<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1997
REGISTRATION NOS.: 33-55218
811-7372
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 5 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 6 /X/
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TCW/DW INCOME AND GROWTH FUND
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
this Post-Effective Amendment becomes effective.
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IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
___X_ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)
_____ on (date) pursuant to paragraph (a) of rule 485.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO SECTION (a)(1) OF RULE 24f-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE REGISTRANT FILED THE RULE 24f-2 NOTICE, FOR
ITS FISCAL YEAR ENDED JANUARY 31, 1997, WITH THE SECURITIES AND EXCHANGE
COMMISSION ON MARCH 24, 1997.
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<PAGE>
TCW/DW INCOME AND GROWTH FUND
CROSS REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
- ----------------------------------------------- -----------------------------------------------------------------------
<S> <C>
PART A PROSPECTUS
1. .......................................... Cover Page
2. .......................................... Summary of Fund Expenses; Prospectus Summary
3. .......................................... Financial Highlights; Performance Information
4. .......................................... Investment Objective and Policies; The Fund and Its Management; Cover
Page; Investment Restrictions; Prospectus Summary
5. .......................................... The Fund and Its Management; Back Cover; Investment Objective and
Policies
6. .......................................... Dividends, Distributions and Taxes; Additional Information
7. .......................................... Purchase of Fund Shares; Shareholder Services; Repurchases and
Redemptions
8. .......................................... Repurchases and Redemptions; Shareholder Services
9. .......................................... Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
10. .......................................... Cover Page
11. .......................................... Table of Contents
12. .......................................... The Fund and Its Management
13. .......................................... Investment Practices and Policies; Investment Restrictions; Portfolio
Transactions and Brokerage
14. .......................................... The Fund and Its Management; Trustees and Officers
15. .......................................... Trustees and Officers
16. .......................................... The Fund and Its Management; Custodian and Transfer Agent; Independent
Accountants
17. .......................................... Portfolio Transactions and Brokerage
18. .......................................... Description of Shares
19. .......................................... Repurchases and Redemptions; Financial Statements; Shareholder Services
20. .......................................... Dividends, Distributions and Taxes;
21. .......................................... The Distributor
22. .......................................... Performance Information
23. .......................................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS
APRIL 2, 1997
TCW/DW Income and Growth Fund (the "Fund") is an open-end, non-diversified
management investment company, whose investment objective is to generate high
total return by providing a high level of current income and the potential for
capital appreciation. The Fund seeks to achieve its investment objective by
investing primarily in convertible securities, fixed-income securities and
common stocks. The Fund will invest at least 50% of its total assets in a
combination of equity securities and fixed-income securities with equity
components.
THE FUND MAY INVEST WITHOUT LIMITATION IN CONVERTIBLE AND FIXED-INCOME
SECURITIES RATED BELOW INVESTMENT GRADE (COMMONLY KNOWN AS "JUNK BONDS"),
although the Fund will not invest in any securities rated lower than B by
Moody's Investor's Service, Inc. or Standard & Poor's Corporation or, if not
rated, determined to be of comparable quality. INVESTMENTS OF THIS TYPE ARE
SUBJECT TO GREATER RISK, INCLUDING THE RISK OF DEFAULT, THAN HIGHER RATED
SECURITIES, AND ARE CONSIDERED TO BE SPECULATIVE WITH REGARD TO THE PAYMENT OF
INTEREST AND RETURN OF PRINCIPAL. INVESTORS SHOULD CAREFULLY ASSESS THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THE FUND. (SEE "INVESTMENT OBJECTIVE AND
POLICIES.")
Shares of the Fund are sold and redeemed at net asset value. The Fund pays a
distribution fee of up to 0.75% of its average daily net assets in accordance
with a Plan of Distribution pursuant to Rule 12b-1 under the Investment Company
Act of 1940.
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 April 2, 1997, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
TABLE OF CONTENTS
Prospectus Summary /2
Summary of Fund Expenses /4
Financial Highlights /5
The Fund and its Management /6
Investment Objective and Policies /6
Risk Considerations /8
Investment Restrictions /13
Purchase of Fund Shares /14
Shareholder Services /16
Repurchases and Redemptions /18
Dividends, Distributions and Taxes /19
Performance Information /20
Additional Information /21
Appendix /22
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TCW/DW INCOME AND
GROWTH FUND
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll free)
Dean Witter Distributors Inc.
