and Growth Fund, and indicating the selected
Class, directly to the Transfer Agent. In the case of Class A shares, after
deduction of any applicable sales charge, the balance will be applied to the
purchase of Fund shares, and, in the case of shares of the other Classes, the
entire amount will be applied to the purchase of Fund shares, at the net asset
value per share next computed after receipt of the check of purchase payment by
the Transfer Agent. The shares so purchased will be credited to the investor's
account.
TARGETED DIVIDENDS-SM-. In states where it is legally permissible to do so,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an open-end TCW/DW Fund other
than TCW/DW Income and Growth Fund or in another Class of TCW/DW Income and
Growth Fund. Such investment will be made as described above for automatic
investment in shares of the applicable Class of the Fund, at the net asset value
per share of the selected TCW/DW Fund as of the close of business of the payment
date of the dividend or distribution, and will begin to earn dividends, if any,
in the selected TCW/DW Fund on the next business day. To participate in the
Targeted Dividends program, shareholders should contact their DWR or other
selected broker-dealer account executive or the Transfer Agent. Shareholders of
the Fund must be shareholders of the selected Class of the TCW/DW Fund targeted
to receive investments from dividends at the time they enter the Targeted
Dividends program. Investors should review the prospectus of the targeted TCW/DW
Fund before entering the program.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a systematic
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 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
36
<PAGE>
annualized basis. Any applicable CDSC will be imposed on shares redeemed under
the Withdrawal Plan (see "Purchase of Fund Shares"). Therefore, any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed from
his or her account so that the proceeds (net of any applicable CDSC) to the
shareholder will be the designated monthly or quarterly amount.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the sales charges which may be applicable
to purchases and redemptions of shares (see "Purchase of Fund Shares").
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent within five business days after the date of redemption.
The Withdrawal Plan may be terminated at any time by the Fund.
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions 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 such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her DWR or other selected broker-dealer account executive or by written
notification to the Transfer Agent. In addition, the party and/or the address to
which checks are mailed may be changed by written notification to the Transfer
Agent, with signature guarantees required in the manner described above. The
shareholder may also terminate the Withdrawal Plan at any time by written notice
to the Transfer Agent. In the event of such termination, the account will be
continued as a regular shareholder investment account. The shareholder may also
redeem all or part of the shares held in the Withdrawal Plan account (see
"Repurchases and Redemptions" in the Prospectus) at any time. Shareholders
wishing to enroll in the Withdrawal Plan should contact their account executive
or the Transfer Agent.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of each Class of shares of the Fund
may exchange their shares for shares of the same Class of shares of any other
TCW/DW Multi-Class Fund without the imposition of any exchange fee. Shares may
also be exchanged for TCW/DW North American Government Income Trust and five
money market funds for which InterCapital serves as investment manager (the
foregoing six funds are hereinafter collectively 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 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.
Shareholders utilizing the Fund's Exchange Privilege may subsequently
re-exchange such shares back to the Fund. However, no exchange privilege is
available between the Fund and any other fund managed by the Manager or
InterCapital, except for other TCW/DW Funds and the five money market funds
listed in the Prospectus.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written
37
<PAGE>
notification to the contrary. For telephone exchanges, the exact registration of
the existing account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a TCW/DW Multi-
Class Fund are exchanged for shares of an Exchange Fund, the exchange is
executed at no charge to the shareholder, without the imposition of the CDSC at
the time of the exchange. During the period of time the shareholder remains in
the Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired), the holding period or "year since purchase
payment made" is frozen. When shares are redeemed out of the Exchange Fund, they
will be subject to a CDSC which would be based upon the period of time the
shareholder held shares in a TCW/DW Multi-Class Fund. However, in the case of
shares 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
which are attributable to those shares. Shareholders acquiring shares of an
Exchange Fund pursuant to this exchange privilege may exchange those shares back
into a TCW/DW Multi-Class Fund from the Exchange Fund, with no charge being
imposed on such exchange. The holding period previously frozen when shares were
first exchanged for shares of an Exchange Fund resumes on the last day of the
month in which shares of a TCW/ DW Multi-Class Fund are reacquired. A CDSC is
imposed only upon an ultimate redemption, based upon the time (calculated as
described above) the shareholder was invested in a TCW/DW Multi-Class Fund.
When shares initially purchased in a TCW/DW Multi-Class Fund are exchanged
for shares of a TCW/DW Multi-Class Fund or shares of an Exchange Fund, the date
of purchase of the shares of the fund exchanged into, for purposes of the CDSC
upon redemption, will be the last day of the month in which the shares being
exchanged were originally purchased. In allocating the purchase payments between
funds for purposes of the CDSC, the amount which represents the current net
asset value of shares at the time of the exchange which were (i) purchased more
than one, three or six years (depending on the CDSC schedule applicable to the
shares) prior to the exchange and (ii) originally acquired through reinvestment
of dividends or distributions (all such shares called "Free Shares"), will be
exchanged first. After an exchange, all dividends earned on shares in the
Exchange Fund will be considered Free Shares. If the exchanged amount exceeds
the value of such Free Shares, an exchange is made, on a block-by-block basis,
of non-Free Shares held for the longest period of time. Shares equal to any
appreciation in the value of non-Free Shares exchanged will be treated as Free
Shares, and the amount of the purchase payments for the non-Free Shares of the
fund exchanged into will be equal to the lesser of (a) the purchase payments
for, or (b) the current net asset value of, the exchanged non-Free Shares. If an
exchange between funds would result in exchange of only part of a particular
block of non-Free Shares, then shares equal to any appreciation in the value of
the block (up to the amount of the exchange) will be treated as Free Shares and
exchanged first, and the purchase payment for that block will be allocated on a
pro rata basis between the non-Free Shares of that block to be retained and the
non-Free Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase payment
for such shares, and the amount of purchase payment for the exchanged non-Free
Shares will be equal to the lesser of (a) the prorated amount of the purchase
payment for, or (b) the current net asset value of, those exchanged non-Free
Shares. Based upon the procedures described in the CDSC Fund Prospectus under
the caption "Purchase of Fund Shares," any applicable CDSC will be imposed upon
the ultimate redemption of shares of any fund, regardless of the number of
exchanges since those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer.
38
<PAGE>
With respect to exchanges, redemptions or repurchases, the Transfer Agent
shall be liable for its own negligence and not for the default or negligence of
its correspondents or for losses in transit. The Fund shall not be liable for
any default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer, if any, in the performance of such functions.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of the shares of any
other fund and the general administration of the Exchange Privilege. No
commission or discounts will be paid to the Distributor or any selected
broker-dealer for any transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege Account of each Class is $5,000 for Dean Witter Liquid Asset
Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter California
Tax-Free Daily Income Trust and Dean Witter New York Municipal Money Market
Trust, although those funds may, at their discretion, accept initial investments
of as low as $1,000. The minimum initial investment for the Exchange Privilege
Account of each Class for Dean Witter U.S. Government Money Market Trust and all
TCW/DW Funds is $1,000.) Upon exchange into a money market fund, the shares of
that fund will be held in a special Exchange Privilege Account separately from
accounts of those shareholders who have acquired their shares directly from that
fund. As a result, certain services normally available to shareholders of money
market funds, including the check writing feature, will not be available for
funds held in that account.
The Fund, each of the other TCW/DW Funds and each of the money market funds
may limit the number of times this Exchange Privilege may be exercised by any
investor within a specified period of time. Also, the Exchange Privilege may be
terminated or revised at any time by any of the TCW/DW Funds or the money market
funds, upon such notice as may be required by applicable regulatory agencies
(presently sixty days for termination or material revision), provided that six
months' prior written notice of termination will be given to the shareholders
who hold shares of Exchange Funds, pursuant to this Exchange Privilege, and
provided further that the Exchange Privilege may be terminated or materially
revised at times (a) when the New York Stock Exchange is closed for other than
customary weekends and holidays, (b) when trading on that Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, (d) during any other period when the Securities and Exchange Commission
by order so permits (provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist), or (e), if the Fund would be unable to invest
amounts effectively in accordance with its investment objective(s), policies and
restrictions. 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.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REPURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------
REDEMPTION. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC. If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by
the shareholder, the shares may be redeemed by surrendering the certificates
with a written request for redemption. 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, which will redeem the shares at their net asset value
next computed (see "Purchase of Fund Shares") after it receives the request, and
certificate, if any, in good order. Any redemption request received after such
39
<PAGE>
computation will be redeemed at the next determined net asset value. The term
"good order" means that the share certificate, 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 is accepted.
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 or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures 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
such an eligible guarantor). A stock power may be obtained from any dealer or
commercial bank. The Fund may change the signature guarantee requirements from
time to time upon notice to shareholders, which may be by means of a revised
prospectus.
REPURCHASE. As stated in the Prospectus, 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 computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
PAYMENT FOR SHARES REPURCHASED OR REDEEMED. As discussed in the Prospectus,
payment for shares of any Class presented for repurchase or redemption will be
ordinarily 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 at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on that Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check and the check has not yet cleared, payment of
redemption proceeds may be delayed until the check has cleared (not more than
fifteen days from the time of receipt of the check by the Transfer Agent). It
has been and remains the Fund's policy and practice that, if checks for
redemption proceeds remain uncashed, no interest will accrue on amounts
represented by such uncashed checks. 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.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares subject to the charge have been held), any transfer involving
less than all of the shares in an account will be made on a pro rata basis (that
is, by transferring shares in the same proportion that the transferred shares
bear to the total shares in the account immediately prior to the transfer). The
transferred shares will continue to be subject to any applicable CDSC as if they
had not been so transferred.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may within 35 days after the date of
redemption or repurchase reinstate any portion or all of the proceeds of such
redemption or repurchase in shares of the Fund in the same Class at the net
asset value next determined after a reinstatement request, together with such
proceeds, is received by the Transfer Agent.
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<PAGE>
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes,
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and shareholders will be required to include such undistributed
gains in their taxable income and will be able to claim their share of the tax
paid by the Fund as a credit against their individual federal income tax.
Because the Fund intends to distribute all of its net investment income and
net capital gains to shareholders and otherwise continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code, it
is not expected that the Fund will be required to pay any federal income tax.
Shareholders will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from net
investment income or net short-term capital gains, are taxable to the
shareholder as ordinary income regardless of whether the shareholder receives
such payments 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 received by the shareholder in the prior calendar
year.
Gains or losses on sales of securities by the Fund will be long-term capital
gains or losses if the securities have been held by the Fund for more than
twelve months. Gains or losses on the sale of securities held for twelve months
or less will be short-term gains or losses.
The Fund's transactions, if any, in options and futures contracts may be
subject to special provisions of the Internal Revenue Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These rules also (a) could require the Fund to mark-to-market
certain types of the positions in its portfolio (i.e., treat them as if they
were closed out) and (b) may cause the Fund to recognize income without
receiving cash with which to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding income and
excise taxes.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the dividends received deduction. The Treasury intends to issue regulations to
permit shareholders to take into account their proportionate share of the Fund's
capital gains distributions that will be subject to a reduced rate under the
Taxpayer Relief Act of 1997. The Taxpayer Relief Act reduces the maximum tax on
long-term capital gains from 28% to 20%; however, it also lengthens the required
holding period to obtain the lower rate from more than 12 months to more than 18
months. The lower rates do not apply to collectibles and certain other assets.
Additionally, the maximum capital gain rate for assets that are held more than
five years and that are acquired after December 31, 2000 is 18%.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized net long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable at either ordinary or capital gain rates.
Therefore, an
41
<PAGE>
investor should consider the tax implications of purchasing Fund shares
immediately prior to a dividend or distribution record date.
Dividend payments will be eligible for the federal dividends received
deduction available to the Fund's corporate shareholders only to the extent the
aggregate dividends received by the Fund would be eligible for the deduction if
the Fund were the shareholder claiming the dividends received deduction. The
amount of dividends paid by the Fund which may qualify for the dividends
received deduction is limited to the aggregate amount of qualifying dividends
which the Fund derives from its portfolio investments which the Fund has held
for a minimum period, usually 46 days within a 90-day period beginning 45 days
before the ex-dividend date of each qualifying dividend. Shareholders must meet
a similar holding period with respect to their shares to claim the dividends
received deduction with respect to any distribution of qualifying dividends. Any
distributions made by the Fund will not be eligible for the dividends received
deduction with respect to shares which are held by the shareholder for 45 days
or less. Any long-term capital gain distributions will also not be eligible for
the dividends received deduction. The ability to take the dividends received
deduction will also be limited in the case of a Fund shareholder which incurs or
continues indebtedness which is directly attributable to its investment in the
Fund.
After the end of the year, shareholders will be sent full information on
their dividends and capital gains distributions for tax purposes, including
information as to the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the portion eligible for the dividends received
deduction. 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 are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature. These
figures are computed separately for Class A, Class B, Class C and Class D
shares. Prior to July 28, 1997 the Fund offered only one Class of shares.
Because all shares of the Fund held prior to such time (other than shares which
were acquired in exchange for shares of TCW/DW Funds offered with a CDSC and
shares acquired through reinvestment of dividends and distributions thereon)
have been designated Class C, certain historical performance data may be
restated to reflect the 1.0% CDSC imposed on most Class C shares redeemed within
one year after purchase.
