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Filed Pursuant to Rule 497(e)
Registration File No.: 333-07613
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PROSPECTUS --
OCTOBER 1, 1996
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TCW/DW Strategic Income Trust (the "Fund") is an open-end, diversified
management investment company, whose primary investment objective is a high
level of current income. As a secondary objective, the Fund seeks to maximize
total return. The Fund seeks to achieve its objectives by allocating under
normal market conditions at least 30% of its investments to each of three
distinct types of fixed-income securities (referred to herein as the "Asset
Classes"): investment grade corporate fixed-income securities,
mortgage-backed securities and high-yield ("junk") corporate fixed-income
securities, including U.S. Dollar denominated foreign high yield fixed-income
securities. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in income producing securities. See "Investment
Objectives and Policies."
Initial Offering--Shares are being offered in an underwriting by Dean Witter
Distributors Inc. at $10.00 per share with all proceeds going to the Fund.
All expenses in connection with the organization of the Fund and this
offering will be paid by Dean Witter InterCapital Inc. and the Underwriter
except for a maximum of $250,000 of organizational expenses to be reimbursed
by the Fund. The initial offering will run from approximately October 25,
1996 through November 21, 1996.
Continuous Offering--A continuous offering will commence approximately two
weeks after the closing date (anticipated for November 26, 1996) of the
initial offering. Shares of the Fund will be priced at the net asset value
per share next determined following receipt of an order without imposition of
a sales charge.
Repurchases and/or redemptions of shares are subject in most cases to a
contingent deferred sales charge, scaled down from 5% to 1% of the amount
redeemed, if made within six years of purchase, which charge will be paid to
the Fund's Distributor, Dean Witter Distributors Inc. See "Repurchases and
Redemptions--Contingent Deferred Sales Charge." In addition, the Fund pays
the Distributor a Rule 12b-1 distribution fee pursuant to a Plan of
Distribution at the annual rate of 0.75% of the average daily net assets of
the Fund. See "Purchase of Fund Shares--Plan of Distribution."
TABLE OF CONTENTS
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 3
The Fund and its Management ........................................... 4
Investment Objectives and Policies .................................... 4
Risk Considerations and Investment Practices ....................... 6
Investment Restrictions ............................................... 11
Underwriting .......................................................... 12
Purchase of Fund Shares--Continuous Offering .......................... 12
Shareholder Services .................................................. 14
Repurchases and Redemptions ........................................... 15
Dividends, Distributions and Taxes .................................... 17
Performance Information ............................................... 17
Additional Information ................................................ 18
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 October 1, 1996, 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.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
TCW/DW STRATEGIC INCOME TRUST
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
Dean Witter Distributors Inc.
Distributor
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PROSPECTUS SUMMARY
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<CAPTION>
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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 investing primarily in a portfolio consisting
of three distinct types of fixed-income securities: investment grade corporate fixed-income
securities, mortgage-backed securities and high yield ("junk") corporate fixed-income securities,
including U.S. Dollar denominated foreign high yield fixed-income securities.
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Initial Shares of beneficial interest with $0.01 par value are being offered in an underwriting by Dean
Offering Witter Distributors Inc. at $10.00 per share. The minimum purchase is 100 shares ($1,000). The
initial offering will run approximately from October 25, 1996 through November 21, 1996. The
closing will take place on November 26, 1996 or such other date as may be agreed upon by Dean
Witter Distributors Inc. and the Fund (the "Closing Date"). Shares will not be issued and
dividends will not be declared by the Fund until after the Closing Date. If any orders received
during the initial offering period are accompanied by payment, such payment will be returned
unless an accompanying request for investment in a Dean Witter money market fund is received at
the time the payment is made. Investors should request and read the money market fund prospectus
prior to investing in the money market fund. Any purchase order may be cancelled at any time prior
to the Closing Date (see page 16).
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Continuous A continuous offering will commence within approximately two weeks after completion of the initial
Offering offering. During the continuous offering, the minimum initial investment will be $1,000 ($100 if
the account is opened through EasyInvest (Service Mark) ); and the minimum subsequent investment
will be $100 (see page 17).
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Investment The primary investment objective of the Fund is a high level of current income; as a secondary
Objectives objective, the Fund seeks to maximize total return (see page 6).
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Manager Dean Witter Services Company Inc. (the "Manager"), a wholly-owned subsidiary of Dean Witter
InterCapital Inc. ("InterCapital"), is the Fund's manager. The Manager also serves as manager to
thirteen other investment companies advised by TCW Funds Management, Inc. (the "TCW/DW Funds").
The Manager and InterCapital serve in various investment management, advisory, management and
administrative capacities to a total of one hundred investment companies and other portfolios with
assets of approximately $84.6 billion at August 31, 1996 (see page 5).
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Adviser TCW Funds Management, Inc. (the "Adviser") is the Fund's investment adviser. In addition to the
Fund, the Adviser serves as investment adviser to thirteen other TCW/DW Funds. As of August 31,
1996, the Adviser and its affiliates had approximately $53 billion under management or committed
to management in various fiduciary or advisory capacities, primarily to institutional investors
(see page 5).
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Management The Manager receives a monthly fee at the annual rate of 0.36% of daily net assets. The Adviser
and Advisory receives a monthly fee at an annual rate of 0.24% of daily net assets (see page 4).
Fees
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Dividends Dividends are declared and paid monthly. Capital gains distributions, if any, are paid at least
once a year or are retained for reinvestment by the Fund. Dividends and capital gains
distributions are automatically invested in additional shares at net asset value unless the
shareholder elects to receive cash (see page 23).
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2
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Distributor Dean Witter Distributors Inc. (the "Distributor"). The Distributor receives from the Fund a
distribution fee accrued daily and payable monthly at the rate of 0.75% per annum of the Fund's
average daily net assets. This fee compensates the Distributor for services provided in distributing
shares of the Fund and for sales-related expenses. The Distributor also receives the proceeds of any
contingent deferred sales charges (see pages 17 and 22).
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Redemption-- Shares are redeemable by the shareholder at net asset value. An account may be involuntarily
Contingent redeemed if the total value of the account is less than $100 or, if the account was opened through
Deferred EasyInvest (Service Mark), if after twelve months the shareholder has invested less than $1,000 in
Sales the account. Although no commission or sales load is imposed upon the purchase of shares, a
Charge contingent deferred sales charge (scaled down from 5% to 1%) is imposed on any redemption of shares
if after such redemption the aggregate current value of an account with the Fund is less than the
aggregate amount of the investor's purchase payments made during the six years preceding the
redemption. However, there is no charge imposed on redemption of shares purchased through
reinvestment of dividends or distributions (see page 22).
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Risk The value of the Fund's portfolio securities, and therefore the net asset value of the Fund's
Considerations shares, may increase or decrease due to various factors, principally changes in prevailing interest
rates. Generally, a rise in interest rates will result in a decrease in net asset value, while a
drop in interest rates will result in an increase in net asset value. In addition, the Fund's yield
also will vary based on the yield of the Fund's portfolio securities. Mortgage-backed securities
have different characteristics than traditional debt securities primarily in that interest and
principal payments are made more frequently, usually monthly, and principal may be prepaid at any
time. These differences can result in significantly greater price and yield volatility than is the
case with respect to traditional debt securities. Certain of the high yield, high risk fixed-income
securities, including U.S. Dollar denominated foreign securities, in which the Fund may invest are
subject to greater risk of loss of income and principal than the higher rated lower yielding
fixed-income securities. The foreign securities and markets in which the Fund may invest pose
different and generally greater risks than those risks customarily associated with domestic
securities and markets including foreign tax rates and foreign securities exchange controls. The
Fund may enter into repurchase agreements, reverse repurchase agreements and dollar rolls, may
purchase securities on a when-issued and delayed delivery basis and may utilize certain investment
techniques including options and futures which may be considered speculative in nature and may
involve greater risks than those customarily assumed by other investment companies which do not
invest in such instruments. Reverse repurchase agreements and dollar rolls involve leverage and are
considered borrowings by the Fund. An investment in the Fund should not be considered a complete
investment program and is not appropriate for all investors. Investors should carefully consider
their ability to assume these risks and the risks outlined under the heading "Risk Considerations
and Investment Practices," before making an investment in the Fund (see pages 9-15).
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The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus
and in the Statement of Additional Information.
3
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder
of the Fund will incur.