Distributor
<PAGE>
PROSPECTUS SUMMARY
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<TABLE>
<S> <C>
THE The Fund is organized as a Massachusetts business trust, and is an open-end,
FUND non-diversified management investment company investing primarily in
convertible securities, fixed-income securities and common stocks.
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SHARES Shares of beneficial interest with $0.01 par value (see page 21).
OFFERED
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OFFERING The price of the shares offered by this Prospectus is determined once daily as
PRICE of 4:00 p.m., New York time, on each day that the New York Stock Exchange is
open, and is equal to the net asset value per share (see page 14).
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MINIMUM The minimum initial investment is $1,000 ($100 if the account is opened
PURCHASE through EasyInvest- SM-); minimum subsequent investment is $100 (see page 14).
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INVESTMENT The investment objective of the Fund is to generate high total return by
OBJECTIVE providing a high level of current income and the potential for capital
appreciation.
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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 which
are advised by TCW Funds Management, Inc. (the "TCW/DW Funds"). The Manager
and InterCapital serve in various investment management, advisory, management
and administrative capacities to a total of 101 investment companies and other
portfolios with assets of approximately $93 billion at February 28, 1997.
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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 February 28, 1997, the Adviser and its affiliates
had approximately $53 billion under management or committed to management in
various fiduciary or advisory capacities, primarily from institutional
investors.
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MANAGEMENT The Manager receives a monthly fee at the annual rate of 0.45% of daily net
AND ADVISORY assets, scaled down on assets over $500 million. The Adviser receives a
FEES monthly fee at an annual rate of 0.30% of daily net assets, scaled down on
assets over $500 million (see page 6).
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DIVIDENDS Income dividends are paid quarterly. Capital gains, if any, will be
AND CAPITAL distributed no less than annually. Dividends and capital gains distributions
GAINS are automatically reinvested in additional shares at net asset value unless
DISTRIBUTIONS the shareholder elects to receive cash (see page 18).
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DISTRIBUTOR AND Dean Witter Distributors Inc. (the "Distributor") is the distributor of the
PLAN OF Fund's shares. The Fund is authorized to reimburse specific expenses incurred
DISTRIBUTION in promoting the distribution of the Fund's shares, including personal
services to shareholders and maintenance of shareholder accounts, in
accordance with a Plan of Distribution with the Distributor pursuant to Rule
12b-1 under the Investment Company Act of 1940. Reimbursement may in no event
exceed an amount equal to payments at an annual rate of 0.75% of average daily
net assets of the Fund (see page 13).
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REDEMPTION Shares are redeemable by the shareholder at net asset value. An account may be
redeemed involuntarily if the total value of the account is less than $100 or,
if the account was opened through EasyInvest-SM-, if after twelve months the
shareholder has invested less than $1,000 in the account (see page 17).
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</TABLE>
2
<PAGE>
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<TABLE>
<S> <C>
RISK The net asset value of the Fund's shares will fluctuate with changes in the
CONSIDERATIONS market value of the Fund's portfolio securities. The value of the Fund's
convertible and fixed-income portfolio securities generally increase or
decrease due to changes in prevailing interest rates. Generally, a rise in
interest rates will result in a decrease in value, while a drop in interest
rates will result in an increase in value. The high yield, high risk
fixed-income securities in which the Fund may invest are subject to greater
risk of loss of income and principal than higher rated, lower yielding
fixed-income securities. The prices of high yield, high risk securities have
been found to be less sensitive to changes in prevailing interest rates than
higher rated investments, but are likely to be more sensitive to adverse
economic changes or individual corporate developments. The Fund is a
non-diversified investment company and, as such, is not subject to the
diversification requirements of the Investment Company Act of 1940, as
amended. As a result, a relatively high percentage of the Fund's assets may be
invested in a limited number of issuers. However, the Fund intends to continue
to qualify as a regulated investment company under the federal income tax laws
and, as such, is subject to the diversification requirements of the Internal
Revenue Code. The Fund may invest up to 25% of its total assets in non-dollar
denominated foreign securities, which may entail special risks (see page 7).
