<PAGE>
Filed Pursuant to Rule 497(b)
Registration File No.: 333-73165
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. Alternatively, if
you are eligible to vote telephonically by touchtone telephone or
electronically on the Internet (as discussed in the enclosed Proxy Statement
and Prospectus), you may do so in lieu of attending the meeting in person.
By Order of the Board of Trustees,
BARRY FINK,
Secretary
April 12, 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 April 12, 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
April 12, 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 APRIL 12, 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 April 12, 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 4,853,895.027 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: -- Class A --Ann L. Glynn, 203 Melbury Road, Babylon, NY 11702-3309
(18.901%); Morgan Stanley Dean Witter Advisors Inc., Attn: Maurice Bendrihem, 2
World Trade Center, New York, NY 10048-0203 (13.142%); William Berzak
Guardianship, Harvey Meyerson, 160 Overlook Ave 15-A, Hackensack, NJ 07601-2287
(11.370%); TECLA Marie Baker, Trustee of the TECLA Marie Baker Trust dated
7/24/79, as amended 12/23/97, 21821 Summerwind Lane, Huntington Beach, CA
92646-8265 (9.409%); Dean Witter Reynolds, Custodian for Minoru Namekata, IRA
STD/Rollover dated 6/25/92, 230 Bel Air Court, Turlock, CA 95380-3257 (8.499%);
Dean Witter Reynolds, Custodian for Rick D. Schwab, IRA Rollover dated 11/5/97,
959 St. Catherines Dr., Wake Forest, NC 27587-6642(6.464%); Stoneridge Company,
Sharing Plan and Trust U/A, dated 7/1/91, RC Schoeneshoefer Trustee, PO Box
207, Morrison, CO 80465-0207 (5.906%); Marilyn R. Jutilla, 1005 Corona, Tacoma,
WA 98466-6560 (5.671%); Dean Witter Reynolds, Custodian for Ralph Affaitati,
IRA Sep. dated 3/10/89, 5398 Leroy, San Bernardino, CA 92404-1143 (5.493%).
Class D -- Morgan Stanley Dean Witter Advisors Inc., Attn: Maurice Bendrihem, 2
World Trade Center, New York, NY 10048-0203 (99.860%). 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: -- Class A--Morgan Stanley Dean Witter Trust FSB, Trustee FBO Chattanooga
Housing Authority Retirement Plan, PO Box 957, Jersey City, NJ 07303-0957
(5.5%). Class D-- Morgan Stanley Dean Witter Trust FSB, Agent for American
Baptist Homes Foundation of the West Inc., Trustee FBO Gift Annuity, PO Box
503, Jersey City, NJ 07311 (56.8%). 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 (whether by mail or, as discussed below,
by touchtone telephone or the Internet) 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.
2
<PAGE>
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 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 and Prospectus. 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.
3
<PAGE>
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
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 January 31, 1999, 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)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
INCOME
AND INCOME PRO FORMA
GROWTH BUILDER COMBINED
--------------- --------------- ---------------
<S> <C> <C> <C>
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
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 ............................................... 1.56% 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).
5
<PAGE>
(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) 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>
EXAMPLE
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 a 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 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 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 Builder typically invests a greater portion of
its assets in common stock than does Income and Growth.
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.
8
<PAGE>
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.
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
9
<PAGE>
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%.
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 continuously offered 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. 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 continuously offered 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
10
<PAGE>
Municipal Trust. 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, 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 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
11
<PAGE>
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 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
12
<PAGE>
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.
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 (0.58% 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, 1999) than the expense ratio for each
corresponding class of Income Builder (for its fiscal year ended September 30,
1998).
2. The Reorganization is intended to qualify as a tax-free reorganization
for Federal income tax purposes, pursuant to which no gain or loss will be
recognized by Income and Growth or its Shareholders for Federal income tax
purposes.
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 objectives, 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
13
<PAGE>
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 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
14
<PAGE>
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 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 September 30,
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.
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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 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. In addition, Income Builder has no plan or intention to sell or
otherwise dispose of more than fifty percent of the assets of Income and Growth
acquired in the Reorganization, except for dispositions made in the ordinary
course of business.
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);
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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.
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
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>
Income & Growth ................... $ 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
- ------------------------------------
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
- ------------------------------------
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
- ------------------------------------
Income & Growth ................... $ 11,662 1,019 $ 11.44
Income Builder .................... $ 772,030 63,011 $ 11.46
Combined Fund (pro forma) ......... $ 783,692 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 net 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
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<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, the 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.
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<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
April 12, 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 INCOME AND GROWTH
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.
A-2
<PAGE>
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 INCOME BUILDER AND INCOME AND GROWTH
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 INCOME AND GROWTH
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 INCOME BUILDER
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, 1999 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,
1999 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;
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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 September 30, 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>
(This page has been left blank intentionally.)
<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
(800) 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>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
<TABLE>
<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 35). 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 18).
- -------------------------------------------------------------------------------------------------------------------------
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).
- ------------------------------------------------------------------------------------------------------------------------
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
</TABLE>
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:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
- ---------------------------------------------------------------------
<S> <C> <C> <C>
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
to 0 after six years after
approximately
ten years
- ---------------------------------------------------------------------
C 1.0% CDSC during 1.0% No
first year
- ---------------------------------------------------------------------
D None None No
</TABLE>
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
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<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
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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
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<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
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Automatic Investment of Dividends and Distributions.
All income dividends and capital gains distributions are automatically paid in
full and fractional shares of the 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
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<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
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<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.
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<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
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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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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 Meet-ings 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>
37
<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>
38
<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.
CI 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>
41
<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>
42
<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>
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<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>
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>
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PLEASE MARK VOTES
AS IN THE EXAMPLE
USING BLACK OR BLUE INK [X]
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
FOR AGAINST ABSTAIN
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.
Please make sure to sign and date this Proxy using black or blue ink.
Date
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Shareholder sign in the box above
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Co-Owner (if any) sign in the box above
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PLEASE FOLD AND DETACH AT PERFORATION ALONG DOTTED LINES
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.