Yield is calculated for any 30-day period as follows: the amount of interest
and/or dividend income for each security in the Fund's portfolio is determined
in accordance with regulatory requirements; the total for the entire portfolio
constitutes the Fund's gross income for the period. Expenses accrued during the
period are subtracted to arrive at "net investment income" of each Class. The
resulting amount is divided by the product of the maximum offering price per
share on the last day of the period multiplied by the average number of shares
of the applicable Class outstanding during the period that were entitled to
dividends. This amount is added to 1 and raised to the sixth power. 1 is then
subtracted from the result and the difference is multiplied by 2 to arrive at
the annualized yield. The Fund's yield for the 30-day period ended January 31,
1998 was 4.78% for Class A, 4.53% for Class B, 4.53% for Class C and 5.25% for
Class D.
The Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. The ending redeemable value is
reduced by any CDSC at the end of the one, five or ten year or other period. For
the purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing the average annual total
return involves a percentage obtained by dividing the ending redeemable value by
the amount of the initial investment, taking a root of the quotient (where the
root is
42
<PAGE>
equivalent to the number of years in the period) and subtracting 1 from the
result. The average annual total returns for Class C shares of the Fund for the
fiscal year ended January 31, 1998 and for the period from March 31, 1993
(commencement of operations) through January 31, 1998 were 13.03% and 11.51%,
respectively.
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each of Class A, Class B and Class D for specified periods by
determining the aggregate percentage rate which will result in the ending value
of a hypothetical $1,000 investment made at the beginning of the period. For the
purpose of this calculation, it is assumed that all dividends and distributions
are reinvested. The formula for computing aggregate total return involves a
percentage obtained by dividing the ending value by the initial $1,000
investment and subtracting 1 from the result. The ending redeemable value for
Class A reflects the imposition of the maximum front-end sales charge for Class
A. The ending redeemable value for Class B is reduced by any CDSC at the end of
the period. Based on the foregoing calculations, the total returns for the
period July 28, 1997 through January 31, 1998 were 1.52%, 0.89% and 6.21% for
Class A, Class B and Class D, respectively.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, year-by-year or
other types of total return figures. Such calculations may or may not reflect
the imposition of the maximum front-end sales charge for Class A or the
deduction of the CDSC for each of Class B and Class C which, if reflected, would
reduce the performance quoted. For example, the average annual total return of
the Fund may be calculated in the manner described above, but without deduction
for any applicable sales charge. Based upon the foregoing calculation, the
average total returns of Class C for the fiscal year ended January 31, 1998 and
for the period March 31, 1993 through January 31, 1998 were 14.03% and 11.51%,
respectively. In addition, the Fund may compute its aggregate total return for
specified periods by determining the aggregate percentage rate which will result
in the ending value of a hypothetical $1,000 investment made at the beginning of
the period. For the purpose of this calculation, it is assumed that all
dividends and distributions are reinvested. The formula for computing aggregate
total return involves a percentage obtained by dividing the ending value
(without reduction for any sales charge) by the initial $1,000 investment and
subtracting 1 from the result. Based on the foregoing calculation, the Fund's
total returns for Class C for the fiscal year ended January 31, 1998 and for the
period from March 31, 1993 through January 31, 1998 were 14.03% and 69.38%,
respectively. Based on the foregoing calculations, the total returns for Class
A, Class B and Class D for the period July 28, 1997 through January 31, 1998
were 6.03%, 5.80% and 6.21%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,575, $48,250 and $97,250 in the case of Class A (investments of $10,000,
$50,000 and $100,000 adjusted for the initial sales charge), or by $10,000,
$50,000 and $100,000 in the case of each of Class B, Class C and Class D, as the
case may be. Investments of $10,000, $50,000 and $100,000 in the Fund at
inception would have grown to the following amounts at January 31, 1998.
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION --------------------------------
CLASS DATE $10,000 $50,000 $100,000
- ----- ---- ------- ------- --------
<S> <C> <C> <C> <C>
Class A................. 7/28/97 $10,152 $51,159 $103,114
Class B................. 7/28/97 10,580 52,900 105,800
Class C................. 3/31/93 16,938 84,690 169,380
Class D................. 7/28/97 10,621 53,105 106,210
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
43
<PAGE>
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
held. The Trustees were elected by InterCapital in January, 1993 as the then
sole shareholder of the Fund or, in the case of Messrs. Schroeder and Stern, by
the other Trustees on April 20, 1995. The Trustees themselves have the power to
alter the number and the terms of office of the Trustees, and they may at any
time lengthen their own terms or make their terms of unlimited duration and
appoint their own successors, provided that always at least a majority of the
Trustees has been elected by the shareholders of the Fund. Under certain
circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right to remove the Trustees following a meeting
called for that purpose requested in writing by the record holders of not less
than ten percent of the Fund's outstanding shares. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series. The Trustees presently have not authorized any such
additional series or classes of shares other than as set forth in the
Prospectus.
The Declaration of Trust provides that no Trustee, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, nor is any Trustee,
officer, employee or agent liable to any third persons in connection with the
affairs of the Fund, except as such liability may arise from his own bad faith,
willful misfeasance, gross negligence, or reckless disregard of his duties. It
also provides that all third persons shall look solely to the Fund's property
for satisfaction of claims arising in connection with the affairs of the Fund.
With the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liabilities
in connection with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of beneficial
interest. The Fund shall be of unlimited duration, subject to the provisions in
the Declaration of Trust concerning termination by action of the shareholders.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Morgan Stanley Dean Witter Trust FSB, Harborside Financial Center, Plaza
Two, Jersey City, New Jersey 07311 is the Transfer Agent of the Fund's shares
and Dividend Disbursing Agent for payment of dividends and distributions on Fund
shares and Agent for shareholders under various investment plans described
herein. Morgan Stanley Dean Witter Trust FSB is an affiliate of Dean Witter
Services Company Inc., the Fund's Manager, and of Dean Witter Distributors Inc.,
the Fund's Distributor. As Transfer Agent and Dividend Disbursing Agent, Morgan
Stanley Dean Witter Trust FSB's responsibilities include maintaining shareholder
accounts, disbursing cash dividends and reinvesting dividends, processing
account registration changes, handling purchase and redemption transactions,
mailing prospectuses and reports, mailing and tabulating proxies, processing
share certificate transactions, and maintaining shareholder records and lists.
For these services Morgan Stanley Dean Witter Trust FSB receives a per
shareholder account fee.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
44
<PAGE>
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on January 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the Manager,
is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund for the fiscal year ended January 31,
1998 included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
45
<PAGE>
TCW/DW INCOME AND GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF TCW/DW INCOME AND GROWTH FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of TCW/DW Income and Growth Fund (the
"Fund") at January 31, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at January 31, 1998 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
MARCH 13, 1998
46
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS (35.6%)
ADVERTISING (1.0%)
$ 425 Omicom Group, Inc. - 144A*...................................................... 4.25% 01/03/07 $ 589,534
-----------
AEROSPACE (1.2%)
345 Hexcel Corp..................................................................... 7.00 08/01/03 569,343
100 Titan Corp...................................................................... 8.25 11/01/03 168,518
-----------
737,861
-----------
AUTO PARTS (0.6%)
345 Tower Automotive, Inc. - 144A*.................................................. 5.00 08/01/04 365,114
-----------
BUSINESS SERVICES (1.1%)
390 COREStaff, Inc.................................................................. 2.94 08/15/04 318,107
290 Personnel Group of America - 144A*.............................................. 5.75 07/01/04 345,622
-----------
663,729
-----------
COMMERCIAL SERVICES (4.2%)
775 Cendant Corp.................................................................... 4.75 03/01/03 1,031,835
155 CUC International, Inc.......................................................... 3.00 02/15/02 195,542
1,075 CUC International, Inc. - 144A*................................................. 3.00 02/15/02 1,356,177
-----------
2,583,554
-----------
DRUGS (1.4%)
810 Athena Neurosciences, Inc. - 144A*.............................................. 4.75 11/15/04 860,123
-----------
ELECTRONICS - INSTRUMENTATION (0.4%)
215 Thermo Instrument Systems, Inc.................................................. 4.00 01/15/05 219,771
-----------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (1.2%)
725 Xilinx, Inc. - 144A*............................................................ 5.25 11/01/02 724,377
-----------
FINANCIAL SERVICES (1.1%)
335 Morgan Stanley Group, Inc.+ (exchangeable into Boeing Co. common stock)......... 0.00 09/30/00 365,545
260 Morgan Stanley Group, Inc.+ (exchangeable into Johnson & Johnson Co. common
stock)........................................................................ 2.00 03/29/02 314,506
-----------
680,051
-----------
HEALTHCARE (0.5%)
225 Sunrise Assisted Living, Inc. - 144A*........................................... 5.50 06/15/02 287,021
-----------
HEALTHCARE SERVICES (3.1%)
530 Alternative Living Services, Inc................................................ 5.25 12/15/02 617,450
375 Assisted Living Concepts, Inc................................................... 6.00 11/01/02 399,375
545 Omnicare, Inc. - 144A*.......................................................... 5.00 12/01/07 551,131
280 Quintiles Transportational Corp. - 144A*........................................ 4.25 05/31/00 319,998
-----------
1,887,954
-----------
HOTELS (0.5%)
330 Signature Resorts, Inc.......................................................... 5.75 01/15/07 335,983
-----------
INSURANCE (0.4%)
220 American International Group, Inc............................................... 2.25 07/30/04 227,700
-----------
LEISURE (0.1%)
65 Speedway Motorsports, Inc....................................................... 5.75 09/30/03 65,105
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEDICAL SERVICES (0.6%)
$ 320 Occusystems, Inc................................................................ 6.00% 12/15/01 $ 396,160
-----------
OIL SERVICES (1.3%)
700 Baker Hughes, Inc............................................................... 0.00 05/05/08 565,048
260 Halter Marine Group, Inc. - 144A*............................................... 4.50 09/15/04 248,235
-----------
813,283
-----------
PAPER PRODUCTS (0.5%)
325 Metsa-Serla OY - 144A* (Finland)................................................ 4.375 10/15/02 304,688
-----------
PHARMACEUTICALS (1.4%)
530 Sandoz Capital BVI, Ltd. - 144A* (Switzerland).................................. 2.00 10/06/02 853,306
-----------
POLLUTION CONTROL (3.3%)
690 Thermo Electron Corp. - 144A*................................................... 4.25 01/01/03 794,901
1,145 U.S. Filter Corp................................................................ 4.50 12/15/01 1,242,691
-----------
2,037,592
-----------
REAL ESTATE INVESTMENT TRUST (0.8%)
210 LTC Properties, Inc............................................................. 8.50 01/01/01 274,355
200 LTC Properties, Inc............................................................. 8.25 07/01/01 234,782
-----------
509,137
-----------
RESTAURANTS (0.1%)
145 Einstein/Noah Bagel Corp. - 144A*............................................... 7.25 06/01/04 89,545
-----------
RETAIL (3.8%)
285 Charming Shoppes, Inc........................................................... 7.50 07/15/06 255,360
1,045 Costco Companies, Inc. - 144A*.................................................. 0.00 08/19/17 619,536
530 Home Depot, Inc................................................................. 3.25 10/01/01 737,919
565 Staples, Inc. - 144A*........................................................... 4.50 10/01/00 728,087
-----------
2,340,902
-----------
TECHNOLOGY (1.5%)
310 Adaptec, Inc. - 144A*........................................................... 4.75 02/01/04 265,224
595 Safeguard Scientifics, Inc. - 144A*............................................. 6.00 02/01/06 653,851
-----------
919,075
-----------
TELECOMMUNICATIONS (4.0%)
1,280 Motorola, Inc................................................................... 0.00 09/27/13 1,006,436
415 Premiere Technologies - 144A*................................................... 5.75 07/01/04 420,905
280 SmarTalk TeleServices, Inc. - 144A*............................................. 5.75 09/15/04 342,084
610 Tel-Save Holdings, Inc. - 144A*................................................. 5.00 12/15/04 669,475
-----------
2,438,900
-----------
TRANSPORTATION (0.4%)
250 Blue Bird Body Co. (Series B)................................................... 10.75 11/15/06 274,375
-----------
WASTE MANAGEMENT (1.1%)
635 USA Waste Services, Inc......................................................... 4.00 02/01/02 684,613
-----------
TOTAL CONVERTIBLE BONDS
(IDENTIFIED COST $19,520,391)...................................................................... 21,889,453
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (39.1%)
AEROSPACE (0.2%)
$ 150 Wyman-Gordon Co................................................................. 8.00% 12/15/07 $ 152,625
-----------
AUTO PARTS (0.5%)
250 Hayes Wheels International, Inc. - 144A*........................................ 11.00 07/15/06 282,500
-----------
BANKS (1.3%)
75 Chevy Chase Savings Bank........................................................ 9.25 12/01/05 78,375