The Fund also may engage in options and futures transactions and may purchase
securities on a when-issued, delayed delivery or "when, as and if issued"
basis, which involve certain additional risks (see page 10).
</TABLE>
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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
<PAGE>
SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of the
Fund will incur. The expenses and fees set forth in the table are for the fiscal
year ended January 31, 1997.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge Imposed on Purchases......................................... None
Maximum Sales Charge Imposed on Reinvested Dividends.............................. None
Deferred Sales Charge............................................................. None
Redemption Fees................................................................... None
Exchange Fee...................................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------------------
Management and Advisory Fees...................................................... 0.75%
12b-1 Fee*........................................................................ 0.74%
Other Expenses.................................................................... 0.53%
Total Fund Operating Expenses..................................................... 2.02%
</TABLE>
<TABLE>
<S> <C>
<FN>
- ------------
* A portion of the 12b-1 fee, which may not exceed 0.25% of the Fund's
average daily net assets, is characterized as a service fee within the
meaning of National Association of Securities Dealers, Inc. ("NASD")
guidelines (see "Purchase of Fund Shares").
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------ ----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period:............................................... $ 21 $ 63 $ 109 $ 235
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management" and "Plan of Distribution" in this Prospectus.
Long-term shareholders of the Fund may pay more in distribution fees than
the economic equivalent of the maximum front-end sales charges permitted by the
NASD.
4
<PAGE>
FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements and notes thereto and the unqualified report of
independent accountants, which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JANUARY 31, MARCH 31, 1993*
--------------------------------- THROUGH
1997 1996 1995 JANUARY 31, 1994
------- ------- ------- ----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.13 $ 9.77 $ 10.98 $ 10.00
------- ------- ------- -------
Net investment income.............. 0.60 0.59 0.59 0.45
Net realized and unrealized gain
(loss)............................ 0.84 1.37 (1.20) 1.02
------- ------- ------- -------
Total from investment operations... 1.44 1.96 (0.61) 1.47
------- ------- ------- -------
Less dividends and distributions
from:
Net investment income............ (0.60) (0.60) (0.55) (0.39)
Net realized gain................ (0.55) -- (0.05) (0.10)
------- ------- ------- -------
Total dividends and
distributions..................... (1.15) (0.60) (0.60) (0.49)
------- ------- ------- -------
Net asset value, end of period..... $ 11.42 $ 11.13 $ 9.77 $ 10.98
------- ------- ------- -------
------- ------- ------- -------
TOTAL INVESTMENT RETURN+........... 13.46% 20.52% (5.59)% 15.06%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 2.02% 2.21% 2.04% 1.57%(2)(3)
Net investment income.............. 5.19% 5.41% 5.83% 5.62%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $60,941 $57,631 $55,335 $64,370
Portfolio turnover rate............ 102% 79% 88% 84%(1)
Average commission rate paid....... $0.0540 -- -- --
</TABLE>
- --------------
* COMMENCEMENT OF OPERATIONS.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE FUND HAD BORNE EXPENSES THAT WERE REIMBURSED OR WAIVED BY THE MANAGER
AND INVESTMENT ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
RATIOS WOULD HAVE BEEN 2.00% AND 5.18%, RESPECTIVELY.
5
<PAGE>
THE FUND AND ITS MANAGEMENT
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TCW/DW Income and Growth Fund (the "Fund") is an open-end, non-diversified
management investment company. The Fund is a trust of the type commonly known as
a "Massachusetts business trust" and was organized under the laws of
Massachusetts on November 23, 1992.
Dean Witter Services Company Inc. (the "Manager"), whose address is Two
World Trade Center, New York, New York 10048, is the Fund's Manager. The Manager
is a wholly-owned subsidiary of Dean Witter InterCapital Inc. ("InterCapital").
InterCapital is a wholly-owned subsidiary of Dean Witter, Discover & Co.