Shareholder Transaction Expenses
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Maximum Sales Charge Imposed on Purchases ...........................................None
Maximum Sales Charge Imposed on Reinvested Dividends ................................ None
Contingent Deferred Sales Charge
(as a percentage of the lesser of original purchase price or redemption proceeds) . 5.0%
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A contingent deferred sales charge is imposed at the following declining
rates:
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<CAPTION>
YEAR SINCE PURCHASE PAYMENT MADE PERCENTAGE
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First .............................. 5.0%
Second ............................. 4.0%
Third .............................. 3.0%
Fourth ............................. 2.0%
Fifth .............................. 2.0%
Sixth .............................. 1.0%
Seventh and thereafter ............. None
</TABLE>
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<CAPTION>
<S> <C>
Redemption Fees .......................................................... None
Exchange Fee ............................................................. None
Annual Fund Operating Expenses (as a Percentage of Average Net Assets)
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Management and Advisory Fees+ ............................................ 0.60%
12b-1 Fees*+ ............................................................. 0.75%
Other Expenses+ .......................................................... 0.29%
Total Fund Operating Expenses**+ ......................................... 1.64%
</TABLE>
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* The 12b-1 fee is accrued daily and payable monthly, at an annual rate
of 0.75% of the Fund's average daily net assets. A portion of the 12b-1
fee equal to 0.20% of the Fund's average daily net assets is
characterized as a service fee within the meaning of National
Association of Securities Dealers, Inc. ("NASD") guidelines and is a
payment made to the selling broker for personal service and/or
maintenance of shareholder accounts. The remainder of the 12b-1 fee 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").
** "Total Fund Operating Expenses," as shown above, is based upon the sum
of the 12b-1 Fees, Management and Advisory Fees and estimated "Other
Expenses," which may be incurred by the Fund in its initial full year
of operations.
+ InterCapital has undertaken to assume all operating expenses (except
for any 12b-1 fee, foreign taxes withheld and/or brokerage fees) and
the Manager has agreed to waive the compensation provided for in its
Management Agreement and the Adviser has undertaken to waive the
compensation provided for in its Advisory Agreement, until such time as
the Fund has $50 million of net assets or until six months from the
date of commencement of the Fund's operations, whichever occurs first.
The fees and expenses disclosed above do not reflect the assumption of
any expenses or the waiver of any compensation by InterCapital and/or
the Adviser.
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<CAPTION>
<S> <C> <C>
Example 1 year 3 years
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You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period: .............................................. $67 $82
You would pay the following expenses on the same investment, assuming no redemption: ........ $17 $52
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR
LESS THAN THOSE SHOWN.
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The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and Its Management," "Plan of Distribution" and "Repurchases and
Redemptions" in this Prospectus.
Long-term shareholders of the Fund may pay more in sales charges including
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
4
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THE FUND AND ITS MANAGEMENT
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TCW/DW Strategic Income Trust (the "Fund") is an open-end, diversified
management investment company. The Fund is a trust of the type commonly known
as a "Massachusetts business trust" and was organized under the laws of
Massachusetts on June 27, 1996.
Dean Witter Services Company Inc. (the "Manager"), whose address is Two
World Trade Center, New York, New York 10048, is the Fund's Manager. The
Manager is a wholly-owned subsidiary of Dean Witter InterCapital Inc.
("InterCapital"). InterCapital is a wholly-owned subsidiary of Dean Witter,
Discover & Co. ("DWDC"), a balanced financial services organization providing
a broad range of nationally marketed credit and investment products.
The Manager acts as manager to thirteen other TCW/DW Funds. The Manager
and InterCapital serve in various investment management, advisory, management
and administrative capacities to a total of one hundred investment companies,
thirty of which are listed on the New York Stock Exchange, with combined
assets of approximately $81.8 billion as of August 31, 1996. InterCapital
also manages and advises portfolios of pension plans, other institutions and
individuals which aggregated approximately $2.8 billion at such date.
The Fund has retained the Manager to manage its business affairs,
supervise its overall day-to-day operations (other than providing investment
advice) and provide all administrative services.
TCW Funds Management, Inc. (the "Adviser"), whose address is 865 South
Figueroa Street, Suite 1800, Los Angeles, California 90017, is the Fund's
investment adviser. The Adviser was organized in 1987 as a wholly-owned
subsidiary of The TCW Group, Inc. ("TCW"), whose subsidiaries, including
Trust Company of the West and TCW Asset Management Company, provide a variety
of trust, investment management and investment advisory services. Robert A.
Day, who is Chairman of the Board of Directors of TCW, may be deemed to be a
control person of the Adviser by virtue of the aggregate ownership by Mr. Day
and his family of more than 25% of the outstanding voting stock of TCW. The
Adviser serves as investment adviser to thirteen other TCW/DW Funds in
addition to the Fund. As of August 31, 1996, the Adviser and its affiliated
companies had approximately $53 billion under management or committed to
management, primarily from institutional investors.
The Fund has retained the Adviser to invest the Fund's assets.
The Fund's Trustees review the various services provided by the Manager
and the Adviser to ensure that the Fund's general investment policies and
programs are being properly carried out and that administrative services are
being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Manager, the Fund pays the
Manager monthly compensation calculated daily by applying the annual rate of
0.36% to the Fund's net assets. As compensation for its investment advisory
services, the Fund pays the Adviser monthly compensation calculated daily by
applying an annual rate of 0.24% to the Fund's net assets.
The Fund's expenses include: the fees of the Manager and the Adviser; the
fee pursuant to the Plan of Distribution (see "Purchase of Fund Shares");
taxes; legal, transfer agent, custodian and auditing fees; federal and state
registration fees; and printing and other expenses relating to the Fund's
operations which are not expressly assumed by the Manager or Adviser under
their respective Agreements with the Fund. InterCapital has undertaken to
assume all expenses (except for the Plan of Distribution fee and brokerage
fees) and the Manager has undertaken to waive the compensation provided for
in its Management Agreement, and the Adviser has undertaken to waive the
compensation provided for in its Advisory Agreement, until such time as the
Fund has $50 million of net assets or until six months from the date of
commencement of operations, whichever occurs first.
5
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INVESTMENT OBJECTIVES AND POLICIES
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The primary investment objective of the Fund is a high level of current
income. As a secondary objective, the Fund seeks to maximize total return.
The investment objectives are fundamental and may not be changed without
shareholder approval. There is no assurance that the objectives will be
achieved.
The Fund seeks to achieve its investment objectives by allocating under
normal market conditions at least 30% of its investments to each of three
distinct types of fixed-income securities (referred to herein as the "Asset
Classes"): investment-grade corporate fixed-income securities,
mortgage-backed securities and high yield ("junk") corporate fixed-income
securities, including U.S. Dollar denominated foreign high yield fixed-income
securities. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in income producing securities. The Adviser will
adjust the Fund's assets on a quarterly basis to reflect any changes in the
relative values of the Fund's portfolio securities. At times the Fund may
have less than 30% invested in any one Asset Class due to market fluctuations
or other changes in assets. If during a quarter there is a significant market
development, or for other appropriate reasons, the Adviser may adjust the
Fund's assets more frequently than quarterly.
Generally, the Fund seeks to maintain a dollar-weighted average life of
6-9 years within each Asset Class. In addition, within each Asset Class, the
Fund will not invest in any security which, at the time of purchase, has a
remaining stated maturity greater than 15 years. While the dollar-weighted
average life may represent the "expected" average life with respect to an
Asset Class, the 15 year individual security maturity limitation is based
upon mandatory payments (actual stated final maturity, and not the "expected"
maturity). See also the discussion of average life and prepayment and
extension risk with respect to mortgage-backed securities under "Risk
Considerations and Investment Practices--Mortgage-Backed Securities."
The three Asset Classes in which the Fund may invest are as follows:
INVESTMENT GRADE CORPORATE FIXED-INCOME
SECURITIES
The Fund will invest in corporate debt securities and preferred stock with
investment grade ratings, which consist of securities which are rated at the
time of purchase either Baa or better by Moody's or BBB or better by S&P or
which, if unrated, are deemed to be of comparable quality by the Adviser.
Investments in fixed-income securities rated either Baa by Moody's or BBB
by S&P (the lowest credit ratings designated "investment grade") 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. If an investment grade fixed-income
security held by the Fund meets the minimum rating requirements set forth
above and is subsequently downgraded below such minimum requirement, or
otherwise falls below investment grade, the Fund will sell such securities as
soon as is practicable without undue market or tax consequences to the Fund.