125 Chevy Chase Savings Bank, F.S.B................................................. 9.25 12/01/08 130,625
375 First Nationwide Escrow......................................................... 12.25 05/15/01 416,250
175 First Nationwide Escrow......................................................... 10.625 10/01/03 196,437
-----------
821,687
-----------
BROADCAST MEDIA (0.4%)
100 JCAC, Inc....................................................................... 10.125 06/15/06 110,500
125 Outdoor Communications, Inc..................................................... 9.25 08/15/07 130,937
-----------
241,437
-----------
BUILDING & CONSTRUCTION (0.5%)
50 D.R. Horton, Inc................................................................ 8.375 06/15/04 52,000
250 Johns Manville International Group.............................................. 10.875 12/15/04 278,437
-----------
330,437
-----------
BUILDING MATERIALS (1.3%)
200 American Standard Co............................................................ 7.375 02/01/08 199,500
500 K Hovnanian Enterprises......................................................... 11.25 04/15/02 522,500
100 MDC Holdings, Inc............................................................... 8.375 02/01/08 100,500
-----------
822,500
-----------
BUSINESS SERVICES (1.1%)
631 American Pad & Paper Co......................................................... 13.00 11/15/05 668,860
-----------
BUSINESS SERVICES - DISTRIBUTORS (1.2%)
150 Coinmach Corp. - 144A*.......................................................... 11.75 11/15/05 168,000
350 Iron Mountain, Inc.............................................................. 10.125 10/01/06 384,125
168 Pierce Leahy Corp............................................................... 11.125 07/15/06 192,150
-----------
744,275
-----------
CABLE & TELECOMMUNICATIONS (1.0%)
200 Adelphia Communications Corp. (Series B)........................................ 9.25 10/01/02 208,500
100 Adelphia Communications Corp. - 144A*........................................... 8.375 02/01/08 100,000
25 Cablevision Systems Corp........................................................ 9.875 05/15/06 27,562
50 Cablevision Systems Corp. (Series B)............................................ 8.125 08/15/09 52,625
60 Paging Network, Inc............................................................. 10.125 08/01/07 62,700
150 Paging Network, Inc............................................................. 10.00 10/15/08 156,562
-----------
607,949
-----------
CABLE/CELLULAR (0.2%)
100 Comcast Cellular Holdings, Inc. (Series B)...................................... 9.50 05/01/07 106,750
-----------
CHEMICALS (0.7%)
375 NL Industries, Inc.............................................................. 11.75 10/15/03 418,125
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL SERVICES (1.4%)
$ 100 Intermedia Communications, Inc. - 144A*......................................... 8.875% 11/01/07 $ 105,750
150 Intermedia Communications, Inc.................................................. 8.50 01/15/08 155,250
150 MasTec, Inc. - 144A*............................................................ 7.75 02/01/08 150,375
400 NEXTLINK Communications, Inc.................................................... 9.625 10/01/07 424,000
-----------
835,375
-----------
COMMUNICATIONS EQUIPMENT (0.4%)
175 Globalstar L.P./Capital Corp.................................................... 11.25 06/15/04 177,625
50 Globalstar L.P./Capital Corp. - 144A*........................................... 10.75 11/01/04 49,000
-----------
226,625
-----------
CONSUMER - NONCYCLICAL (2.1%)
50 Amscan Holdings, Inc. - 144A*................................................... 9.875 12/15/07 52,375
190 Cott Corp. (Canada)............................................................. 9.375 07/01/05 198,550
175 Holmes Products Corp. - 144A*................................................... 9.875 11/15/07 181,125
475 International Home Foods, Inc................................................... 10.375 11/01/06 527,250
100 Revlon Consumer Products, Inc. - 144A*.......................................... 8.125 02/01/06 100,375
250 Revlon Consumer Products, Inc. - 144A*.......................................... 8.625 02/01/08 250,938
-----------
1,310,613
-----------
CONTAINERS (1.1%)
125 Graham Packaging Corp. - 144A*.................................................. 8.75 01/15/08 126,250
275 Plastic Containers, Inc. (Series B)............................................. 10.00 12/15/06 308,000
225 U.S. Can Corp................................................................... 10.125 10/15/06 236,250
-----------
670,500
-----------
ENERGY (1.5%)
250 Chesapeake Energy Corp.......................................................... 12.00 03/01/01 262,188
175 National Energy Group, Inc. (Series D) - 144A*.................................. 10.75 11/01/06 182,000
275 Transamerican Energy - 144A*.................................................... 11.50 06/15/02 280,500
100 Trico Marine Services, Inc. (Series B).......................................... 8.50 08/01/05 100,500
75 Trico Marine Services, Inc. (Series C) - 144A*.................................. 8.50 08/01/05 75,375
-----------
900,563
-----------
ENTERTAINMENT & LEISURE TIME (0.3%)
75 Livent, Inc. - 144A*............................................................ 9.375 10/15/04 76,875
100 Regal Cinemas, Inc. - 144A*..................................................... 8.50 10/01/07 102,000
-----------
178,875
-----------
ENTERTAINMENT/GAMING (1.1%)
125 Grand Casinos, Inc.............................................................. 10.125 12/01/03 135,938
500 Showboat, Inc................................................................... 9.25 05/01/08 540,000
-----------
675,938
-----------
FINANCE (0.2%)
100 Nationwide Credit, Inc. - 144A*................................................. 10.25 01/15/08 102,000
-----------
FINANCE - LEASING (0.8%)
190 Williams Scotsman, Inc. - 144A*................................................. 9.875 06/01/07 199,500
295 Xerox Credit Corp............................................................... 2.875 07/01/02 297,646
-----------
497,146
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL - MISCELLANEOUS (0.1%)
$ 65 North Atlantic Trading.......................................................... 11.00% 06/15/04 $ 67,600
-----------
FINANCIAL SERVICES (0.7%)
400 American Annuity Group, Inc..................................................... 11.125 02/01/03 412,716
-----------
FOOD SERVICES (0.5%)
135 Jitney-Jungle Stores of America, Inc............................................ 12.00 03/01/06 153,563
75 Jitney-Jungle Stores of America, Inc. - 144A*................................... 10.375 09/15/07 79,313
50 Quality Food Centers, Inc. (Series B)........................................... 8.70 03/15/07 56,000
-----------
288,876
-----------
FOREST PRODUCTS, PAPER & PACKING (0.7%)
125 Paperboard Industrial International, Inc. - 144A*............................... 8.375 09/15/07 129,375
175 Riverwood International Corp.................................................... 10.625 08/01/07 182,875
125 SD Warren Co. (Series B)........................................................ 12.00 12/15/04 139,531
-----------
451,781
-----------
HEALTH SERVICES (0.5%)
285 Integrated Health Services - 144A*.............................................. 9.50 09/15/07 302,100
-----------
HEALTHCARE (1.5%)
200 Alliance Imaging, Inc........................................................... 9.625 12/15/05 209,000
375 Dade International, Inc. (Series B)............................................. 11.125 05/01/06 416,250
150 Fisher Scientific International, Inc............................................ 9.00 02/01/08 153,938
150 Physician Sales & Service, Inc. - 144A*......................................... 8.50 10/01/07 155,250
-----------
934,438
-----------
HOME BUILDING (0.4%)
250 U.S. Home Corp.................................................................. 9.75 06/15/03 261,563
-----------
HOSPITAL MANAGEMENT & HEALTH MAINTENANCE
ORGANIZATIONS (0.3%)
200 Extendicare Health Services, Inc. - 144A*....................................... 9.35 12/15/07 209,000
-----------
INDUSTRIALS (0.5%)
265 Diamond Offshore Drilling, Inc.................................................. 3.75 02/15/07 334,202
-----------
LODGING (0.4%)
250 Signature Resorts, Inc. - 144A*................................................. 9.75 10/01/07 256,250
-----------
MANUFACTURING (3.3%)
335 Communications & Power Industries, Inc. (Series B).............................. 12.00 08/01/05 375,200
100 Desa International, Inc. - 144A*................................................ 9.875 12/15/07 104,250
50 Doskocil Manufacturing Co., Inc. - 144A*........................................ 10.125 09/15/07 52,500
50 Foamex L.P. - 144A*............................................................. 9.875 06/15/07 51,500
100 International Wire Group - 144A*................................................ 11.75 06/01/05 111,000
500 Jordan Telecom Products - 144A*................................................. 9.875 08/01/07 530,000
250 Packaged Ice, Inc............................................................... 9.75 02/01/05 253,125
225 Telex Communications, Inc. - 144A*.............................................. 10.50 05/01/07 230,625
100 United Defense Industrial, Inc. - 144A*......................................... 8.75 11/15/07 101,750
225 Viasystems, Inc. - 144A*........................................................ 9.75 06/01/07 236,250
-----------
2,046,200
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEDIA (0.1%)
$ 50 Lamar Advertising Co............................................................ 9.625% 12/01/06 $ 54,625
-----------
MEDIA GROUP (3.9%)
125 Ackerly Communications, Inc. (Series B)......................................... 10.75 10/01/03 133,125
500 Adams Outdoor Advertising L.P................................................... 10.75 03/15/06 557,500
50 Chancellor Media Corp........................................................... 9.375 10/01/04 52,875
425 Chancellor Media Corp. - 144A*.................................................. 8.125 12/15/07 429,782
545 Garden State Newspapers, Inc.................................................... 12.00 07/01/04 616,531
575 Heritage Media Services, Inc.................................................... 11.00 06/15/02 598,719
25 Outdoor Systems, Inc............................................................ 8.875 06/15/07 26,375
-----------
2,414,907
-----------
METALS & MINING (0.2%)
150 Wheeling-Pittsburgh Corp. - 144A*............................................... 9.25 11/15/07 147,000
-----------
OIL - EXPLORATION & PRODUCTION (0.6%)
375 Magnum Hunter Resources - 144A*................................................. 10.00 06/01/07 384,375
-----------
PACKAGING & BOTTLING (0.1%)
50 Huntsman Packaging Corp. - 144A*................................................ 9.125 10/01/07 52,000
-----------
PAPER & FOREST PRODUCTS (1.3%)
435 Malette, Inc. (Canada).......................................................... 12.25 07/15/04 490,463
300 Stone Container Corp............................................................ 10.75 10/01/02 317,250
-----------
807,713
-----------
PUBLISHING (1.0%)
250 American Media Operations, Inc.................................................. 11.625 11/15/04 271,250
75 Primedia, Inc................................................................... 10.25 06/01/04 81,000
250 Von Hoffman Press, Inc. - 144A*................................................. 10.375 05/15/07 270,000
-----------
622,250
-----------
REAL ESTATE INVESTMENT TRUST (0.6%)
305 Trizec Finance Ltd. (Canada).................................................... 10.875 10/15/05 346,556
-----------
RESTAURANTS (0.2%)
100 Perkins Family Restaurants, L.P. - 144A*........................................ 10.125 12/15/07 105,000
-----------
RETAIL (2.4%)
100 Cole National Group, Inc. - 144A*............................................... 8.625 08/15/07 100,500
346 Guitar Center Management........................................................ 11.00 07/01/06 390,980
100 Leslie's Poolmart - 144A*....................................................... 10.375 07/15/04 104,000
600 Michaels Stores, Inc............................................................ 10.875 06/15/06 672,000
200 Zale Corp. - 144A*.............................................................. 8.50 10/01/07 204,000
-----------
1,471,480
-----------
TELECOMMUNICATIONS (0.5%)
250 STC Broadcasting, Inc........................................................... 11.00 03/15/07 277,500
-----------
TELEPHONES (0.5%)
250 Sprint Spectrum L.P............................................................. 11.00 08/15/06 287,500
-----------
TRANSPORTATION (1.1%)
75 Atlas Air, Inc.................................................................. 10.75 08/01/05 80,625
550 Moran Transportation Co......................................................... 11.75 07/15/04 610,500
-----------
691,125
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES (0.4%)
$ 25 Cal Energy Co., Inc............................................................. 9.50% 09/15/06 $ 27,000
75 Cal Energy Co., Inc............................................................. 7.63 10/15/07 73,784
125 California Energy Co., Inc...................................................... 10.25 01/15/04 134,375
-----------
235,159
-----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $23,102,687)...................................................................... 24,056,696
-----------
NUMBER OF
SHARES
- ---------
CONVERTIBLE PREFERRED STOCKS (12.6%)
BANKS (1.3%)
10,600 National Australia Bank, Ltd. $1.969 (Australia) (Units)++........................................ 302,757
15,400 WBK Trust (STRYPES) $3.35......................................................................... 529,375
-----------
832,132
-----------
BROADCAST MEDIA (0.8%)
6,400 Evergreen Media Corp. $3.00 - 144A*............................................................... 475,200
-----------
BUSINESS SERVICES (0.4%)
6,600 Vanstar Financing Trust $3.375 - 144A*............................................................ 251,203
-----------
CABLE & TELECOMMUNICATIONS (3.3%)
17,700 Houston Industries, Inc. $3.22.................................................................... 1,044,300
3,100 TCI Pacific Communications, Inc. $5.00 (exchangeable into Tele-Communications (Class A)
common stock)................................................................................... 500,845
7,200 U.S. West Inc. (Series D) $2.25................................................................... 459,000
-----------
2,004,145
-----------
FINANCIAL (1.0%)
6,600 Morgan Stanley Group, Inc. $3.99+ (exchangeable into Cisco Systems Inc. common stock)............. 592,126
-----------
FINANCIAL SERVICES (1.4%)
1,500 American Bankers Insurance Group, Inc. (Series B) $3.125.......................................... 170,250
12,400 Merrill Lynch & Co., Inc. $3.12 (STRYPES) (exchangeable into Cox Communications Inc.
common stock)................................................................................... 392,150
8,100 Salomon, Inc. $7.625 (exchangeable into Financial Security Assurance Holdings, Ltd.