("DWDC"), a balanced financial services organization providing a broad range of
nationally marketed credit and investment products.
On February 5, 1997, DWDC and Morgan Stanley Group Inc. announced that they
had entered into an Agreement and Plan of Merger, with the combined company to
be named Morgan Stanley, Dean Witter, Discover & Co. The business of Morgan
Stanley Group Inc. and its affiliated companies is providing a wide range of
financial services for sovereign governments, corporations, institutions and
individuals throughout the world. DWDC is the direct parent of InterCapital and
Dean Witter Distributors Inc., the Fund's distributor. It is currently
anticipated that the transaction will close in mid-1997. Thereafter,
InterCapital and Dean Witter Distributors Inc. will be direct subsidiaries of
Morgan Stanley, Dean Witter, Discover & Co.
The Manager acts as manager to thirteen other TCW/DW Funds. The Manager and
InterCapital act in various investment management, advisory, management and
administrative capacities to a total of 101 investment companies, thirty of
which are listed on the New York Stock Exchange, with combined assets of
approximately $89.8 billion as of February 28, 1997. InterCapital also manages
and advises portfolios of pension plans, other institutions and individuals
which aggregated approximately $3.2 billion at such date.
The Fund has retained the Manager to manage its business affairs, supervise
its overall day-to-day operations (other than providing investment advice) and
provide all administrative services.
TCW Funds Management, Inc. (the "Adviser"), whose address is 865 South
Figueroa Street, Suite 1800, Los Angeles, California 90017, is the Fund's
investment adviser. The Adviser was organized in 1987 as a wholly-owned
subsidiary of The TCW Group, Inc. ("TCW"), whose subsidiaries, including Trust
Company of the West and TCW Asset Management Company, provide a variety of
trust, investment management and investment advisory services. Robert A. Day,
who is Chairman of the Board of Directors of TCW, may be deemed to be a control
person of the Adviser by virtue of the aggregate ownership by Mr. Day and his
family of more than 25% of the outstanding voting stock of The TCW Group, Inc.
The Adviser serves as investment adviser to thirteen other TCW/DW Funds in
addition to the Fund. As of February 28, 1997, the Adviser and its affiliated
companies had over $50 billion under management or committed to management,
primarily from institutional investors.
The Fund has retained the Adviser to invest the Fund's assets.
The Fund's Trustees review the various services provided by the Manager and
the Adviser to ensure that the Fund's general investment policies and programs
are being properly carried out and that administrative services are being
provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Manager, the Fund pays the Manager
monthly compensation calculated daily by applying the annual rate of 0.45% to
the Fund's net assets up to $500 million, scaled down to 0.42% on assets over
$500 million. As compensation for its investment advisory services, the Fund
pays the Adviser monthly compensation calculated daily by applying an annual
rate of 0.30% to the Fund's net assets up to $500 million, scaled down to 0.28%
on assets over $500 million. For the fiscal year ended January 31, 1997, the
Fund accrued total compensation to the Manager and the Adviser
6
<PAGE>
amounting to 0.45% and 0.30%, respectively, of the Fund's average daily net
assets. During that period, the Fund's total expenses amounted to 2.02% of the
Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to generate high total return by
providing a high level of current income and the potential for capital
appreciation. This objective is fundamental and may not be changed without
shareholder approval. There is no assurance that the objective will be achieved.
The Fund seeks to achieve its investment objective by investing, in
descending order of preference under current market conditions, at least 65% of
its total assets in any or all of the following types of securities: (1) bonds
or preferred stock convertible into common stock ("convertible securities"); (2)
other fixed-income securities, including bonds, notes, debentures and preferred
stocks; (3) common stocks; and (4) U.S. Government securities (securities issued
or guaranteed by the United States or its agencies or instrumentalities).
The Fund will invest at least 50% of its total assets in a combination of
equity securities and fixed-income securities with equity components such as
convertible securities and warrants. In addition, all fixed-income securities
without an equity component in which the Fund invests will have a weighted
average life or a maturity date of ten years or less.