MORTGAGE-BACKED SECURITIES
The Fund may invest in fixed-rate and adjustable rate mortgage-backed
securities which are issued or guaranteed by the United States Government,
its agencies or instrumentalities or by private issuers which are rated
either Aaa by Moody's or AAA by S&P or, if not rated, are determined to be of
comparable quality by the Adviser. See also "Risk Considerations and
Investment Practices--Mortgage-Backed Securities."
There are currently three basic types of mortgage-backed securities: (i)
those issued or guaranteed by the United States Government or one of its
agencies or instrumentalities, such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC")
6
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(securities issued by GNMA, but not those issued by FNMA or FHLMC, are backed
by the "full faith and credit" of the United States); (ii) those issued by
private issuers that represent an interest in or are collateralized by
mortgage-backed securities issued or guaranteed by the United States
Government or one of its agencies or instrumentalities; and (iii) those
issued by private issuers that represent an interest in or are collateralized
by whole mortgage loans or mortgage-backed securities without a government
guarantee but usually having some form of private credit enhancement. The
aforementioned description of mortgage-backed securities in which the Fund
may invest is intended to include collateralized mortgage obligations
("CMOs"), except as noted below.
The Fund is prohibited from investing in the following types of
mortgage-backed securities: (i) interest-only stripped mortgage-backed
securities; (ii) principal-only stripped mortgage-backed securities; and
(iii) inverse floating rate CMOs.
The mortgage pass-through securities in which the Fund may invest include
those issued or guaranteed by GNMA, FNMA and FHLMC. GNMA certificates are
direct obligations of the U.S. Government and, as such, are backed by the
"full faith and credit" of the United States. FNMA is a federally chartered,
privately owned corporation and FHLMC is a corporate instrumentality of the
United States. FNMA and FHLMC certificates are not backed by the full faith
and credit of the United States but the issuing agency or instrumentality has
the right to borrow, to meet its obligations, from an existing line of credit
with the U.S. Treasury. The U.S. Treasury has no legal obligation to provide
such line of credit and may choose not to do so. Each of GNMA, FNMA and FHLMC
guarantee timely distribution of interest to certificate holders. GNMA and
FNMA also guarantee timely distribution of scheduled principal payments.
FHLMC generally guarantees only the ultimate collection of principal of the
underlying mortgage loans.
The Fund may also invest in adjustable rate mortgage securities, which are
pass-through mortgage securities collateralized by mortgages with adjustable
rather than fixed rates.
Collateralized Mortgage Obligations and Multiclass Pass-Through
Securities. The Fund may invest in collateralized mortgage obligations or
"CMOs." CMOs are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are collateralized by GNMA,
FNMA or FHLMC certificates, but also may be collateralized by whole loans or
private mortgage pass-through securities (such collateral is collectively
hereinafter referred to as "Mortgage Assets"). Multiclass pass-through
securities are equity interests in a trust composed of Mortgage Assets.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the
CMOs or make scheduled distributions on the multiclass pass-through
securities. CMOs may be issued by agencies or instrumentalities of the United
States Government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing. An
issuer of CMOs may elect to be treated, for federal income tax purposes, as a
Real Estate Mortgage Investment Conduit (a "REMIC"). An issuer of a CMO which
does not elect to be treated as a REMIC will be taxable as a corporation
under rules regarding taxable mortgage pools.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on
a monthly, quarterly or semiannual basis. Certain CMOs may have variable or
floating interest rates and others may be stripped (securities which provide
only the principal or interest feature of the underlying security).
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of a CMO series in a number of different ways.
Generally, the purpose of the allocation of the cash flow of a CMO to the
various classes is to obtain a more
7
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predictable cash flow to the individual tranches than exists with the
underlying collateral of the CMO. As a general rule, the more predictable the
cash flow is on a CMO tranche, the lower the anticipated yield will be on
that tranche at the time of issuance relative to prevailing market yields on
mortgage-backed securities. As part of the process of creating more
predictable cash flows on most of the tranches in a series of CMOs, one or
more tranches generally must be created that absorb most of the volatility in
the cash flows on the underlying mortgage loans. As a result of the
uncertainty of the cash flows of these tranches, market prices and yields may
be more volatile than for other CMO tranches. The Fund will not invest in
inverse floating rate CMOs and interest-only and principal-only stripped
mortgage-backed securities.
CMOs that are issued by private sector entities and are backed by assets
lacking a guarantee of an entity having the credit status of a governmental
agency or instrumentality are generally structured with one or more of the
types of credit enhancement described below under "Risk Considerations and
Investment Practices--Mortgage-Backed Securities."
During temporary defensive periods when market conditions warrant
reduction of some or all of the Fund's securities holdings (any reductions
will be conducted pro rata across each Asset Class), the Fund may invest in
short-term U.S. Treasury securities or other money market instruments. Under
such circumstances the money market instruments in which the Fund may invest,
in addition to short-term U.S. Treasury securities (bills, notes, bonds and
zero coupons securities), are United States bank obligations, such as
certificates of deposit; Eurodollar certificates of deposit; obligations of
American savings institutions; and commercial paper of United States issuers
rated within the two highest grades by Moody's or S&P or, if not rated,
issued by a company having an outstanding debt issue rated at least AA by S&P
or Aa by Moody's.
HIGH YIELD ("JUNK") CORPORATE FIXED-INCOME SECURITIES
The Fund will invest in high yield, high risk fixed-income securities
rated either Ba or B by Moody's or BB or B by S&P or, if not rated,
determined by the Adviser to be of comparable quality. The high yield, high
risk fixed-income securities in this grouping may include both convertible
and nonconvertible debt securities, preferred stock and U.S. Dollar
denominated foreign corporate fixed-income securities. All foreign high
yield, high risk fixed-income securities must be actually rated by either
Moody's or S&P and may not exceed 10% of the Fund's total assets.
Unrated domestic securities will be considered for investment by the Fund
when the Adviser believes that the financial condition of the issuers of such
securities, or the protection afforded by the terms of the securities
themselves, makes them appropriate investments for the Fund. If a high yield
fixed-income security meets the minimum rating requirements set forth above
and is subsequently downgraded below such minimum requirements, the Fund will
sell such securities as soon as is practicable without undue market or tax
consequences to the Fund. A descrip tion of corporate bond ratings is
contained in the Appendix.
The ratings of fixed-income securities by Moody's and S&P 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 objectives will be more dependent upon the Adviser's
own credit analysis than would be the case with a mutual fund investing
primarily in higher quality bonds. The Adviser 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 purchasable by
the Fund for its portfolio.
Investment by the Fund in U.S. Dollar denominated fixed-income securities
issued by foreign issuers may involve certain risks not associated with U.S.
issued securities. Those risks include the political or economic instability
of the issuer or of the country of issue, the difficulty of predicting
international trade patterns and the possibility of imposition of exchange
controls. In addition, there may be less publicly
8
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available information about a foreign company than about a domestic company.
A more detailed description of the general risks of foreign issuers is
contained in the Statement of Additional Information.
The Fund will not invest 35% or more of its total assets in high
yield/high risk corporate fixed-income securities. Under normal
circumstances, the investment grade and high yield corporate fixed-income
securities in which the Fund may invest will be allocated among at least four
different industries. No single corporate issuer will represent more than 5%
of the Fund's total assets.
RISK CONSIDERATIONS AND INVESTMENT
PRACTICES
Given the investment risks described below, an investment in shares of the
Fund should not be considered a complete investment program and is not
appropriate for all investors. Investors should carefully consider their
ability to assume these risks before making an investment in the Fund.
The net asset value of the Fund's shares will fluctuate with changes in
the market value of the Fund's portfolio securities. The market value of the
Fund's portfolio securities will increase or decrease due to a variety of
economic, market or political factors which cannot be predicted. All
fixed-income securities are subject to two types of risks: 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. Generally, higher
yielding fixed-income securities are subject to credit risk to a greater
extent than lower yielding fixed-income securities. 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.
Mortgage-Backed Securities. Mortgage-backed securities have certain
different characteristics than traditional debt securities. Among the major
differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans generally may be prepaid at any time.
As a result, if the Fund purchases such a security at a premium, a prepayment
rate that is faster than expected may reduce both the market value and the
yield to maturity, while a prepayment rate that is slower than expected may
have the opposite effect of increasing market value and yield to maturity.