common stock)................................................................................... 319,448
-----------
881,848
-----------
HOTELS (0.6%)
4,900 Host Marriott Financial Trust $3.375 - 144A*...................................................... 264,708
2,000 Host Marriott Financial Trust $3.375.............................................................. 108,044
-----------
372,752
-----------
MEDICAL SERVICES (0.5%)
6,100 Laboratory Corp. of America (Series A) $4.25...................................................... 308,050
-----------
OIL & GAS PRODUCTS (0.5%)
4,200 Occidental Petroleum Corp. (Series A) $3.00 (exchangeable into Canadian Occidental
Petroleum common stock)......................................................................... 325,500
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OIL - INTEGRATED (0.5%)
5,300 Unocal Corp. $3.125..................................................................... $ 285,209
-----------
OIL SERVICES (0.6%)
8,000 EVI, Inc. $2.50 - 144A*................................................................. 339,808
-----------
PACKAGING & BOTTLING (0.2%)
2,600 Crown Cork & Seal Co., Inc. $1.885...................................................... 120,412
-----------
PUBLISHING (0.5%)
6,000 Golden Books Financing Trust $4.375 - 144A*............................................. 338,250
-----------
RESTAURANTS (0.5%)
5,900 Apple South, Inc. $3.50 - 144A*......................................................... 295,000
-----------
RETAIL (0.5%)
5,600 Kmart Financing I $3.875................................................................ 288,400
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST $6,543,330)............................................................ 7,710,035
-----------
NUMBER OF EXPIRATION
WARRANTS DATE
- --------- ----------
WARRANT (a)
ENTERTAINMENT/GAMING
4,685 Fitzgeralds Gaming Corp. - 144A*
(IDENTIFIED COST $21,083)................................................. 12/19/98 9,370
-----------
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
SHORT-TERM INVESTMENTS (12.2%)
U.S. GOVERNMENT AGENCY (b) (8.9%)
$ 5,500 Federal Farm Credit Bank 5.40% due 02/12/98
(AMORTIZED COST $5,490,925)........................................................... 5,490,925
-----------
REPURCHASE AGREEMENT (3.3%)
2,038 The Bank of New York 5.375% due 02/02/98
(dated 01/30/98; proceeds $2,038,026)
(IDENTIFIED COST $2,037,114) (C)...................................................... 2,037,114
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $7,528,039)............................................................ 7,528,039
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998, CONTINUED
<TABLE>
<CAPTION>
VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $56,715,530) (D).......................................................... 99.5% $61,193,593
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 0.5 304,726
----- -----------
NET ASSETS................................................................................. 100.0% $61,498,319
===== ===========
</TABLE>
- -------------------
STRYPES Structured yield product exchangeable for stock.
* Resale is restricted to qualified institutional investors.
+ Issuer is an affiliate of the Fund's Manager, Dean Witter Services
Company Inc.
++ Consists of more than one class of securities traded together as a
unit; stocks with attached warrants.
(a) Non-income producing security.
(b) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(c) Collateralized by $2,019,974 U.S. Treasury Note 6.75% due 05/31/99
valued at $2,077,856.
(d) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$5,017,178 and the aggregate gross unrealized depreciation is $539,115,
resulting in net unrealized appreciation of $4,478,063.
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
TCW/DW INCOME AND GROWTH FUND
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1998
<S> <C>
ASSETS:
Investments in securities, at value (identified cost $56,715,530).............................. $61,193,593
Cash........................................................................................... 2,440
Receivable for:
Interest................................................................................... 732,483
Investments sold........................................................................... 214,637
Shares of beneficial interest sold......................................................... 133,629
Dividends.................................................................................. 22,405
Deferred organizational expenses............................................................... 6,434
Prepaid expenses and other assets.............................................................. 69,330
-----------
TOTAL ASSETS.............................................................................. 62,374,951
-----------
LIABILITIES:
Payable for:
Investments purchased...................................................................... 733,752
Plan of distribution fee................................................................... 39,176
Management fee............................................................................. 23,516
Investment advisory fee.................................................................... 15,677
Shares of beneficial interest repurchased.................................................. 2,979
Accrued expenses and other payables............................................................ 61,532
-----------
TOTAL LIABILITIES......................................................................... 876,632
-----------
NET ASSETS................................................................................ $61,498,319
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital................................................................................ $55,656,448
Net unrealized appreciation.................................................................... 4,478,063
Accumulated undistributed net investment income................................................ 272,740
Accumulated undistributed net realized gain.................................................... 1,091,068
-----------
NET ASSETS................................................................................ $61,498,319
===========
CLASS A SHARES:
Net Assets..................................................................................... $27,856
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 2,401
NET ASSET VALUE PER SHARE................................................................. $11.60
======
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44% OF NET
ASSET VALUE)............................................................................ $12.12
======
CLASS B SHARES:
Net Assets..................................................................................... $6,596,905
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 568,689
NET ASSET VALUE PER SHARE................................................................. $11.60
======
CLASS C SHARES:
Net Assets..................................................................................... $54,862,923
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 4,726,879
NET ASSET VALUE PER SHARE................................................................. $11.61
======
CLASS D SHARES:
Net Assets..................................................................................... $10,635
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 916
NET ASSET VALUE PER SHARE................................................................. $11.61
======
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1998*
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest........................................................................................ $3,703,196
Dividends....................................................................................... 479,318
----------
TOTAL INCOME............................................................................... 4,182,514
----------
EXPENSES
Plan of distribution fee (Class A shares)....................................................... 23
Plan of distribution fee (Class B shares)....................................................... 21,976
Plan of distribution fee (Class C shares)....................................................... 437,111
Management fee.................................................................................. 275,518
Investment advisory fee......................................................................... 183,678
Professional fees............................................................................... 60,242
Transfer agent fees and expenses................................................................ 58,786
Shareholder reports and notices................................................................. 47,076
Organizational expenses......................................................................... 39,801
Registration fees............................................................................... 35,768
Trustees' fees and expenses..................................................................... 32,904
Custodian fees.................................................................................. 20,884
Other........................................................................................... 15,526
----------
TOTAL EXPENSES............................................................................. 1,229,293
----------
NET INVESTMENT INCOME...................................................................... 2,953,221
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain............................................................................... 4,031,439
Net change in unrealized appreciation........................................................... 950,969
----------
NET GAIN................................................................................... 4,982,408
----------
NET INCREASE.................................................................................... $7,935,629
==========
</TABLE>
- ---------------------
* Class A, Class B and Class D shares were issued by July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
TCW/DW INCOME AND GROWTH FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, JANUARY 31,
1998* 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................... $2,953,221 $3,001,268
Net realized gain............................................................... 4,031,439 3,798,985
Net change in unrealized appreciation........................................... 950,969 475,436
----------- -----------
NET INCREASE............................................................... 7,935,629 7,275,689
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares.............................................................. (582) --
Class B shares.............................................................. (144,769) --
Class C shares.............................................................. (2,979,361) (3,008,077)
Class D shares.............................................................. (290) --
Net realized gain
Class A shares.............................................................. (1,133) --
Class B shares.............................................................. (298,812) --
Class C shares.............................................................. (3,495,390) (2,721,147)
Class D shares.............................................................. (491) --
----------- -----------
TOTAL DIVIDENDS AND DISTRIBUTIONS.......................................... (6,920,828) (5,729,224)
----------- -----------
Net increase (decrease) from transactions in shares of beneficial interest...... (457,056) 1,763,514
----------- -----------
NET INCREASE............................................................... 557,745 3,309,979
NET ASSETS:
Beginning of period............................................................. 60,940,574 57,630,595
----------- -----------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $272,740 AND $443,330,
RESPECTIVELY).............................................................. $61,498,319 $60,940,574
=========== ===========
</TABLE>
- --------------
* Class A, Class B and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
TCW/DW INCOME AND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1998
1. ORGANIZATIONAL AND ACCOUNTING POLICIES
TCW/DW Income and Growth Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The Fund's investment objective is to generate
high total return by providing a high level of current income and the potential
for capital appreciation. The Fund seeks to achieve its objective by investing
in bonds or preferred stock convertible into common stock, other fixed income
securities, common stocks and U.S. Government securities. The Fund was organized
as a Massachusetts business trust on November 23, 1992 and commenced operations
on March 31, 1993. On July 28, 1997, the Fund commenced offering three
additional classes of shares, with the then current shares, other than shares
which were acquired in exchange for shares of Funds for which Dean Witter
Services Company Inc. serves as Manager and TCW Funds Management, Inc. serves as
Adviser ("TCW/DW Funds") offered with a contingent deferred sales charge
("CDSC") and shares acquired through reinvestment of dividends and distributions
thereon, designated Class C shares. Shares held prior to July 28, 1997 which
were acquired in exchange for shares of a TCW/DW Fund sold with a CDSC,
including shares acquired through reinvestment of dividends and distributions
thereon, have been designated Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are
58
<PAGE>
TCW/DW INCOME AND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1998, CONTINUED
valued at the latest available bid price prior to the time of valuation; (3)
when market quotations are not readily available, including circumstances under
which it is determined by TCW Funds Management, Inc. (the "Adviser") that sale
or bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees
(valuation of debt securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); (4) certain portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize 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, if available, in
determining what it believes is the fair valuation of the securities valued by
such pricing service; (5) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Dividend
income and other distributions are recorded on the ex-dividend date. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
59
<PAGE>
TCW/DW INCOME AND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1998, CONTINUED
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc., an affiliate of
Dean Witter Services Company Inc. (the "Manager") paid the organizational
expenses of the Fund in the amount of approximately $206,000 of which $200,000
have been reimbursed. Such expenses have been deferred and are being amortized
on the straight-line method over a period not to exceed five years from the
commencement of operations.
2. MANAGEMENT AGREEMENT
Pursuant to a Management Agreement, the Fund pays the Manager a management fee,
accrued daily and payable monthly, by applying the following annual rates to the
net assets of the Fund determined as of the close of each business day: 0.45% to
the portion of daily net assets not exceeding $500 million and 0.42% to the
portion of the daily net assets exceeding $500 million.
Under the terms of the Management Agreement, the Manager maintains certain of
the Fund's books and records and furnishes, at its own expense, office space,
facilities, equipment, clerical, bookkeeping and certain legal services and pays
the salaries of all personnel, including officers of the Fund who are employees
of the Manager. The Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, the Fund pays the Adviser an
advisory fee, accrued daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined as of the close of each
business day: 0.30% to the portion of daily net assets not exceeding $500
million and 0.28% to the portion of the daily net assets exceeding $500 million.
Under the terms of the Investment Advisory Agreement, the Fund has retained the
Adviser to invest the Fund's assets, including placing orders for the purchase
and sale of portfolio securities. The Adviser obtains and evaluates such
information and advice relating to the economy, securities
60
<PAGE>
TCW/DW INCOME AND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1998, CONTINUED
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective. In addition, the Adviser pays the salaries of all
personnel, including officers of the Fund, who are employees of the Adviser.
4. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Manager. The Fund has adopted a Plan of
Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 0.75% of the average daily
net assets of Class B, and (iii) Class C -- up to 0.75% of the average daily net
assets of Class C. In the case of Class A shares, amounts paid under the Plan
are paid to the Distributor for services provided. In the case of Class B and
Class C shares, amounts paid under the Plan are paid to the Distributor for
services provided and the expenses borne by it and others in the distribution of
the shares of these Classes, including the payment of commissions for sales of
these Classes and incentive compensation to, and expenses of, the account
executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Manager and
Distributor, and others who engage in or support distribution of the shares or
who service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of these shares to other than current shareholders; and the
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan, in the case of Class B shares, to compensate DWR and other selected
broker-dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $55,344, at January 31, 1998.
61
<PAGE>
TCW/DW INCOME AND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1998, CONTINUED
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 0.75% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended January 31, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
0.75%, respectively.
The Distributor has informed the Fund that for the period ended January 31,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $7,489 and $356, respectively
and received $808 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense of
the Fund.
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended January 31, 1998 aggregated
$55,824,587 and $65,551,624, respectively. Included in the aforementioned are
purchases and sales of Morgan Stanley Group, Inc., an affiliate of the Manager
since May 31, 1997, of $55,188 and $607,506, respectively, as well as a net
realized gain of $64,691.
For the period May 31, 1997 through January 31, 1998, the Fund incurred
brokerage commissions of $1,283 with Morgan Stanley & Co., Inc., an affiliate of
the Manager since May 31, 1997, for portfolio transactions executed on behalf of
the Fund. At January 31, 1998, the Fund's payable for investments purchased
included unsettled trades with Morgan Stanley & Co., Inc. of $55,188. The Funds'
interest and dividend income included $7,250 and $27,770, respectively, for
income from Morgan Stanley Group, Inc. securities.
Dean Witter Trust FSB, an affiliate of the Manager and Distributor, is the
Fund's transfer agent. At January 31, 1998, the Fund had transfer agent fees and
expenses payable of approximately $760.