The Fund may invest in convertible securities and other fixed-income
securities rated below investment grade. Securities below investment grade are
the equivalent of high yield, high risk bonds. Investment grade is generally
considered to be debt securities rated BBB or higher by Standard & Poor's
Corporation ("S&P") or Baa or higher by Moody's Investors Service, Inc.
("Moody's"). (Convertible and other fixed-income securities rated BBB by S&P or
Baa by Moody's, which generally are regarded as having an adequate capacity to
pay interest and repay principal, have speculative characteristics.) However,
the Fund will not invest in convertible and other fixed-income securities that
are rated lower than B by S&P or Moody's or, if not rated, determined to be of
comparable quality by the Adviser. The Fund will not invest in fixed-income
securities that are in default in payment of principal or interest. A
description of fixed-income securities ratings is contained in the Appendix to
this Prospectus.
PORTFOLIO CHARACTERISTICS
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or based on a specified formula.
Convertible securities rank senior to common stocks in a corporation's capital
structure and, therefore, entail less risk than the corporation's common stock.
The value of a convertible security is a function of its "investment value" (its
value as if it did not have a conversion privilege), and its "conversion value"
(the security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, may sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
FOREIGN SECURITIES. The Fund may invest in securities of foreign companies.
The Fund may invest in Eurodollar convertible securities, which are fixed-
7
<PAGE>
income securities of a U.S. or foreign issuer that are issued in U.S. dollars
outside the United States and are convertible into or exchangeable for equity
securities of the same or a different issuer. Interest and dividends on
Eurodollar securities are payable in U.S. dollars outside of the United States.
The Fund may invest without limitation in Eurodollar convertible securities that
are convertible into or exchangeable for U.S. or foreign equity securities
listed, or represented by American Depository Receipts listed, on a U.S. stock
exchange. The Fund's investments in other Eurodollar convertible securities
which are exchangeable for unlisted foreign equity securities are subject to the
Fund's overall policy limiting its investment in illiquid securities to 15% or
less of its net assets.
The Fund will not invest more than 25% of the value of its total assets, at
the time of purchase, in non-dollar denominated foreign securities (other than
securities of Canadian issuers registered under the Securities Exchange Act of
1934 or American Depository Receipts, on which there is no such limit). The
Fund's investments in unlisted foreign securities are subject to the Fund's
overall policy limiting its investment in illiquid securities to 15% or less of
its net assets. Foreign securities investments may be affected by changes in
currency rates or exchange control regulations, changes in governmental
administration or economic or monetary policy (in the United States and abroad)
or changed circumstances in dealings between nations. Costs may be incurred in
connection with conversions between various currencies held by the Fund. The
Fund currently does not intend to invest more than 25% of its total assets in
the securities of issuers in any one country outside the United States. For a
discussion of the risks of foreign securities, see "Risk Considerations," below.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in the
market value of the Fund's portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market and political factors affecting the creditworthiness of the underlying
issuers, as well as changes in prevailing interest rates, none of which can be
predicted. A decline in prevailing interest rates will generally increase the
value of fixed-income securities, while an increase in rates usually reduces the
value of those securities. The Fund's yield also will vary based on the yield of
the Fund's portfolio securities.
HIGH YIELD, HIGH RISK SECURITIES. Because of the ability of the Fund to
invest in certain high yield, high risk convertible and fixed-income securities,
the Adviser must take into account the special nature of such securities and
certain special considerations in assessing the risks associated with such
investments. Although the growth of the high yield securities market in the
1980s had paralleled a long economic expansion, recently many issuers have been
affected by adverse economic and market conditions. It should be recognized that
an economic downturn or increase in interest rates is likely to have a negative
effect on the high yield bond market and on the value of the high yield
securities held by the Fund, as well as on the ability of the securities'
issuers to repay principal and interest on their borrowings.
The prices of high yield securities have been found to be less sensitive to
changes in prevailing interest rates than higher-rated investments, but are
likely to be more sensitive to adverse economic changes or individual corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. If the issuer of a fixed-income security owned by the Fund
defaults, the Fund may incur additional expenses to seek recovery. In addition,
periods of economic uncertainty and change can be expected to result in an
increased volatility of market prices of high yield securities and a concomitant
volatility in the net asset value of a share of the Fund.