Alternatively, if the Fund purchases these securities at a discount, faster
than expected prepayments will increase, while slower than expected
prepayments may reduce, market value and yield to maturity.
Mortgage-backed securities, like all fixed-income securities, generally
decrease in value as a result of increases in interest rates. In addition,
although generally the value of fixed-income securities increases during
periods of falling interest rates and, as stated above, decreases during
periods of rising interest rates, as a result of prepayments and other
factors, this is not always the case with respect to mortgage-backed
securities.
Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on
fixed-rate mortgage loans will increase during a period of falling interest
rates and decrease during a period of rising interest rates. Accordingly,
amounts available for reinvestment by the Fund are likely to be greater
during a period of declining interest rates and, as a result, likely to be
reinvested at lower interest rates than during a period of rising interest
rates. Mortgage-backed securities generally decrease in value as a result of
increases in interest rates and may benefit less than other fixed-income
securities from declining interest rates because of the risk of prepayment.
The average life of mortgage-backed securities is determined using
mathematical models that incorporate prepayment assumptions and other factors
that involve estimates of future economic and market conditions. These
estimates may vary from actual future results, particularly during periods of
extreme market volatility. In addition, under certain market conditions, such
as those that developed in 1994, the
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average weighted life of mortgage-backed securities may not accurately
reflect the price volatility of such securities. For example, in periods of
supply and demand imbalances in the market for such securities and/or in
periods of sharp interest rate movements, the prices of mortgage derivative
securities may fluctuate to a greater extent than would be expected from
interest rate movements alone.
The Fund's investments in mortgage-backed securities also subject the Fund
to extension risk. Extension risk is the possibility that rising interest
rates may cause prepayments to occur at a slower than expected rate. This
particular risk may effectively change a security which was considered short
or intermediate-term at the time of purchase into a long-term security.
Long-term securities generally fluctuate more widely in response to changes
in interest rates than short or intermediate-term securities.
CMOs issued by private entities are not U.S. Government securities and are
not guaranteed by any government agency, although the Mortgage Assets
underlying a CMO may be subject to a guarantee. Therefore, if the Mortgage
Assets securing the CMO, as well as any third party credit support or
guarantees, are insufficient to make payment, the holder could sustain a
loss. Also, a number of different factors, including the extent of prepayment
of principal of the Mortgage Assets, affect the availability of cash for
principal payments by the CMO issuer on any payment date and, accordingly,
affect the timing of principal payments on each CMO class.
To lessen the effect of failure by obligors on the underlying Mortgage
Assets to make payments, privately issued CMOs may contain elements of credit
support. Such credit support falls into two categories: (i) liquidity
protection and (ii) protection against losses resulting from ultimate default
by an obligor on the underlying Mortgage Assets. Liquidity protection refers
to the provision of advances, generally by the entity administering the pool
of assets, to ensure that the pass-through of payments due on the underlying
Mortgage Assets occurs in a timely fashion. Protection against losses
resulting from ultimate default enhances the likelihood of ultimate payment
of the obligations on at least a portion of the Mortgage Assets in the pool.
Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties,
through various means of structuring the transaction or through a combination
of such approaches. The Fund will not pay any additional fees for such credit
support, although the existence of credit support may increase the price the
Fund pays for a security.
The ratings of mortgage-backed securities for which third-party credit
enhancement provides liquidity protection or protection against losses from
default are generally dependent upon the continued creditworthiness of the
provider of the credit enhancement. The ratings of such securities could be
subject to reduction in the event of deterioration in the creditworthiness of
the credit enhancement provider even in cases where the delinquency and loss
experience on the underlying Mortgage Assets is better than expected.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one
or more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class), creation of
"reserve funds" (where cash or investments, sometimes funded from a portion
of the payments on the underlying assets, are held in reserve against future
losses) and "over-collateralization" (where the scheduled payments on, or the
principal amount of, the underlying assets exceed those required to make
payment of the securities and pay any servicing fees). The degree of credit
support provided for each issue is generally based on historical information
with respect to the level of credit risk associated with the underlying
Mortgage Assets. Delinquency or loss in excess of that which is anticipated
could adversely affect the return on an investment in such a security.
High Yield/High Risk Securities. Because of the special nature of the
Fund's investment in high yield securities, commonly known as "junk bonds,"
the Adviser must take account of certain special considerations in assessing
the risks associated with such in-
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vestments. It should be recognized that an economic downturn or increase in
interest rates is likely to have a negative effect on the high yield bond
market and on the value of the high yield securities held by the Fund, as
well as on the ability of the securities' issuers to repay principal and
interest on their borrowings.
The prices of high yield securities have been found to be less sensitive
to changes in prevailing interest rates than higher-rated investments, but
are likely to be more sensitive to adverse economic changes or individual
corporate developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial
stress which would adversely affect their ability to service their principal
and interest payment obligations, to meet their projected business goals or
to obtain additional financing. If the issuer of a fixed-income security
owned by the Fund defaults, the Fund may incur additional expenses to seek
recovery. In addition, periods of economic uncertainty and change can be
expected to result in an increased volatility of market prices of high yield
securities and a concomitant volatility in the net asset value of a share of
the Fund. Moreover, the market prices of certain of the Fund's portfolio
securities which are structured as zero coupon and payment-in-kind securities
are affected to a greater extent by interest rate changes and thereby tend to
be more volatile than securities which pay interest periodically and in cash
(see "Dividends, Distributions and Taxes" for a discussion of the tax
ramifications of investments in such securities).
The secondary market for high yield securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse
effect on the market prices of certain securities. The limited liquidity of
the market may also adversely affect the ability of the Fund's Trustees to
arrive at a fair value for certain high yield securities at certain times and
could make it difficult for the Fund to sell certain securities.
New laws and proposed new laws may have a potentially negative impact on
the market for high yield bonds. For example, present legislation requires
federally-insured savings and loan associations to divest their investments
in high yield bonds. This legislation and other proposed legislation may have
an adverse effect upon the value of high yield securities and a concomitant
negative impact upon the net asset value of a share of the Fund.
Foreign Securities. Investment by the Fund of a portion of the high yield,
high risk Asset Class in foreign securities may 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 generally
not subject to uniform accounting, auditing and financial standards and
requirements comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Futhermore, 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 in foreign markets than in the U.S. In
addition, differences in clearance and settlement procedures in foreign
markets may occasion delays in settlements of Fund trades effected in such
markets. Inability to dispose of portfolio securities due to settlement
delays could result in losses to the Fund due to subsequent declines in value
of such securities and the inability of the Fund to make intended security
purchases due to settlement problems could result in a failure of the Fund to
make potentially advantageous investments. See also "High Yield/High Risk
Securities" above.
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
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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, the Fund follows procedures designed to minimize those risks. See
the Statement of Additional Information for a further discussion of such
investments.
Reverse Repurchase Agreements and Dollar Rolls. The Fund may also use
reverse repurchase agreements and dollar rolls as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of
portfolio assets concurrently with an agreement by the Fund to repurchase the
same assets at a later date at a fixed price. During the reverse repurchase
agreement period, the Fund continues to receive principal and interest
payments on these securities. Generally, the effect of such a transaction is
that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement,
while it will be able to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost
of obtaining the cash otherwise.
The Fund may enter into dollar rolls in which the Fund sells securities
for delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund foregoes principal and interest paid
on the securities. The Fund is compensated by the difference between the
current sales price and the lower forward price for the future purchase
(often referred to as the "drop") as well as by the interest earned on the
cash proceeds of the initial sale.
The Fund will establish a segregated account with its custodian bank in
which it will maintain cash, U.S. Government securities or other liquid
portfolio securities equal in value to its obligations in respect of reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements and
dollar rolls involve the risk that the market value of the securities the
Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement or dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of the proceeds of the agreement may be restricted
pending a determination by the other party, or its trustee or receiver,
whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques
involving leverage, and are considered borrowings by the Fund. Under the
requirements of the Investment Company Act of 1940, as amended (the "Act"),
the Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. The Fund does not expect
to engage in reverse repurchase agreements and dollar rolls with respect to
greater than 25% of the Fund's total assets.
Restricted Securities. The Fund may invest up to 5% of its 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 (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible
for resale pursuant to Rule 144A under the Securities Act, and determined to
be liquid pursuant to the procedures discussed in the following paragraph,
are not subject to the foregoing restriction.) These securities are generally
referred to as private placements or restricted securities. Limitations on
the resale of such securities may have an adverse effect on their
marketability, and may prevent the Fund from disposing of them promptly at
reasonable prices. The Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Adviser, pursuant to
procedures adopted by the Trustees of the Fund, will make a determination as
to the liquidity of each such restricted security purchased by the Fund. If
such Rule 144A security is determined to
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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.