62
<PAGE>
TCW/DW INCOME AND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1998, CONTINUED
6. SHARES OF BENEFICIAL INTEREST+
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, 1998 JANUARY 31, 1997
----------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold............................................................. 2,751 $ 33,065 -- --
Reinvestment of dividends and distributions...................... 142 1,614 -- --
Redeemed......................................................... (492) (5,989) -- --
------------ -------------- ------------ ------------
Net increase -- Class A.......................................... 2,401 28,690 -- --
------------ -------------- ------------ ------------
CLASS B SHARES*
Sold............................................................. 209,588 2,492,309 -- --
Reinvestment of dividends and distributions...................... 32,187 368,173 -- --
Redeemed......................................................... (89,344) (1,054,299) -- --
------------ -------------- ------------ ------------
Net increase -- Class B.......................................... 152,431 1,806,183 -- --
------------ -------------- ------------ ------------
CLASS C SHARES
Sold............................................................. 912,536 10,493,055 1,635,756 $ 18,613,081
Reinvestment of dividends and distributions...................... 485,664 5,548,520 431,286 4,808,760
Redeemed......................................................... (1,590,764) (18,344,299) (1,909,009) (21,658,327)
------------ -------------- ------------ ------------
Net increase (decrease) -- Class C............................... (192,564) (2,302,724) 158,033 1,763,514
------------ -------------- ------------ ------------
CLASS D SHARES*
Sold............................................................. 848 10,014 -- --
Reinvestment of dividends and distributions...................... 68 781 -- --
------------ -------------- ------------ ------------
Net increase -- Class D.......................................... 916 10,795 -- --
------------ -------------- ------------ ------------
Net increase (decrease) in Fund.................................. (36,816) $ (457,056) 158,033 $ 1,763,514
============ ============== ============ ============
</TABLE>
- --------------
+ On July 28, 1997, 416,258, shares representing $4,916,004 were transferred to
Class B.
* For the period July 28, 1997 (issue date) through January 31, 1998.
63
<PAGE>
TCW/DW INCOME AND GROWTH FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 31,
1993*
FOR THE YEAR ENDED JANUARY 31, THROUGH
------------------------------------------------------- JANUARY 31,
1998**++ 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 11.42 $ 11.13 $ 9.77 $ 10.98 $10.00
---------- ---------- ---------- ---------- ------
Net investment income................... 0.57 0.60 0.59 0.59 0.45
Net realized and unrealized gain
(loss)................................. 0.96 0.84 1.37 (1.20) 1.02
---------- ---------- ---------- ---------- ------
Total from investment operations........ 1.53 1.44 1.96 (0.61) 1.47
---------- ---------- ---------- ---------- ------
Less dividends and distributions from:
Net investment income................ (0.60) (0.60) (0.60) (0.55) (0.39)
Net realized gain.................... (0.74) (0.55) -- (0.05) (0.10)
---------- ---------- ---------- ---------- ------
Total dividends and distributions....... (1.34) (1.15) (0.60) (0.60) (0.49)
---------- ---------- ---------- ---------- ------
Net asset value, end of period.......... $ 11.61 $ 11.42 $ 11.13 $ 9.77 $10.98
========== ========== ========== ========== ======
TOTAL INVESTMENT RETURN+................ 14.03% 13.46% 20.52% (5.59)% 15.06%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 2.01% 2.02% 2.21% 2.04% 1.57%(2)(3)
Net investment income................... 4.84% 5.19% 5.41% 5.83% 5.62%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $54,863 $60,941 $57,631 $55,335 $64,370
Portfolio turnover rate................. 96% 102% 79% 88% 84%(1)
Average commission rate paid............ $0.0169 $0.0540 -- -- --
</TABLE>
- --------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date, other than shares which were acquired in
exchange for shares of Funds for which Dean Witter Services Company Inc
serves as Manager and TCW Fund's Management, Inc. serves as Adviser
("TCW/DW Funds") offered with a contingent deferred sales charge ("CDSC")
and shares acquired through reinvestment of dividends and distributions
thereon, have been designated Class C shares. Shares held prior to July 28,
1997 which were acquired in exchange for shares of a TCW/DW Fund sold with
a CDSC, including shares acquired through reinvestment of dividends and
distributions thereon, have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Manager and Investment Adviser had not reimbursed all expenses and
waived the management fee, the above annualized expense and net investment
income ratios would have been 2.00% and 5.18%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
TCW/DW INCOME AND GROWTH FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JANUARY 31,
1998++
- ------------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $11.81
------
Net investment income....................................... 0.31
Net realized and unrealized gain............................ 0.38
------
Total from investment operations............................ 0.69
------
Less dividends and distributions from:
Net investment income.................................... (0.33)
Net realized gain........................................ (0.57)
------
Total dividends and distributions........................... (0.90)
------
Net asset value, end of period.............................. $11.60
======
TOTAL INVESTMENT RETURN+.................................... 6.03%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.54%(2)
Net investment income....................................... 5.04%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $28
Portfolio turnover rate..................................... 96%
Average commission rate paid................................ $0.0169
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $11.81
------
Net investment income....................................... 0.28
Net realized and unrealized gain............................ 0.38
------
Total from investment operations............................ 0.66
------
Less dividends and distributions from:
Net investment income.................................... (0.30)
Net realized gain........................................ (0.57)
------
Total dividends and distributions........................... (0.87)
------
Net asset value, end of period.............................. $11.60
======
TOTAL INVESTMENT RETURN+.................................... 5.80%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 2.02%(2)
Net investment income....................................... 4.58%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $6,597
Portfolio turnover rate..................................... 96%
Average commission rate paid................................ $0.0169
</TABLE>
- --------------
* The date the shares were first issued. Class B participants who held shares
prior to July 28, 1997 should refer to the Financial Highlights of Class C
to obtain the historical per share and ratio information of their shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
65
<PAGE>
TCW/DW INCOME AND GROWTH FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JANUARY 31,
1998++
- ------------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $11.81
------
Net investment income....................................... 0.32
Net realized and unrealized gain............................ 0.39
------
Total from investment operations............................ 0.71
------
Less dividends and distributions from:
Net investment income.................................... (0.34)
Net realized gain........................................ (0.57)
------
Total dividends and distributions........................... (0.91)
------
Net asset value, end of period.............................. $11.61
======
TOTAL INVESTMENT RETURN+.................................... 6.21%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.27%(2)
Net investment income....................................... 5.33%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $11
Portfolio turnover rate..................................... 96%
Average commission rate paid................................ $0.0169
</TABLE>
- --------------
* The date the shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
TCW/DW INCOME AND GROWTH FUND
FEDERAL TAX NOTICE (UNAUDITED)
1998 FEDERAL TAX NOTICE
For the year ended January 31, 1998, the Fund paid to shareholders the following
per share amounts from long-term capital gains. These distributions are taxable
as 28% rate gains or 20% rate gains, as indicated below:
<TABLE>
<CAPTION>
PER SHARE
--------------------------
CLASS CLASS CLASS CLASS
A B C D
----- ----- ----- -----
<S> <C> <C> <C> <C>
Portion of long-term
capital gains taxable as:
28% rate gain................................... $0.16 $0.16 $0.22 $0.16
20% rate gain................................... 0.31 0.31 0.31 0.31
----- ----- ----- -----
Total long-term capital gains..................... $0.47 $0.47 $0.53 $0.47
===== ===== ===== =====
</TABLE>
For the year ended January 31, 1998, 11.01% of the income dividends qualified
for the dividends received deduction available to corporations.
67
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The response to this item is incorporated herein by reference to Exhibits
1 and 2 under Item 16 below and by reference to Item 27 of Post-Effective
Amendment No. 4 to Registrant's Registration Statement on Form N-1A, dated
November 25, 1998, which was filed electronically pursuant to Regulation S-T on
November 25, 1998 ("Post-Effective Amendment No. 4") as an amendment to
Registrant's Registration Statement on Form N-1A (File Nos. 811-7575 and
333-01995) (the "Registration Statement").
ITEM 16. EXHIBITS
(1) Declaration of Trust dated March 20, 1996 ("Declaration of Trust")
(incorporated herein by reference to Exhibit 1 of Registrant's initial
Registration Statement); Amendment Establishing and Designating Additional
Classes of Shares to Declaration of Trust (incorporated herein by
reference to Exhibit 1 to Post-Effective Amendment No. 2). Amendment to
the Declaration of Trust changing the name of the Trust to "Morgan Stanley
Dean Witter Income Builder Fund" (incorporated herein by reference to
Exhibit 1 of Post-Effective Amendment No. 4).
(2) Amended and Restated By-Laws of Registrant dated as of January 28, 1999
(3) Not Applicable
(4) Copy of Agreement and Plan of Reorganization (filed herewith as Exhibit A
to the Proxy Statement and Prospectus)
(5) Not Applicable
(6) Investment Management Agreement (incorporated herein by reference to
Exhibit 5 to Post-Effective Amendment No. 4)
(7) (a) Distribution Agreement between Registrant and Morgan Stanley Dean
Witter Distributors Inc. (incorporated herein by reference to Exhibit
6(a) to Post-Effective Amendment No. 4)
(b) Multiple Class Distribution Agreement between Registrant and Morgan
Stanley Dean Witter Distributors, Inc. (incorporated herein by
reference to Exhibit 6(b) of Post-Effective Amendment No. 2)
(c) Selected Dealer Agreement (incorporated herein by reference to Exhibit
6(b) to Post-Effective Amendment No. 4)
(8) Not Applicable
(9) (a) Custody Agreement dated April 17, 1996 (incorporated herein by
reference to Exhibit 8(a) to Pre-Effective Amendment No. 1)
(b) Amended and Restated Transfer Agency and Services Agreement between
Registrant and Morgan Stanley Dean Witter Trust FSB (incorporated
herein by reference to Exhibit 8 of Post-Effective Amendment No. 4)
(10)(a) Amended and Restated Plan of Distribution pursuant to Rule 12b-1,
dated July 28, 1997 (incorporated herein by reference to Exhibit 15 to
Post-Effective Amendment No. 2)
C-1
<PAGE>
(b) Morgan Stanley Dean Witter Funds Multiple Class Plan pursuant to Rule
18f-3 (incorporated herein by reference to Exhibit 18 to Post-Effective
Amendment No. 4)
(11)(a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens, LLP
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
regarding tax matters
(13) Services Agreement between Morgan Stanley Dean Witter Advisors Inc. and
Morgan Stanley Dean Witter Services Company Inc. (incorporated herein by
reference to Exhibit 9 to Post-Effective Amendment No. 4).
(14) Consent of Independent Accountants
(15) Not Applicable
(16) Powers of Attorney
(17) (a) Registrant's Rule 24f-2 Notice pursuant to Rule 24f-2 under the
Investment Company Act of 1940, for its fiscal year ended September
30, 1998 (incorporated herein by reference to Form 24f-2 filed with
the Securities and Exchange Commission on November 4, 1998).
(b) Form of Proxy
(c) Voting Information Card
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of the prospectus which is a part
of this registration statement on Form N-14 by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the Securities
Act of 1933, the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
2. The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to this
registration statement on Form N-14 and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act of
1933, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering of
them.
C-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of New York and State of
New York, on the 25th day of February, 1999.
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
By: /s/ Barry Fink
------------------------------------------
Barry Fink
Vice President and Secretary
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------------ ------------------
<S> <C> <C>
1. Principal Executive Officer
/s/ Charles A. Fiumefreddo President, Chief Executive Officer,
...........................
Trustee and Chairman February 25, 1999
2. Principal Financial Officer
/s/ Thomas F. Caloia Treasurer and Principal
...........................
Accounting Officer February 25, 1999
3. Majority of Trustees
/s/ Michael Bozic Trustee February 25, 1999
...........................
/s/ Edwin J. Garn Trustee February 25, 1999
...........................
/s/ John R. Haire Trustee February 25, 1999
...........................
/s/ Wayne E. Hedien Trustee February 25, 1999
...........................
/s/ Manuel H. Johnson Trustee February 25, 1999
...........................
/s/ Michael E. Nugent Trustee February 25, 1999
...........................
/s/ John L. Schroeder Trustee February 25, 1999
...........................
/s/ Philip J. Purcell Trustee February 25, 1999
...........................
</TABLE>
C-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- --------- ------------------------------------------------------------------------------- -------
<S> <C> <C>
(2) Amended and Restated By-Laws of the Registrant, dated January 28, 1999.
(11) (a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens LLP
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein regarding
tax matters
(14) Consent of Independent Accountants
(16) Powers of Attorney
(17) (b) Form of Proxy
(c) Voting Information Card
</TABLE>
<PAGE>
BY-LAWS
OF
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
AMENDED AND RESTATED AS OF JANUARY 28, 1999
ARTICLE I
DEFINITIONS
The terms "Commission," "Declaration," "Distributor," "Investment
Adviser," "Majority Shareholder Vote," "1940 Act," "Shareholder," "Shares,"
"Transfer Agent," "Trust," "Trust Property," and "Trustees" have the respective
meanings given them in the Declaration of Trust of Morgan Stanley Dean Witter
Income Builder Fund dated March 20, 1996, as amended from time to time.
ARTICLE II
OFFICES
SECTION 2.1. Principal Office. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
SECTION 2.2. Other Offices. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and
without the Commonwealth as the Trustees may from time to time designate or the
business of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. Place of Meetings. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. Meetings. Meetings of Shareholders of the Trust shall be held
whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the provisions
of Section 16(a) of the 1940 Act, for that purpose. Meetings of Shareholders
shall also be called by the Secretary upon the written request of the holders
of Shares entitled to vote as otherwise required by Section 16(c) of the 1940
Act and to the extent required by the corporate or business statute of any
state in which the Shares of the Trust are sold, as made applicable to the
Trust by the provisions of Section 2.3 of the Declaration. Such request shall
state the purpose or purposes of such meeting and the matters proposed to be
acted on thereat. Except to the extent otherwise required by Section 16(c) of
the 1940 Act, as made applicable to the Trust by the provisions of Section 2.3
of the Declaration, the Secretary shall inform such Shareholders of the
reasonable estimated cost of preparing and mailing such notice of the meeting,
and upon payment to the Trust of such costs, the Secretary shall give notice
stating the purpose or purposes of the meeting to all entitled to vote at such
meeting. No meeting need be called upon the request of the holders of Shares
entitled to cast less than a majority of all votes entitled to be cast at such
meeting, to consider any matter which is substantially the same as a matter
voted upon at any meeting of Shareholders held during the preceding twelve
months.
SECTION 3.3. Notice of Meetings. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes thereof,
shall be given by the Secretary not less than ten (10) nor more than ninety
(90) days before such meeting to each Shareholder entitled to vote at such
meeting. Such notice shall be deemed to be given when deposited in the United
States mail, postage prepaid, directed to the Shareholder at his address as it
appears on the records of the Trust.
<PAGE>
SECTION 3.4. Quorum and Adjournment of Meetings. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders, the holders of a majority of the Shares issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
be requisite and shall constitute a quorum for the transaction of business. In
the absence of a quorum, the Shareholders present or represented by proxy and
entitled to vote thereat shall have the power to adjourn the meeting from time
to time. The Shareholders present in person or represented by proxy at any
meeting and entitled to vote thereat also shall have the power to adjourn the
meeting from time to time if the vote required to approve or reject any
proposal described in the original notice of such meeting is not obtained (with
proxies being voted for or against adjournment consistent with the votes for
and against the proposal for which the required vote has not been obtained).
The affirmative vote of the holders of a majority of the Shares then present in
person or represented by proxy shall be required to adjourn any meeting. Any
adjourned meeting may be reconvened without further notice or change in record
date. At any reconvened meeting at which a quorum shall be present, any
business may be transacted that might have been transacted at the meeting as
originally called.
SECTION 3.5. Voting Rights, Proxies. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy for each Share of beneficial interest of the Trust
and for the fractional portion of one vote for each fractional Share entitled
to vote so registered in his or her name on the records of the Trust on the
date fixed as the record date for the determination of Shareholders entitled to
vote at such meeting. Without limiting the manner in which a Shareholder may
authorize another person or persons to act for such Shareholder as proxy
pursuant hereto, the following shall constitute a valid means by which a
Shareholder may grant such authority:
(i) A Shareholder may execute a writing authorizing another person or
persons to act for such Shareholder as proxy. Execution may be
accomplished by the Shareholder or such Shareholder's authorized officer,
director, employee, attorney-in-fact or another agent signing such writing
or causing such person's signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile or telecopy
signature. No written evidence of authority of a Shareholder's authorized
officer, director, employee, attorney-in-fact or other agent shall be
required; and
(ii) A Shareholder may authorize another person or persons to act for such
Shareholder as proxy by transmitting or authorizing the transmission of a
telegram or cablegram or by other means of telephonic, electronic or
computer transmission to the person who will be the holder of the proxy or
to a proxy solicitation firm, proxy support service organization or like
agent duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such telegram or cablegram or
other means of telephonic, electronic or computer transmission must either
set forth or be submitted with information from which it can be determined
that the telegram, cablegram or other transmission was authorized by the
Shareholder.
No proxy shall be valid after eleven months from its date, unless otherwise
provided in the proxy. At all meetings of Shareholders, unless the voting is
conducted by inspectors, all questions relating to the qualification of voters
and the validity of proxies and the acceptance or rejection of votes shall be
decided by the chairman of the meeting. In determining whether a telegram,
cablegram or other electronic transmission is valid, the chairman or inspector,
as the case may be, shall specify the information upon which he or she relied.
Pursuant to a resolution of a majority of the Trustees, proxies may be
solicited in the name of one or more Trustees or Officers of the Trust. Proxy
solicitations may be made in writing or by using telephonic or other electronic
solicitation procedures that include appropriate methods of verifying the
identity of the Shareholder and confirming any instructions given thereby.
SECTION 3.6. Vote Required. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority Shareholder
Vote.
SECTION 3.7. Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the request
of any
2
<PAGE>
Shareholder or his proxy shall, appoint Inspectors of Election of the meeting.
In case any person appointed as Inspector fails to appear or fails or refuses
to act, the vacancy may be filled by appointment made by the Trustees in
advance of the convening of the meeting or at the meeting by the person acting
as chairman. The Inspectors of Election shall determine the number of Shares
outstanding, the Shares represented at the meeting, the existence of a quorum,
the authenticity, validity and effect of proxies, shall receive votes, ballots
or consents, shall hear and determine all challenges and questions in any way
arising in connection with the right to vote, shall count and tabulate all
votes or consents, determine the results, and do such other acts as may be
proper to conduct the election or vote with fairness to all Shareholders. On
request of the chairman of the meeting, or of any Shareholder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
SECTION 3.8. Inspection of Books and Records. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under Section 32 of the Business Corporation Law of
the Commonwealth of Massachusetts.
SECTION 3.9. Action by Shareholders Without Meeting. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
ARTICLE IV
TRUSTEES
SECTION 4.1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the Chairman and shall be
called by the Chairman or the Secretary upon the written request of any two (2)
Trustees.
SECTION 4.2. Notice of Special Meetings. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed to
be given when deposited in the United States mail, postage prepaid, directed to
the Trustee at his address as it appears on the records of the Trust. Subject
to the provisions of the 1940 Act, notice or waiver of notice need not specify
the purpose of any special meeting.
SECTION 4.3. Telephone Meetings. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such committee,
as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
SECTION 4.4. Quorum, Voting and Adjournment of Meetings. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees present shall be the act of
the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By- Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall have been obtained.
SECTION 4.5. Action by Trustees Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of the Trustees may be taken without a meeting if a consent in
3
<PAGE>
writing setting forth the action shall be signed by all of the Trustees
entitled to vote upon the action and such written consent is filed with the
minutes of proceedings of the Trustees.
SECTION 4.6. Expenses and Fees. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of said
persons shall receive for services rendered as a Trustee of the Trust such
compensation as may be fixed by the Trustees. Nothing herein contained shall be
construed to preclude any Trustee from serving the Trust in any other capacity
and receiving compensation therefor.
SECTION 4.7. Execution of Instruments and Documents and Signing of Checks
and Other Obligations and Transfers. All instruments, documents and other
papers shall be executed in the name and on behalf of the Trust and all checks,
notes, drafts and other obligations for the payment of money by the Trust shall
be signed, and all transfer of securities standing in the name of the Trust
shall be executed, by the President, any Vice President or the Treasurer or by
any one or more officers or agents of the Trust as shall be designated for that
purpose by vote of the Trustees.
SECTION 4.8. Indemnification of Trustees, Officers, Employees and
Agents. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Trustee, officer, employee, or agent of the Trust. The
indemnification shall be against expenses, including attorneys' fees,
judgments, fines, and amounts paid in settlement, actually and reasonably
incurred by him in connection with the action, suit, or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Trust, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or on behalf of the Trust to obtain a judgment or decree in its favor
by reason of the fact that he is or was a Trustee, officer, employee, or agent
of the Trust. The indemnification shall be against expenses, including
attorneys' fees actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Trust; except that no indemnification shall be made in respect of any
claim, issue, or matter as to which the person has been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Trust,
except to the extent that the court in which the action or suit was brought, or
a court of equity in the county in which the Trust has its principal office,
determines upon application that, despite the adjudication of liability but in
view of all circumstances of the case, the person is fairly and reasonably
entitled to indemnity for those expenses which the court shall deem proper,
provided such Trustee, officer, employee or agent is not adjudged to be liable
by reason of his willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
(c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsection (a) or (b) or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in subsections (a) or
(b).
4
<PAGE>
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which consists
of Trustees who were not parties to the action, suit or proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person shall
be entitled to indemnification for any liability, whether or not there is
an adjudication of liability, arising by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of duties as described
in Section 17(h) and (i) of the Investment Company Act of 1940 ("disabling
conduct"). A person shall be deemed not liable by reason of disabling
conduct if, either:
(i) a final decision on the merits is made by a court or other
body before whom the proceeding was brought that the person to be
indemnified ("indemnitee") was not liable by reason of disabling conduct;
or
(ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the indemnitee was
not liable by reason of disabling conduct, is made by either--
(A) a majority of a quorum of Trustees who are neither "interested
persons" of the Trust, as defined in Section 2(a)(19) of the Investment
Company Act of 1940, nor parties to the action, suit or proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition thereof
if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the Trustee,
officer, employee or agent of the Trust to repay the advance if it is not
ultimately determined that such person is entitled to be indemnified by
the Trust; and
(3) either, (i) such person provides a security for his undertaking,
or
(ii) the Trust is insured against losses by reason of any lawful
advances, or
(iii) a determination, based on a review of readily available
facts, that there is reason to believe that such person ultimately
will be found entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of Trustees who are
neither "interested persons" of the Trust, as defined in Section
2(a)(19) of the 1940 Act, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding the office, and shall continue as to a person who has ceased to
be a Trustee, officer, employee, or agent and inure to the benefit of the
heirs, executors and administrators of such person; provided that no person may
satisfy any right of indemnity or reimbursement granted herein or to which he
may be otherwise entitled except out of the property of the Trust, and no
Shareholder shall be personally liable with respect to any claim for indemnity
or reimbursement or otherwise.
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(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such. However, in no event will the Trust purchase
insurance to indemnify any officer or Trustee against liability for any act for
which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE V
COMMITTEES
SECTION 5.1. Executive and Other Committees. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the Trustees
of the Trust and may delegate to such committees, in the intervals between
meetings of the Trustees, any or all of the powers of the Trustees in the
management of the business and affairs of the Trust. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in place
of such absent member. Each such committee shall keep a record of its
proceedings.
The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees
at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. Advisory Committee. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in any
other capacity and which shall have advisory functions with respect to the
investments of the Trust but which shall have no power to determine that any
security or other investment shall be purchased, sold or otherwise disposed of
by the Trust. The number of persons constituting any such advisory committee
shall be determined from time to time by the Trustees. The members of any such
advisory committee may receive compensation for their services and may be
allowed such fees and expenses for the attendance at meetings as the Trustees
may from time to time determine to be appropriate.
SECTION 5.3. Committee Action Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of any Committee of the Trustees appointed pursuant to Section 5.1 of
these By-Laws may be taken without a meeting if a consent in writing setting
forth the action shall be signed by all members of the Committee entitled to
vote upon the action and such written consent is filed with the records of the
proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. Executive Officers. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. The executive officers of the Trust shall be elected annually by the
Trustees and each executive officer so elected shall hold office until his
successor is elected and has qualified.
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SECTION 6.2. Other Officers and Agents. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers
and may elect, or may delegate to the Chairman the power to appoint, such other
officers and agents as the Trustees shall at any time or from time to time deem
advisable.
SECTION 6.3. Term and Removal and Vacancies. Each officer of the Trust
shall hold office until his successor is elected and has qualified. Any officer
or agent of the Trust may be removed by the Trustees whenever, in their
judgment, the best interests of the Trust will be served thereby, but such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed.
SECTION 6.4. Compensation of Officers. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the Chairman to the
extent provided by the Trustees with respect to officers appointed by the
Chairman.
SECTION 6.5. Power and Duties. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws, or to the extent not so provided, as may be prescribed by the
Trustees; provided, that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless he has
knowledge thereof.
SECTION 6.6. The Chairman. (a) The Chairman shall be the chief executive
officer of the Trust; he shall preside at all meetings of the Shareholders and
of the Trustees; he shall have general and active management of the business of
the Trust, shall see that all orders and resolutions of the Trustees are
carried into effect, and, in connection therewith, shall be authorized to
delegate to the President or to one or more Vice Presidents such of his powers
and duties at such times and in such manner as he may deem advisable; he shall
be a signatory on all Annual and Semi-Annual Reports as may be sent to
shareholders, and he shall perform such other duties as the Trustees may from
time to time prescribe.
(b) In the absence of the Chairman, the Board shall determine who shall
preside at all meetings of the shareholders and the Board of Trustees.
SECTION 6.7. The President. The President shall perform such duties as the
Board of Trustees and the Chairman may from time to time prescribe.
SECTION 6.8. The Vice Presidents. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by the
Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the Chairman, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President, and
he or they shall perform such other duties as the Trustees or the Chairman may
from time to time prescribe.
SECTION 6.9. The Assistant Vice Presidents. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Trustees or the Chairman.
SECTION 6.10. The Secretary. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the Shareholders and special meetings of the Trustees, and shall
perform such other duties and have such powers as the Trustees, or the
Chairman, may from time to time prescribe. He shall keep in safe custody the
seal of the Trust and affix or cause the same to be affixed to any instrument
requiring it, and, when so affixed, it shall be attested by his signature or by
the signature of an Assistant Secretary.
SECTION 6.11. The Assistant Secretaries. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the Chairman, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such duties and have such other powers as the Trustees or the
Chairman may from time to time prescribe.
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SECTION 6.12. The Treasurer. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and he
shall render to the Trustees and the Chairman, whenever any of them require it,
an account of his transactions as Treasurer and of the financial condition of
the Trust; and he shall perform such other duties as the Trustees, or the
Chairman, may from time to time prescribe.
SECTION 6.13. The Assistant Treasurers. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order determined
by the Trustees or the Chairman, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Trustees, or
the Chairman, may from time to time prescribe.
SECTION 6.14. Delegation of Duties. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in Shares,
from any sources permitted by law, all as the Trustees shall from time to time
determine.