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 a further discussion of such investments.
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" basis may increase the volatility of its net asset value. See
the Statement of Additional Information for a further discussion of such
investments.
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 Adviser to be creditworthy and when the income which can
be earned from such loans justifies the attendant risks. The Fund will not
under any circumstances lend more than 25% of the value of its total assets.
Common Stocks. The Fund may invest in common stocks in an amount up to 10%
of its total assets in the circumstances described below when consistent with
the Fund's investment objectives. The Fund may
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acquire common stocks when attached to or included in a unit with
fixed-income securities, or when acquired upon conversion of fixed-income
securities or upon exercise of warrants attached to fixed-income securities.
For example, the Fund may purchase the common stock of companies involved
in takeovers or recapitalizations where the issuer, or a controlling
stockholder, has offered, or pursuant to a "going private" transaction is
effecting, an exchange of its common stock for newly-issued fixed-income
securities. By purchasing the common stock of the company issuing the
fixed-income securities prior to the consummation of the transaction or
exchange offer, the Fund will be able to obtain the fixed-income securities
directly from the issuer at their face value, eliminating the payment of a
dealer's mark-up otherwise payable when fixed-income securities are acquired
from third parties, thereby increasing the net yield to the shareholders of
the Fund. While the Fund will incur brokerage commissions in connection with
its purchase of common stocks, it is anticipated that the amount of such
commissions will be significantly less than the amount of such mark-up.
Options and Futures Transactions. The Fund is permitted to enter into call
and put options on its portfolio securities, including U.S. Government
securities and mortgage-backed securities which are listed on several U.S.
securities exchanges and are written in over-the-counter transactions ("OTC
options"). Listed options are issued or guaranteed by the exchange on which
they trade or by a clearing corporation such as the Options Clearing
Corporation ("OCC"). OTC options are purchased from or sold (written) to
dealers or financial institutions which have entered into direct agreements
with the Fund.
The Fund is permitted to write covered call options on portfolio
securities, without limit, in order to hedge against the decline in the value
of a security (although such hedge is limited to the value of the premium
received) and to close out long call option positions. The Fund may write
covered put options, under which the Fund incurs an obligation to buy the
security underlying the option from the purchaser of the put at the option's
exercise price at any time during the option period, at the purchaser's
election. The Fund may purchase listed and OTC call and put options in
amounts equalling up to 5% of its total assets. The Fund may purchase call
options only to close out a covered call position or to protect against an
increase in the price of a security it anticipates purchasing. The Fund may
purchase put options on securities which it holds in its portfolio only to
protect itself against a decline in the value of the security. The Fund may
also purchase put options to close out written put positions. There are no
other limits on the Fund's ability to purchase call and put options.
The Fund may purchase and sell financial futures contracts that are
currently traded, or may in the future be traded, on U.S. commodity exchanges
on such underlying fixed-income securities as U.S. Treasury bonds, notes, and
bills, mortgage-backed securities ("interest rate" futures) and on such
indexes of U.S. or foreign fixed-income securities as may exist or come into
being, such as the Moody's Investment Grade Corporate Bond Index ("index"
futures). The Fund will purchase or sell interest rate futures contracts for
the purpose of hedging some or all of the value of its portfolio securities
(or anticipated portfolio securities) against changes in prevailing interest
rates. The Fund will purchase or sell index futures contracts for the purpose
of hedging some or all of its portfolio (or anticipated portfolio) securities
against changes in their prices.
The Fund may also purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position. The Fund will
purchase and write options on futures contracts for identical purposes to
those set forth above for the purchase of a futures contract and the sale of
a futures contract or to close out a long or short position in futures
contracts.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any
such futures, options or products as may be developed, to the extent
consistent with its investment objectives and applicable regulatory
requirements.
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Risks of Options and Futures Transactions. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures
contract, only if a liquid secondary market exists for options or futures
contracts of that series. There is no assurance that such a market will
exist, particularly in the case of OTC options, as such options will
generally only be closed out by entering into a closing purchase transaction
with the purchasing dealer. Also, Exchanges may limit the amount by which the
price of many futures contracts may move on any day. If the price moves equal
the daily limit on successive days, then it may prove impossible to liquidate
a futures position until the daily limit moves have ceased.
Futures contracts and options transactions may be considered speculative
in nature and may involve greater risks than those customarily assumed by
other investment companies which do not invest in such instruments. One such
risk is that the Fund's Adviser could be incorrect in its expectations as to
the direction or extent of various interest rate or price movements or the
time span within which the movements take place. For example, if the Fund
sold futures contracts for the sale of securities in anticipation of an
increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the Fund would lose money on the sale. Another
risk which will arise in employing futures contracts to protect against the
price volatility of portfolio securities is that the prices of securities and
indexes subject to futures contracts (and thereby the futures contract
prices) may correlate imperfectly with the behavior of the cash prices of the
Fund's portfolio securities. See the Statement of Additional Information for
further discussion of such risks.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by the Adviser with a view to
achieving the Fund's investment objective. Philip A. Barach, Jeffrey E.
Gundlach, Frederick H. Horton and Melissa V. Weiler, Managing Directors of
the Adviser, and Bonnie N. Baha and Mark D. Senkpiel, Senior Vice Presidents
of the Adviser, are the Fund's primary portfolio managers and have been so
since the Fund's inception. Ms. Baha and Messrs. Barach and Gundlach have
been portfolio managers with affiliates of the Adviser for over five years.
Mr. Senkpiel joined the Adviser as a portfolio manager in 1996. Prior
thereto, he was an Investment Director of Allstate Insurance Company
(1985-1996). Mr. Horton has been a portfolio manager with affiliates of the
Adviser since October, 1993. From June 1991 through September, 1993, he was
Senior Portfolio Manager for Dewey Square Investors. Ms. Weiler has been a
portfolio manager with affiliates of the Adviser since 1995, and prior
thereto was a Vice President and Portfolio Manager of Crescent Capital
Corporation, an investment adviser, with which she had been affiliated since
1992. Prior thereto, she was a Senior Investment Analyst at First Capital
Holdings Corporation.
In determining which securities to purchase for the Fund or hold in the
Fund's portfolio, the Adviser will rely on information from various sources,
including research, analysis and appraisals of brokers and dealers, including
Dean Witter Reynolds Inc. ("DWR"), a broker-dealer affiliate of the Manager,
and others regarding economic developments and interest rate trends, and the
Adviser's own analysis of factors it deems relevant.
Orders for transactions in portfolio securities and commodities are placed
for the Fund with a number of brokers and dealers, including DWR. In
addition, the Fund may incur brokerage commissions on transactions conducted
through DWR. Under normal circumstances, it is not anticipated that the
Fund's portfolio turnover rate will exceed 150% in any one year. The Fund
will incur expenses commensurate with its portfolio turnover rate, and thus a
higher level (over 100%) of portfolio transactions will increase the Fund's
overall expenses. See "Dividends, Distributions and Taxes" for a discussion
of the tax implications of the Fund's trading policy.
Except as specifically noted, all investment policies and practices
discussed above are not fundamental policies of the Fund and thus may be
changed without shareholder approval.
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INVESTMENT RESTRICTIONS
- ------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. For
purposes of the following limitations: (i) all percentage limitations apply
immediately after a purchase or initial investment, and (ii) any subsequent
change in any applicable percentage resulting from market fluctuations or
other changes in total or net assets does not require elimination of any
security from the portfolio.
The Fund may not:
1. Invest 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), except that
the Fund may invest all or substantially all of its assets in another
registered investment company having the same investment objectives and
policies and substantially the same investment restrictions as the Fund (a
"Qualifying Portfolio").
2. Purchase more than 10% of all outstanding voting securities or more
than 10% of any class of securities of any one issuer, except that the
Fund may invest all or substantially all of its assets in a Qualifying
Portfolio. For purposes of this restriction, all outstanding debt
securities of an issuer are considered as one class and all preferred
stocks of an issuer are considered as one class.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry except that the Fund will invest at least 25%
of its total assets in mortgage-backed securities under normal market
conditions. This restriction does not apply to obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities.