Inasmuch as the computation of net income and net profits from the sales
of securities or other properties for federal income tax purposes may vary from
the computation thereof on the records of the Trust, the Trustees shall have
power, in their discretion, to distribute as income dividends and as capital
gain distributions, respectively, amounts sufficient to enable the Trust to
avoid or reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. Certificates of Shares. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holders' name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of the
Trust by the Chairman, the President, or a Vice President, and countersigned by
the Secretary or an Assistant Secretary or the Treasurer and an Assistant
Treasurer of the Trust; shall be sealed with the seal; and shall contain such
recitals as may be required by law. Where any certificate is signed by a
Transfer Agent or by a Registrar, the signature of such officers and the seal
may be facsimile, printed or engraved. The Trust may, at its option, determine
not to issue a certificate or certificates to evidence Shares owned of record
by any Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Trust, such certificate or certificates shall,
nevertheless, be adopted by the Trust and be issued and delivered as though the
person or persons who signed such certificate or certificates or whose
facsimile signature or signatures shall appear therein had not ceased to be
such officer or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. Lost, Stolen, Destroyed and Mutilated Certificates. The
Trustees may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Trust alleged to have
been lost, stolen or destroyed, upon satisfactory proof of such loss, theft, or
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destruction; and the Trustees may, in their discretion, require the owner of
the lost, stolen or destroyed certificate, or his legal representative, to give
to the Trust and to such Registrar, Transfer Agent and/or Transfer Clerk as may
be authorized or required to countersign such new certificate or certificates,
a bond in such sum and of such type as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be
against them or any of them on account of or in connection with the alleged
loss, theft or destruction of any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. Appointment and Duties. The Trust shall at all times employ a
bank or trust company having capital, surplus and undivided profits of at least
five million dollars ($5,000,000) as custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as
may be contained in these By-Laws and the 1940 Act:
(1) to receive and hold the securities owned by the Trust and deliver
the same upon written order;
(2) to receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may
direct;
(3) to disburse such funds upon orders or vouchers;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon between
the custodian and such sub-custodian and approved by the Trustees.
SECTION 9.2. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these By-
Laws, a waiver thereof in writing, signed by the person or persons entitled to
such notice and filed with the records of the meeting, whether before or after
the holding thereof, or actual attendance at the meeting of shareholders,
Trustees or committee, as the case may be, in person, shall be deemed
equivalent to the giving of such notice to such person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Location of Books and Records. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
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SECTION 11.2. Record Date. The Trustees may fix in advance a date as the
record date for the purpose of determining the Shareholders entitled to (i)
receive notice of, or to vote at, any meeting of Shareholders, or (ii) receive
payment of any dividend or the allotment of any rights, or in order to make a
determination of Shareholders for any other proper purpose. The record date, in
any case, shall not be more than one hundred eighty (180) days, and in the case
of a meeting of Shareholders not less than ten (10) days, prior to the date on
which such meeting is to be held or the date on which such other particular
action requiring determination of Shareholders is to be taken, as the case may
be. In the case of a meeting of Shareholders, the meeting date set forth in the
notice to Shareholders accompanying the proxy statement shall be the date used
for purposes of calculating the 180 day or 10 day period, and any adjourned
meeting may be reconvened without a change in record date. In lieu of fixing a
record date, the Trustees may provide that the transfer books shall be closed
for a stated period but not to exceed, in any case, twenty (20) days. If the
transfer books are closed for the purpose of determining Shareholders entitled
to notice of a vote at a meeting of Shareholders, such books shall be closed
for at least ten (10) days immediately preceding the meeting.
SECTION 11.3. Seal. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from time
to time provide. The seal of the Trust may be affixed to any document, and the
seal and its attestation may be lithographed, engraved or otherwise printed on
any document with the same force and effect as if it had been imprinted and
attested manually in the same manner and with the same effect as if done by a
Massachusetts business corporation under Massachusetts law.
SECTION 11.4. Fiscal Year. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
SECTION 11.5. Orders for Payment of Money. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement between
the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees; provided,
however, that no By-Law may be amended, adopted or repealed by the Trustees if
such amendment, adoption or repeal requires, pursuant to law, the Declaration,
or these By-Laws, a vote of the Shareholders. The Trustees shall in no event
adopt By-Laws which are in conflict with the Declaration, and any apparent
inconsistency shall be construed in favor of the related provisions in the
Declaration.
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing Morgan Stanley Dean Witter Income
Builder Fund, dated March 20, 1996, a copy of which, together with all
amendments thereto, is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Morgan Stanley Dean
Witter
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Income Builder Fund refers to the Trustees under the Declaration collectively
as Trustees, but not as individuals or personally; and no Trustee, Shareholder,
officer, employee or agent of Morgan Stanley Dean Witter Income Builder Fund
shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise,
in connection with the affairs of said Morgan Stanley Dean Witter Income
Builder Fund, but the Trust Estate only shall be liable.
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March 1, 1999
Morgan Stanley Dean Witter Income Builder Fund
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
This opinion is being furnished to Morgan Stanley Dean Witter
Income Builder Fund, a Massachusetts business trust (the "Trust"), in
connection with the Registration Statement on Form N-14 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "1933 Act"), to
be filed by the Trust in connection with the acquisition by the Trust of
substantially all the assets of TCW/DW Income and Growth Fund ("Income &
Growth"), in exchange for shares of beneficial interest, par value $.01, of the
Trust ("Shares") and the assumption by the Trust of certain stated liabilities
of Income & Growth pursuant to an Agreement and Plan of Reorganization dated as
of February 25, 1999, between the Trust and Income & Growth (the
"Reorganization Agreement"). We have examined such statutes, regulations,
corporate records and other documents and reviewed such questions of law as we
deemed necessary or appropriate for the purposes of this opinion.
As to matters of Massachusetts law contained in this opinion,
we have relied upon the opinion of Lane Altman & Owens LLP, dated March 1,
1999.
Based upon the foregoing, we are of the opinion that the
Shares when issued, as described in the Reorganization Agreement, will be duly
authorized and, assuming receipt of the consideration to be paid therefor, upon
delivery as provided in the Reorganization Agreement, will be legally issued,
fully paid and non-assessable (except for the potential liability of
shareholders described in the Trust's current Prospectus under the caption
"Additional Information").
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
We do not thereby admit that we are within the category of persons whose
consent is required under Section 7 of the 1933 Act or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Gordon Altman Butowsky Weitzen
Shalov & Wein
<PAGE>
LANE ALTMAN & OWENS LLP 101 Federal Street Telephone
Counsellors at Law Boston, Massachusetts 02110 (617) 345-9800
Telefax
(617) 345-0400
March 1, 1999
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, NY 10036
Dear Sirs:
We understand that the trustees of Morgan Stanley Dean Witter Income
Builder Fund, a Massachusetts business trust (the "Trust"), intend, on or about
March 1, 1999, to cause to be filed on behalf of the Trust a Registration
Statement on Form N-14 (the "Registration Statement") in connection with the
acquisition (the "Acquisition") by the Trust of substantially all the assets of
TCW/DW Income and Growth Fund ("Income and Growth"), in exchange for shares of
beneficial interest of the Trust (the "Shares"), and the assumption by the
Trust of certain stated liabilities of Income and Growth pursuant to an
Agreement and Plan of Reorganization dated as of February 25, 1999 (the
"Agreement"). We further understand that the Shares will be issued pursuant to
the Agreement.
You have requested that we act as special counsel to the Trust with
respect to the laws of the Commonwealth of Massachusetts on certain specified
matters, and in such capacity we are furnishing you with this opinion. You have
not asked for, and we do not offer, an opinion on any other matter or
transaction related to the Trust, Income and Growth, the Acquisition, the
Agreement or any matter related thereto, except as specifically set forth
below.
The Trust is a business trust created under an Agreement and Declaration
of Trust finally executed, delivered and filed in Boston, Massachusetts on
March 21, 1996 (as amended from time to time, the "Trust Agreement"). The
Trustees of the Trust (as defined in the Trust Agreement) (the "Trustees") have
the powers set forth in the Trust Agreement, subject to the terms, provisions
and conditions provided therein.
In connection with our opinions delivered herein, we have examined the
following items some of which have been provided to us by, or on behalf of,
you: (i) a copy of the Agreement in the form to be executed by the Trust; (ii)
a copy of the Trust Agreement; (iii) a copy of the Amended and Restated By-laws
of the Trust effective as of January 28, 1999; (iv) a Certificate of Legal
Existence for the Trust provided by the Secretary of State of the Commonwealth
of Massachusetts dated February 24, 1999; and (v) copies of the Registration
Statement on Form N-14 to be filed by the Trust and the Trust's current
Prospectus and Statement of Additional Information.
In rendering this opinion we have assumed, without independent
verification, (i) the due authority of all individuals signing in
representative capacities and the genuineness of signatures, (ii) the
authenticity, completeness and continued effectiveness of all documents or
copies furnished to us, (iii) that resolutions approving the Registration
Statement, the Acquisition and the Agreement have been duly adopted by the
Trustees, (iv) that no amendments, agreements, resolutions or actions have been
<PAGE>
approved, executed or adopted which would limit, supersede or modify the items
described above, and (v) that the by-laws filed as an exhibit to the
Registration Statement have been duly adopted by the Trustees. We have also
examined such questions of law as we have concluded necessary or appropriate
for purposes of the opinions expressed below. Where documents are referred to
in resolutions approved by the Trustees, or in the Registration Statement, we
assume such documents are the same as in the most recent form provided to us,
whether as an exhibit to the Registration Statement, or otherwise. When any
opinion set forth below relates to the existence or standing of the Trust, such
opinion is based entirely upon and is limited by the items referred to above.
We understand that the foregoing assumptions, limitations and qualifications
are acceptable to you.
Based upon the foregoing, and with respect to Massachusetts law only
(except that no opinion is herein expressed with respect to compliance with the
Massachusetts Uniform Securities Act), to the extent that Massachusetts law may
be applicable, and without reference to the laws of any of the other several
states or of the United States of America, including State and Federal
securities laws, we are of the opinion that:
1. The Trust is a business trust with transferable shares, organized in
compliance with the requirements of The Commonwealth of Massachusetts, and the
Trust Agreement is legal and valid.
2. The Shares to be issued as described in the Registration Statement,
including any Exhibits thereto, have been duly authorized and, assuming receipt
of the consideration to be paid therefor, upon delivery as provided in the
Agreement, will be validly issued, fully paid and nonassessable (except for the
potential liability of shareholders described in the Trust's current Prospectus
under the caption "Additional Information").
We understand that you will rely on this opinion solely in connection with
your opinion to be filed with the Securities and Exchange Commission as an
Exhibit to the Registration Statement. We hereby consent to such use of this
opinion and we also consent to the filing of said opinion with the Securities
and Exchange Commission. In so consenting, we do not thereby admit to be within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
LANE ALTMAN & OWENS LLP
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February 25, 1999
Morgan Stanley Dean Witter Income Builder Fund
Two World Trade Center
New York, New York 10048
TCW/DW Income and Growth Fund
Two World Trade Center
New York, New York 10048
Gentlemen:
You have requested our opinion as to the Federal income tax
consequences of the transaction (the "Reorganization") described below pursuant
to which (i) substantially all assets of TCW/DW Income and Growth Fund ("Income
& Growth"), a Massachusetts business trust, will be combined with those of
Morgan Stanley Dean Witter Income Builder Fund, a Massachusetts business trust
(the "Trust"), in exchange for shares of the Trust ("Trust Shares"), and the
assumption by the Trust of certain liabilities of Income & Growth (the
"Liabilities"); (ii) Income & Growth will be liquidated; and (iii) the Trust
Shares will be distributed to the holders ("Income & Growth Shareholders") of
shares in Income & Growth ("Income & Growth Shares").
We have examined and are familiar with such documents, records and
other instruments as we have deemed appropriate for purposes of this opinion
letter, including the Registration Statement filed with the Securities and
Exchange Commission under the Securities Act of 1933 on Form N-14, relating to
the Trust Shares (the "Registration Statement") which includes, as a part
thereof, the proxy statement of Income & Growth (the "Income & Growth Proxy"),
which will be used to solicit proxies of Income & Growth Shareholders in
connection with the Special Meeting of Income & Growth Shareholders and the
Agreement and Plan of Reorganization by and between the Trust and Income &
Growth (the "Plan").
In rendering this opinion, we have assumed that such documents as yet
unexecuted will, when executed, conform to the proposed forms of such documents
that we have examined. We have further assumed that the Reorganization will be
carried out pursuant to the terms of the Plan, that factual statements and
<PAGE>
information contained in the Registration Statement, the Income & Growth Proxy
and other documents, records and instruments supplied to us are correct and
that there will be no material change with respect to such facts or information
prior to the time of the Reorganization. In rendering our opinion, we have also
relied on the representations and facts discussed below which have been
provided to us by Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"),
TCW Funds Management Inc. ("TCW"), the Trust and Income & Growth, and we have
assumed that such representations and facts will remain correct at the time of
the Reorganization.
FACTS
The Trust is an open-end diversified management investment company
engaged in the continuous offering of its shares to the public. Since its
inception, the Trust has conducted its affairs so as to qualify, and has
elected to be taxed, as a regulated investment company under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Income & Growth is an open-end diversified management investment
company engaged in the continuous offering of its shares to the public. Since
its inception, Income & Growth has conducted its affairs so as to qualify, and
has elected to be taxed, as a regulated investment company under Section 851 of
the Code.
The Board of Trustees of each of the Trust and Income & Growth have
determined, for valid business reasons, that it is advisable to combine the
assets of the Trust and Income & Growth into one fund.
In view of the above, the Board of Trustees of Income & Growth adopted
the Plan, subject to, among other things, approval by Income & Growth
Shareholders. Pursuant to the Plan, Income & Growth will transfer all of its
assets to the Trust in exchange for the Trust Shares (including fractional
Trust Shares) and the assumption by the Trust of the Liabilities. Immediately
thereafter, Income & Growth will distribute the Trust Shares to Income & Growth
Shareholders in exchange for and in cancellation of their Income & Growth
Shares and in complete liquidation of Income & Growth.
Each of the following representations, among other representations,
has been made to us in connection with the Reorganization by MSDW Advisors,
TCW, Income & Growth and by the Trust.
(1) To the best of the knowledge of the management of MSDW Advisors,
TCW, Income & Growth, the Trust, and their affiliates, there is no plan or
intention on the part of Income & Growth Shareholders, to redeem, sell,
exchange or otherwise dispose of a number of Trust Shares that would reduce
Income & Growth Shareholders' ownership of Trust Shares to a number of
<PAGE>
Trust Shares having a value, as of the date of the Reorganization, of less than
fifty percent of the value of all of the formerly outstanding Income & Growth
Shares as of such date;
(2) The Trust has no plan or intention to reacquire any of the Trust
Shares to be issued pursuant to the Reorganization except to the extent
necessary to comply with its legal obligation to redeem its own shares;
(3) The Liabilities to be assumed by or transferred to the Trust were
incurred by Income & Growth in the ordinary course of business and are
associated with the assets being transferred to the Trust;
(4) The amount of the Liabilities will not exceed the aggregate
adjusted basis of Income & Growth for its assets transferred to the Trust;
(5) The Trust has no plan or intention to sell or otherwise dispose of
more than fifty percent of the assets of Income & Growth acquired in the
Reorganization, except for dispositions made in the ordinary course of
business;
(6) There is no indebtedness between Income & Growth and the Trust
that was issued, acquired or will be settled at a discount;
(7) Income & Growth has been a regulated investment company within the
meaning of Section 851 of the Code since the date of its organization through
the end of its last complete taxable year and will qualify as a regulated
investment company for its taxable year ending on the date of the
Reorganization;
(8) The Trust has been a regulated investment company within the
meaning of Section 851 of the Code since the date of its organization through
the date hereof and will qualify as a regulated investment company for its
taxable year ending on September 30, 1999;
(9) Income & Growth will have no accumulated earnings and profits as
of the close of its taxable year ending on the date of the Reorganization.
OPINION
Based on the Code, Treasury Regulations issued thereunder, Internal
Revenue Service Rulings and the relevant case law, as of the date hereof, and
on the facts, representations and assumptions set forth above, and the
documents, records and other instruments we have reviewed, it is our opinion
that the Federal income tax consequences of the Reorganization to the Trust,
Income & Growth and the Income & Growth Shareholders will be as follows:
<PAGE>
(1) The transfer of substantially all of Income & Growth's assets in
exchange for the Trust Shares and the assumption by the Trust of certain stated
Liabilities of Income & Growth, followed by the distribution by Income & Growth
of the Trust Shares to the Income & Growth Shareholders in exchange for their
Income & Growth Shares, will constitute a "reorganization" within the meaning
of Section 368(a)(1)(C) the Code, and Income & Growth and the Trust will each
be a "party to a reorganization" within the meaning of Section 368(b) of the
Code;
(2) No gain or loss will be recognized by the Trust upon the receipt
of the assets of Income & Growth solely in exchange for the Trust Shares and
the assumption of the Liabilities by the Trust;
(3) No gain or loss will be recognized by Income & Growth upon the
transfer of the assets of Income & Growth to the Trust, in exchange for the
Trust Shares and the assumption of the Liabilities by the Trust, or upon the
distribution of the Trust Shares to Income & Growth Shareholders in exchange
for their Income & Growth Shares as provided in the Plan;
(4) No gain or loss will be recognized by Income & Growth Shareholders
upon the exchange of their Income & Growth Shares for the Trust Shares;
(5) The aggregate tax basis for the Trust Shares received by each
Income & Growth Shareholder pursuant to the Reorganization will be the same as
the aggregate tax basis of the Income & Growth Shares held by each such Income
& Growth Shareholder immediately prior to the Reorganization;
(6) The holding period of the Trust Shares to be received by each
Income & Growth Shareholder will include the period during which the Income &
Growth Shares surrendered in exchange therefor were held (provided such Income
& Growth Shares were held as capital assets on the date of the Reorganization);
(7) The tax basis of the assets of Income & Growth acquired by the
Trust will be the same as the tax basis of such assets to Income & Growth
immediately prior to the Reorganization; and
(8) The holding period of the assets of Income & Growth in the hands
of the Trust will include the period during which those assets were held by
Income & Growth.
We are not expressing an opinion as to any aspect of the
Reorganization other than those opinions expressly stated above.
As noted above, this opinion is based upon our analysis of the Code,
Treasury Regulations issued thereunder, Internal Revenue Service Rulings and
case law which we deem relevant as of the date hereof. No assurances can be
given that there will not
<PAGE>
be a change in the existing law or that the Internal Revenue Service will not
alter its present views, either prospectively or retroactively, or adopt new
views with regard to any of the matters upon which we are rendering this
opinion, nor can any assurances be given that the Internal Revenue Service will
not audit or question the treatment accorded to the Reorganization on the
Federal income tax returns of the Trust, Income & Growth or the Income & Growth
Shareholders.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and any reference to our firm
in the Registration Statement and the Income & Growth Proxy constituting a part
thereof.
Very truly yours,
/S/ GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy Statement and
Prospectus and the Statement of Additional Information constituting parts of
this registration statement on Form N-14 (the "Registration Statement") of our
report dated November 6, 1998 relating to the September 30, 1998 financial
statements and financial highlights of Morgan Stanley Dean Witter Income Builder
Fund (the "Fund"), formerly Dean Witter Income Builder Fund, appearing in the
September 30, 1998 Annual Report to Shareholders of Morgan Stanley Dean Witter
Income Builder Fund, which is also incorporated by reference in the Registration
Statement. We also consent to the reference to us under the heading "Financial
Statements and Experts" in such Proxy Statement and Prospectus. We also consent
to the reference to us under the headings "Independent Accountants" and
"Experts" in that fund's Statement of Additional Information dated November 25,
1998 and to the reference to us under the heading "Financial Highlights" in that
fund's Prospectus dated November 25, 1998 which is incorporated by reference
into the Registration Statement. We also consent to the incorporation by
reference in the Proxy Statement and Prospectus of our report dated March 13,
1998 relating to January 31, 1998 financial statements and financial highlights
of TCW/DW Income and Growth Fund. We also consent to the reference to us under
the headings "Independent Accountants" and "Experts" in that fund's Statement
of Additional Information dated March 31, 1998 and to the reference to us under
the heading "Financial Highlights" in that fund's Prospectus dated March 31,
1998, which is incorporated by reference into the Registration Statement.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 25, 1999
<PAGE>
POWER OF ATTORNEY
Know All Men by These Presents, that each person whose signature appears
below constitutes and appoints David M. Butowsky, Stuart M. Strauss and Ronald
M. Feiman and each and any one of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-14 of Morgan Stanley Dean Witter Income Builder Fund, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- --------- ------------------
<S> <C> <C>
/s/ MICHAEL BOZIC Trustee February 25, 1999
-------------------------------
MICHAEL BOZIC
/s/ EDWIN J. GARN Trustee February 25, 1999
-------------------------------
EDWIN J. GARN
/s/ JOHN R. HAIRE Trustee February 25, 1999
-------------------------------
JOHN R. HAIRE
/s/ MANUEL H. JOHNSON Trustee February 25, 1999
-------------------------------
MANUEL H. JOHNSON
/s/ MICHAEL E. NUGENT Trustee February 25, 1999
-------------------------------
MICHAEL E. NUGENT
/s/ JOHN L. SCHROEDER Trustee February 25, 1999
-------------------------------
JOHN L. SCHROEDER
/s/ WAYNE E. HEDIEN Trustee February 25, 1999
-------------------------------
WAYNE E. HEDIEN
</TABLE>
<PAGE>
POWER OF ATTORNEY
Know All Men by These Presents, that each person whose signature appears
below constitutes and appoints Barry Fink and Marilyn K. Cranney and each and
any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to the Registration Statement on Form N-14 of Morgan
Stanely Dean Witter Income Builder Fund, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause
to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- --------- ------------------
<S> <C> <C>
/s/ CHARLES A. FIUMEFREDDO Trustee February 25, 1999
-------------------------------
CHARLES A. FIUMEFREDDO
/s/ PHILIP J. PURCELL Trustee February 25, 1999
-------------------------------
PHILIP J. PURCELL
</TABLE>
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 8, 1999
The undersigned shareholder of TCW/DW Income and Growth Fund does hereby
appoint BARRY FINK, RONALD E. ROBISON and ROBERT S. GIAMBRONE and each of them,
as attorneys-in-fact and proxies of the undersigned, each with the full power
of substitution, to attend the Special Meeting of Shareholders of TCW/DW Income
and Growth Fund to be held on June 8, 1999, in Conference Room A, Forty-Fourth
Floor, Two World Trade Center, New York, New York at 11:00 A.M., New York time,
and at all adjournments thereof and to vote the shares held in the name of the
undersigned on the record date for said meeting for the Proposal specified on
the reverse side hereof. Said attorneys-in-fact shall vote in accordance with
their best judgment as to any other matter.
(Continued on reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSAL SET FORTH ON THE REVERSE HEREOF AND AS RECOMMENDED BY
THE BOARD OF TRUSTEES.
IMPORTANT--THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
<PAGE>
12-DIGIT CONTROL NO.
TO VOTE BY MAIL, PLEASE COMPLETE AND RETURN THIS CARD
YOU ALSO MAY VOTE A PROXY BY TOUCH-TONE PHONE OR BY INTERNET
(See enclosed Voting Information Card for further instructions)
TO VOTE A PROXY BY PHONE, call Toll-Free: 1-800-690-6903
TO VOTE A PROXY BY INTERNET, visit our Website(s): WWW.MSDWT.COM or
WWW.PROXYVOTE.COM
PLEASE MARK VOTES AS
IN THE EXAMPLE USING
[X]
BLACK OR BLUE INK
The Proposal:
Approval of the Agreement and Plan of Reorganization, dated as of February 25,
1999, pursuant to which substantially all of the assets of TCW/DW Income and
Growth Fund would be combined with those of Morgan Stanley Dean Witter Income
Builder Fund and shareholders of TCW/DW Income and Growth Fund would become
shareholders of Morgan Stanley Dean Witter Income Builder Fund receiving shares
in Morgan Stanley Dean Witter Income Builder Fund with a value equal to the
value of their holdings in TCW/DW Income and Growth Fund.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Date
----------------------------------
Please make sure to sign and date this
Proxy using black or blue ink. If the
shares are registered in more than one
name, each joint owner or each fiduciary
should sign personally. Only authorized
officers should sign for corporations.
---------------------------------------
---------------------------------------
Shareholder sign in the box above
---------------------------------------
---------------------------------------
Co-Owner (if any) sign in the box above
- -------------------------------------------------------------------------------
PLEASE DETACH AT PERFORATION
TCW/DW INCOME AND GROWTH FUND
- -------------------------------------------------------------------------------
IMPORTANT
USE ONE OF THESE THREE EASY WAYS TO VOTE YOUR PROXY
1. BY MAIL. PLEASE DATE, SIGN AND RETURN THE ABOVE PROXY CARD IN THE ENCLOSED
POSTAGE PAID ENVELOPE .
2. BY INTERNET. HAVE YOUR PROXY CARD AT HAND. GO TO THE "VOTE YOUR PROXY HERE"
LINK ON THE WEBSITE WWW.MSDWT.COM OR WWW.PROXYVOTE.COM. ENTER YOUR 12 DIGIT
CONTROL NUMBER LOCATED ON THE PROXY CARD AND FOLLOW THE SIMPLE INSTRUCTIONS
3. BY TELEPHONE. HAVE YOUR PROXY CARD AT HAND. CALL 1-800-690-6903 ON A
TOUCH-TONE PHONE. ENTER YOUR 12-DIGIT CONTROL NUMBER LOCATED ON THE PROXY
CARD AND FOLLOW THE SIMPLE RECORDED INSTRUCTIONS.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER FUNDS
- -------------------------------------------------------------------------------
OFFERS TWO NEW WAYS TO VOTE YOUR PROXY
24 HOURS A DAY, 7 DAYS A WEEK
You can now vote your proxy in a matter of minutes with the ease and
convenience of the Internet or the telephone. You may still vote by mail.
But remember, if you are voting by Internet or telephone, do not mail the
proxy.
TO VOTE BY INTERNET:
1. Read the enclosed Proxy Statement and have your Proxy Card available.
2. Go to the "Proxy Voting" link on www.msdwt.com or to website
www.proxyvote.com.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple instructions.
TO VOTE BY TELEPHONE:
1. Read the enclosed Proxy Statement and have your Proxy Card available.
2. Call toll-free 1-800-690-6903.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple recorded instructions.
Your Proxy Vote is Important!
Thank You for Submitting Your Proxy.
- -------------------------------------------------------------------------------