UNDERWRITING
- ------------------------------------------------------------------------
Dean Witter Distributors Inc. (the "Underwriter") has agreed to purchase
up to 10,000,000 shares from the Fund, which number may be increased or
decreased in accordance with the Underwriting Agreement. The initial offering
will run approximately from October 25, 1996 through November 21, 1996. The
Underwriting Agreement provides that the obligation of the Underwriter is
subject to certain conditions precedent and that the Underwriter will be
obligated to purchase the shares on November 26, 1996, or such other date as
may be agreed upon by the Underwriter and the Fund (the "Closing Date").
Shares will not be issued and dividends will not be declared by the Fund
until after the Closing Date. For this reason, payment is not required to be
made prior to the Closing Date. If any orders received during the initial
offering period are accompanied by payment, such payment will be returned
unless an accompanying request for investment in a Dean Witter money market
fund is received at the time the payment is made. All such funds received and
invested in a Dean Witter money market fund will be automatically invested in
the Fund on the Closing Date without any further action by the investor. Any
investor may cancel his or her purchase of Fund shares without penalty at any
time prior to the Closing Date.
The Underwriter will purchase shares from the Fund at $10.00 per share
with all proceeds going to the Fund.
The Underwriter shall, regardless of its expected underwriting commitment,
be entitled and obligated to purchase only the number of shares for which
purchase orders have been received by the Underwriter prior to 2:00 p.m., New
York time, on the third
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business day preceding the Closing Date, or such other date as may be agreed
to between the parties.
The minimum number of Fund shares which may be purchased by any
shareholder pursuant to this offering is 100 shares. Certificates for shares
purchased will not be issued unless requested by the shareholder in writing.
PURCHASE OF FUND SHARES--CONTINUOUS OFFERING
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Dean Witter Distributors Inc. (the "Distributor"), an affiliate of the
Manager, will act as the Distributor of the Fund's shares during the
Continuous Offering. Pursuant to a Distribution Agreement between the Fund
and Dean Witter Distributors Inc. (the "Distributor"), an affiliate of the
Manager, shares of the Fund are distributed by the Distributor and offered by
DWR and other dealers (which may include TCW Brokerage Services, an affiliate
of the Adviser) who have entered into selected broker-dealer agreements with
the Distributor ("Selected Broker-Dealers"). The principal executive office
of the Distributor is located at Two World Trade Center, New York, New York
10048.
The minimum initial purchase is $1,000 and subsequent purchases of $100 or
more may be made by sending a check, payable to TCW/DW Strategic Income
Trust, directly to Dean Witter Trust Company (the "Transfer Agent") at P.O.
Box 1040, Jersey City, NJ 07303, or by contacting an account executive of DWR
or other Selected Broker-Dealer. The minimum initial purchase in the case of
investments through EasyInvest, 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. In the case of investments pursuant to Systematic Payroll Deduction
Plans (including Individual Retirement Plans), the Fund, in its discretion,
may accept investments without regard to any minimum amounts which would
otherwise be required if the Fund has reason to believe that additional
investments will increase the investment in all accounts under such Plans to
at least $1,000. Certificates for shares purchased will not be issued unless
a request is made by the shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal 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.
The offering price will be the net asset value per share next determined
following receipt of an order by the Transfer Agent (see "Determination of
Net Asset Value"). While no sales charge is imposed at the time shares are
purchased, a contingent deferred sales charge may be imposed at the time of
redemption (see "Repurchases and Redemptions"). Sales personnel of a Selected
Broker-Dealer are compensated for selling shares of the Fund at the time of
their sale by the Distributor and/or Selected Broker-Dealer. In addition,
some sales personnel of the Selected Broker-Dealer will receive various types
of non-cash compensation or special sales incentives, including trips,
educational and/or business seminars and merchandise. The Fund and the
Distributor reserve the right to reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan"), under which the Fund pays the Distributor a fee, which
is accrued daily and payable monthly, at an annual rate of 0.75% of the
Fund's average daily net
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<PAGE>
assets. This fee is treated by the Fund as an expense in the year it is
accrued. A portion of the fee payable pursuant to the Plan, equal to 0.20% of
the Fund's average daily net assets, is characterized as a service fee within
the meaning of NASD guidelines. The service fee is a payment made for
personal service and/or the maintenance of shareholder accounts.
Amounts paid under the Plan are paid to the Distributor to compensate it
for the services provided and the expenses borne by the Distributor and
others in the distribution of the Fund's shares, including the payment of
commissions for sales of the Fund's shares and compensation to and expenses
of DWR account executives and others who engage in or support distribution of
shares or who service shareholder accounts, including overhead and telephone
expenses; printing and distribution of prospectuses and reports used in
connection with the offering of the Fund's shares to other than current
shareholders; and preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan 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 distribution
expenses.
At any given time, the expenses in distributing shares of the Fund may be
in excess of the total of (i) the payments made by the Fund pursuant to the
Plan, and (ii) the proceeds of contingent deferred sales charges paid by
investors upon the redemption of shares (see "Repurchases and
Redemptions--Contingent Deferred Sales Charge"). For example, if $1 million
in expenses in distributing shares of the Fund had been incurred and $750,000
had been received as described in (i) and (ii) above, the excess expense
would amount to $250,000.
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, if any, does not constitute
a liability of the Fund. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under
the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is
terminated, the Trustees will consider at that time the manner in which to
treat such expenses. Any cumulative expenses incurred but not yet recovered
through distribution fees or contingent deferred sales charges, may or may
not be recovered through future distribution fees or contingent deferred
sales charges.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes
prior to 4:00 p.m., at such earlier time), on each day that the New York
Stock Exchange is open by taking the value of all assets of the Fund,
subtracting all its liabilities, dividing by the number of shares outstanding
and adjusting to the nearest cent. The net asset value per share will not be
determined on Good Friday and on such other federal and non-federal holidays
as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic stock exchange or quoted by NASDAQ is valued at its latest sale
price on that exchange or quotation service (if there were no sales that day,
the security is valued at the latest bid price); and (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest bid price. When market quotations are not readily
available, including circumstances under which it is determined by the
Adviser that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in
good faith under procedures established by and under the general supervision
of the Board of Trustees. Dividends receivable are accrued as of the
ex-dividend date or as of the time that the relevant ex-dividend date and
amounts become known.
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<PAGE>
Short-term debt securities with remaining maturities of 60 days or less at
the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. Other short-term debt securities will be valued on a mark-to-market
basis until such time as they reach a remaining maturity of 60 days,
whereupon they will be valued at amortized cost using their value on the 61st
day unless the Trustees determine such does not reflect the securities'
market value, in which case these securities will be valued at their fair
value as determined by the Trustees. All other securities and other assets
are valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon
as the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining
what the pricing service believes is the fair valuation of such portfolio
securities.
SHAREHOLDER SERVICES
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Automatic Investment of Dividends and Distributions. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the Fund (or, if specified by the shareholder, any other TCW/DW
Fund), unless the shareholder requests that they be paid in cash. Shares so
acquired are not subject to the imposition of a contingent deferred sales
charge upon their redemption (see "Repurchases and Redemptions").
Investment of Dividends or Distributions Received in Cash. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution at the net asset value
per share next determined after receipt by the Transfer Agent, by returning
the check or the proceeds to the Transfer Agent within 30 days after the
payment date. Shares so acquired are not subject to the imposition of a
contingent deferred sales charge upon their redemption (see "Repurchases and
Redemptions").
EasyInvest (Service Mark) . Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account, on a
semi-monthly, monthly or quarterly basis, to the Fund's Transfer Agent for
investment in shares of the Fund. Shares purchased through EasyInvest will be
added to the shareholder's existing account at the net asset value calculated
the same business day the transfer of funds is effected. For further
information or to subscribe to EasyInvest, shareholders should contact their
DWR or other Selected Broker-Dealer account executive or the Transfer Agent.
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset
value. The Withdrawal Plan provides for monthly or quarterly (March, June,
September and December) checks in any dollar amount, not less than $25, or in
any whole percentage of the account balance, on an annualized basis. Any
applicable contingent deferred sales charge will be imposed on shares
redeemed under the Withdrawal Plan (See "Repurchases and
Redemptions--Contingent Deferred Sales Charge"). Therefore, any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed
from his or her account so that the proceeds (net of any applicable
contingent deferred sales charge) to the shareholder will be the designated
monthly or quarterly amount.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for information about any of the
above services.
Tax Sheltered Retirement Plans. Retirement plans are available for use by
corporations, the self-employed,
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<PAGE>
Individual Retirement Accounts and Custodial Accounts under Section 403(b)(7)
of the Internal Revenue Code. Adoption of such plans should be on advice of
legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the
Transfer Agent.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege"
allowing the exchange of shares of the Fund for shares of any other TCW/DW
Fund sold with a contingent deferred sales charge ("CDSC Funds"), for shares
of TCW/DW North American Government Income Trust, TCW/DW Income and Growth
Fund, TCW/DW Balanced Fund and for shares of five money market funds for
which InterCapital serves as investment manager: Dean Witter Liquid Asset
Fund Inc., Dean Witter U.S. Government Money Market Trust, Dean Witter
Tax-Free Daily Income Trust, Dean Witter California Tax-Free Daily Income
Trust and Dean Witter New York Municipal Money Market Trust (the foregoing
eight funds are hereinafter collectively referred to as the "Exchange
Funds"). Exchanges may be made after the shares of the Fund acquired by
purchase (not by exchange or dividend reinvestment) have been held for thirty
days. There is no waiting period for exchanges of shares acquired by exchange
or dividend reinvestment.
Shareholders utilizing the Fund's Exchange Privilege may subsequently
reexchange such shares back to the Fund. However, no exchange privilege is
available between the Fund and any other fund managed by the Manager or
InterCapital, other than other TCW/DW Funds and the five money market funds
listed above.
An exchange to another CDSC Fund or to 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 or any other TCW/DW 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 TCW/DW Fund can be
effected on the same basis. No contingent deferred sales charge ("CDSC") is
imposed at the time of any exchange, although any applicable CDSC will be
imposed upon ultimate redemption. During the period of time the shareholder
remains in the Exchange Fund (calculated from the last day of the month in
which the Exchange Fund shares were acquired), the holding period (for the
purpose of determining the rate of the CDSC) is frozen. If those shares are
subsequently reexchanged for shares of a CDSC Fund, the holding period
previously frozen when the first exchange was made resumes on the last day of
the month in which shares of a CDSC Fund are reacquired. Thus, the CDSC is
based upon the time (calculated as described above) the shareholder was
invested in a CDSC Fund (see "Repurchases and Redemptions--Contingent
Deferred Sales Charge"). However, in the case of shares of the Fund exchanged
into an Exchange Fund, upon a redemption of shares which results in a CDSC
being imposed, a credit (not to exceed the amount of the CDSC) will be given
in an amount equal to the Exchange Fund 12b-1 distribution fees which are
attributable to those shares. (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.)
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Manager to be abusive and
contrary to the best interests of the Fund's other shareholders and, at the
Manager's discretion, may be limited by the Fund's refusal to accept
additional purchases and/or exchanges from the investor. Although the Fund
does not have any specific definition of what constitutes a pattern of
frequent exchanges, and will consider all relevant factors in determining
whether a particular situation is abusive and contrary to the best interests
of the Fund and its other shareholders, investors should be aware that the
Fund, each of the other TCW/DW Funds and each of the money market funds may
in its 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,
20
<PAGE>
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 other TCW/DW
Funds or money market funds for which shares of the Fund have been exchanged,
upon such notice as may be required by applicable regulatory agencies.
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions
on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. An exchange will be treated
for federal income tax purposes the same as a repurchase or redemption of
shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in
situations where there is an exchange of shares within ninety days after the
shares are purchased. The Exchange Privilege is only available in states
where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the money
market funds for which the Exchange Privilege is available pursuant to this
Exchange Privilege by contacting their DWR or other Selected Broker-Dealer
account executive (no Exchange Privilege Authorization Form is required).
Other shareholders (and those shareholders who are clients of DWR or another
Selected Broker-Dealer but who wish to make exchanges directly by writing or
telephoning the Transfer Agent) must complete and forward to the Transfer
Agent an Exchange Privilege Authorization Form, copies of which may be
obtained from the Transfer Agent, to initiate an exchange. If the
Authorization Form is used, exchanges may be made in writing or by contacting
the Transfer Agent at (800) 869-NEWS (toll-free). The Fund will employ
reasonable procedures to confirm that exchange instructions communicated over
the telephone are genuine. Such procedures include requiring various forms of
personal identification such as name, mailing address, social security or
other tax identification number and DWR or other Selected Broker-Dealer
account number (if any). Telephone instructions will also be recorded. If
such procedures are not employed, the Fund may be liable for any losses due
to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her DWR or other
Selected Broker-Dealer account executive, if appropriate, or make a written
exchange request. Shareholders are advised that during periods of drastic
economic or market changes, it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the case
in the past with other funds managed by the Manager.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REPURCHASES AND REDEMPTIONS
- ----------------------------------------------------------------------
Repurchase. DWR and other Selected 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
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<PAGE>
computed (see "Purchase of Fund Shares") after such repurchase order is
received by DWR or other Selected Broker-Dealer, reduced by any applicable
CDSC (see below).
The CDSC, if any, will be the only fee imposed by the Fund, the
Distributor, DWR or other Selected Broker-Dealer. The offers by DWR and other
Selected Broker-Dealers to repurchase shares may be suspended without notice
by them at any time. In that event, shareholders may redeem their shares
through the Fund's Transfer Agent as set forth below under "Redemption."
Redemption. Shares of the Fund can be redeemed for cash at any time at the
net asset value per share next determined; however, such redemption proceeds
will be reduced by the amount of any applicable contingent deferred sales
charge (see below). If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are
held by the shareholder, 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.
Contingent Deferred Sales Charge. Shares of the Fund which are held for
six years or more after purchase (calculated from the last day of the month
in which the shares were purchased) will not be subject to any charge upon
redemption. Shares redeemed sooner than six years after purchase may,
however, be subject to a charge upon redemption. This charge is called a
"contingent deferred sales charge" ("CDSC"), which will be a percentage of
the dollar amount of shares redeemed and will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The size of this percentage will depend upon how long the shares
have been held, as set forth in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE AS A
PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE REDEEMED
- --------------------------- -----------------------
<S> <C>
First ...................... 5.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 2.0%
Fifth ...................... 2.0%
Sixth ...................... 1.0%
Seventh and thereafter .... None
</TABLE>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the six years preceding the redemption;
(ii) the current net asset value of shares purchased more than six years
prior to the redemption; and (iii) the current net asset value of shares
purchased through reinvestment of dividends or distributions. 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; and
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<PAGE>
(3) all redemptions of shares held for the benefit of a participant in a
corporate or self-employed retirement plan qualified under Section 401(k) of
the Internal Revenue Code which offers investment companies managed by the
Manager or its parent, Dean Witter InterCapital Inc., as self-directed
investment alternatives and for which Dean Witter Trust Company, an affiliate
of the Manager, serves as recordkeeper or Trustee ("Eligible 401(k) Plan"),
provided that either: (a) the plan continues to be an Eligible 401(k) Plan
after the redemption; or (b) the redemption is in connection with the
complete termination of the plan involving the distribution of all plan
assets to participants.
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to
engage in gainful employment. With reference to (2) above, the term
"distribution" does not encompass a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or trustee. All
waivers will be granted only following receipt by the Distributor of
confirmation of the shareholder's entitlement.
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
account executive regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
repurchased or redeemed and has not previously exercised this reinstatement
privilege may, within thirty days after the date of the repurchase or
redemption, reinstate any portion or all of the proceeds of such repurchase
or redemption in shares of the Fund at net asset value next determined after
a reinstatement request, together with the proceeds, is received by the
Transfer Agent and receive a pro-rata credit for any CDSC paid in connection
with such repurchase or redemption.
Involuntary Redemption. The Fund reserves the right, on sixty days'
notice, to redeem, at their net asset value, the shares of any shareholder
(other than shares held in an Individual Retirement Account or Custodial
Account under Section 403(b)(7) of the Internal Revenue Code) whose shares
due to redemptions by the shareholder have a value of less than $100 or such
lesser amount as may be fixed by the Trustees or, in the case of an account
opened through EasyInvest, if after twelve months the shareholder has
invested less than $1,000 in the account. However, before the Fund redeems
such shares and sends the proceeds to the shareholder, it will notify the
shareholder that the value of the shares is less than the applicable amount
and allow him or her sixty days to make an additional investment in an amount
which will increase the value of his or her 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 intends to declare and pay monthly
income dividends and to distribute net short-term and net long-term capital
gains, if any, at least once each year. The Fund may, however, determine to
retain all or part of any net long-term capital gains in any year for
reinvestment.
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<PAGE>
All dividends and any capital gains distributions will be paid in
additional Fund shares and automatically credited to the shareholder's
account without issuance of a share certificate unless the shareholder
requests in writing that all dividends and/or distributions be paid in cash.
(See "Shareholder Services--Automatic Investment of Dividends and
Distributions.")
Taxes. Because the Fund intends to distribute all of its net investment
income and capital gains to shareholders and otherwise qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code, it is not
expected that the Fund will be required to pay any federal income tax.
With respect to the Fund's investments in zero coupon and payment-in-kind
bonds, the Fund accrues income prior to any actual cash payments by their
issuers. In order to continue to comply with Subchapter M of the Internal
Revenue Code and remain able to forego payment of federal income tax on its
income and capital gains, the Fund must distribute all of its net investment
income, including income accrued from zero coupon and payment-in-kind bonds.
As such, the Fund may be required to dispose of some of its portfolio
securities under disadvantageous circumstances to generate the cash required
for distribution.
Shareholders who are required to pay taxes on their income will normally
have to pay federal income taxes, and any state income taxes, on the
dividends and distributions they receive from the Fund. Such dividends and
distributions, to the extent that they are derived from net investment income
or net short-term capital gains, are taxable to the shareholder as ordinary
income regardless of whether the shareholder receives such payments in
additional shares or in cash. Any dividends declared with a record date in
the last quarter of any calendar year which are paid in the following year
prior to February 1 will be deemed received by the shareholder in the prior
calendar year. Since the Fund's income is expected to be derived primarily
from interest rather than dividends, only a small portion, if any, of such
dividends and distributions is expected to be eligible for the Federal
dividends received deduction available to corporations.
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. Capital gains may be generated
by transactions in options and futures contracts engaged in by the Fund.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. If it qualifies for
and has made the appropriate election with the Internal Revenue Service, the
Fund will report annually to its shareholders the amount per share of such
taxes, to enable shareholders to claim United States foreign tax credits or
deductions with respect to such taxes. In the absence of such an election,
the Fund would deduct foreign tax in computing the amount of its
distributable income.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes. To avoid being subject to a 31% federal backup withholding tax on
taxable dividends, capital gains distributions and the proceeds of
redemptions and repurchases, shareholders' taxpayer identification numbers
must be furnished and certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. Both the yield and the total return
of the Fund are based on historical earnings and are not intended to indicate
future performance. The yield of the Fund is computed by dividing the Fund's
net investment income over a 30-day period by an average value (using the
average number of shares entitled to
24
<PAGE>
receive dividends and the net asset value per share at the end of the
period), all in accordance with applicable regulatory requirements. Such
amount is compounded for six months and then annualized for a twelve-month
period to derive the Fund's yield.
The "average annual total return" of the Fund refers to a figure
reflecting the average annualized percentage increase (or decrease) in the
value of an initial investment in the Fund of $1,000 over the life of the
Fund. Average annual total return reflects all income earned by the Fund, any
appreciation or depreciation of the Fund's assets and all expenses incurred
by the Fund, for the stated periods. It alsoassumes reinvestment of all
dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, and year-by-year or
other types of total return figures. Such calculations may or may not reflect
the deduction of the contingent deferred sales charge which, if reflected,
would reduce the performance quoted. The Fund may also advertise the growth
of hypothetical investments of $10,000, $50,000 and $100,000 in shares of the
Fund. The Fund from time to time may also advertise its performance relative
to certain performance rankings and indexes compiled by independent
organizations (such as mutual fund performance rankings of Lipper Analytical
Services, Inc.).
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and, in
ordinary circumstances, the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by
the shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for obligations
of the Fund. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the Fund, requires that
Fund obligations include such disclaimer, and provides for indemnification
and reimbursement of expenses out of the Fund's property for any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitation on shareholder personal liability,
and the nature of the Fund's assets and operations, the possibility of the
Fund being unable to meet its obligations is remote and thus, in the opinion
of Massachusetts counsel to the Fund, the risk to Fund shareholders of
personal liability is remote.
Code of Ethics. The Adviser is subject to a Code of Ethics with respect to
investment transactions in which the Adviser's officers, directors and
certain other persons have a beneficial interest to avoid any actual or
potential conflict or abuse of their fiduciary position. The Code of Ethics,
as it pertains to the TCW/DW Funds, contains several restrictions and
procedures designed to eliminate conflicts of interest including: (a)
pre-clearance of personal investment transactions to ensure that personal
transactions by employees are not being conducted at the same time as the
Adviser's clients; (b) quarterly reporting of personal securities
transactions; (c) a prohibition against personally acquiring securities in an
initial public offering, entering into uncovered short sales and writing
uncovered options; (d) a seven day "blackout period" prior or subsequent to a
TCW/DW Fund transaction during which portfolio managers are prohibited from
making certain transactions in securities which are being purchased or sold
by a TCW/DW
25
<PAGE>
Fund; (e) a prohibition, with respect to certain investment personnel, from
profiting in the purchase and sale, or sale and purchase, of the same (or
equivalent) securities within 60 calendar days; and (f) a prohibition against
acquiring any security which is subject to firm wide or, if applicable, a
department restriction of the Adviser. The Code of Ethics provides that
exemptive relief may be given from certain of its requirements, upon
application. The Adviser's Code of Ethics complies with regulatory
requirements and, insofar as it relates to persons associated with registered
investment companies, the 1994 Report of the Advisory Group on Personal
Investing of the Investment Company Institute.
Master/Feeder Conversion. The Fund reserves the right to seek to achieve
its investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same
investment objective and policies and substantially the same investment
restrictions as those applicable to the Fund. Such investment would be made
only if the Trustees of the Fund believe that to do so would be in the best
interests of the Fund and its shareholders.
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.
26
<PAGE>
APPENDIX
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RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
- -----------------------------------------------------------------------------
BOND RATINGS
<TABLE>
<CAPTION>
<S> <C>
Aaa Bonds 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 Bonds 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 bonds. They are rated lower than the best bonds 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 Bonds 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 Bonds 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 bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds 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 Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa Bonds 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 Bonds 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 Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
</TABLE>
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal bond
security rating system. The modifier 1 indicates that the security ranks
27
<PAGE>
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 if 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")
BOND RATINGS
A Standard & Poor's bond 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>
<CAPTION>
<S> <C>
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the highest-rated
issues only in small degree.
A Debt rated "A" has 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 debt in higher-rated categories.
BBB Debt rated "BBB" is 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 debt in this category than for debt in higher-rated
categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
28
<PAGE>
BB Debt rated "BB" has less near-term vulnerability to default than other speculative grade debt. However, it faces major
ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate
capacity or willingness to pay interest and repay principal.
B Debt rated "B" has a greater vulnerability to default but presently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or economic conditions would likely impair capacity or willingness
to pay interest and repay principal.
CCC Debt rated "CCC" has a current identifiable vulnerability to default, and is dependent upon favorable business,
financial and economic conditions to meet timely payments of interest and repayments of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and
repay principal.
CC The rating "CC" is typically applied to debt subordinated to senior debt which is assigned an actual or implied "CCC"
rating.
C The rating "C" is typically applied to debt subordinated to senior debt which is assigned an actual or implied "CCC"
rating.
Cl The rating "Cl" is reserved for income bonds 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.
Debt 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 debt 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 and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to
purchase or sell a security. The ratings are based upon current information
furnished by the issuer or obtained by S&P from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into
group categories, ranging from "A" for the highest quality obligations to "D"
for the lowest. Ratings are applicable to both taxable and tax-exempt
commercial paper. The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the
designation 1, 2, and 3 to indicate the relative degree of safety.
29
<PAGE>
<TABLE>
<CAPTION>
<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>
30
<PAGE>
TCW/DW STRATEGIC INCOME TRUST TCW / DW
Two World Trade Center STRATEGIC
New York, New York 10048 INCOME TRUST
PROSPECTUS
TRUSTEES OCTOBER 1, 1996
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Sheldon Curtis
Vice President, Secretary and
General Counsel
Bonnie N. Baha
Vice President
Philip A. Barach
Vice President
Jeffrey E. Gundlach
Vice President
Frederick H. Horton
Vice President
Mark D. Senkpiel
Vice President
Melissa V. Weiler
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