The secondary market for high yield securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse effect
on the market prices of certain securities. The limited liquidity of the market
may also adversely affect the ability of the Fund's Trustees to arrive at a fair
value for certain high yield securities at certain times and could make it
difficult for the Fund to sell certain securities.
8
<PAGE>
In addition, new laws and potential new laws may have an adverse effect upon the
value of high yield securities and a concomitant negative impact upon the net
asset value of a share of the Fund.
For a discussion of the risks of the Fund's status as a non-diversified
investment company, see "Other Investment Policies," below. For a discussion of
warrants and stock rights, see "Warrants and Stock Rights," below. For a
discussion of the risks of options and futures transactions, see "Options and
Futures Transactions," below.
During the fiscal year ended January 31, 1997, the monthly dollar weighted
average ratings of the debt obligations held by the Fund, expressed as a
percentage of the Fund's total investments, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
- ---------------------------------- -------------------
<S> <C>
AAA/Aaa........................... 1.1%
AA/Aa............................. 0.2%
A/A............................... 6.8%
BBB/Baa........................... 4.3%
BB/Ba............................. 20.5%
B/B............................... 37.5%
CCC/Caa........................... 0.0%
CC/Ca............................. 0.0%
C/C............................... 0.0%
D................................. 0.0%
Unrated........................... 14.5%
</TABLE>
FOREIGN SECURITIES Foreign securities investments may be affected by
changes in currency rates or exchange control regulations, changes in
governmental administration or economic or monetary policy (in the United States
and abroad) or changed circumstances in dealings between nations. Fluctuations
in the relative rates of exchange between the currencies of different nations
will affect the value of the Fund's investments denominated in foreign currency.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's assets denominated in that currency
and thereby impact upon the Fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of the Fund's trades effected in such markets. As such, the
inability to dispose of portfolio securities due to settlement delays could
result in losses to the Fund due to subsequent declines in value of such
securities and the inability of the Fund to make intended security purchases due
to settlement problems could result in a failure of the Fund to make potentially
advantageous investments. To the extent the Fund purchases Eurodollar
certificates of deposit issued by foreign branches of domestic United States
banks, consideration will be given to their domestic marketability, the lower
reserve requirements normally mandated for overseas banking operations, the
possible impact of interruptions in the flow of international currency
transactions and future international political and economic developments which
might adversely affect the payment of principal or interest.
9
<PAGE>
The risks of other investment techniques which may be utilized by the Fund
are described under "Other Investment Policies" and "Options and Futures
Transactions" below.
WARRANTS AND STOCK RIGHTS
The Fund may invest up to 5% of the value of its net assets in warrants,
including not more than 2% in warrants not listed on either the New York or
American Stock Exchange. The Fund may also invest up to 5% of the value of its
net assets in stock rights. Warrants are, in effect, an option to purchase
equity securities at a specific price, generally valid for a specific period of
time, and have no voting rights, pay no dividends and have no rights with
respect to the corporations issuing them. The Fund may acquire warrants and
stock rights attached to other securities without reference to the foregoing
limitations.
OTHER INVESTMENT POLICIES
While the Fund invests primarily in the types of securities described above,
under ordinary circumstances it may invest up to 35% of its total assets in
money market instruments, which are short-term (maturities of up to thirteen
months) fixed-income securities issued by private and governmental institutions.
Money market instruments in which the Fund may invest are securities issued or
guaranteed by the U.S. Government or its agencies; obligations of banks subject
to regulation by the U.S. Government and having total assets of $1 billion or
more; Eurodollar certifi cates of deposit; obligations of savings banks and
savings and loan associations having total assets of $1 billion or more; fully
insured certificates of deposit; and commercial paper rated within the two
highest grades by Moody's or S&P or, if not rated, issued by a company having an
outstanding debt issue rated AAA by S&P or Aaa by Moody's.
There may be periods during which, in the opinion of the Adviser, market
conditions warrant reduction of some or all of the Fund's securities holdings.
During such periods, the Fund may adopt a temporary "defensive" posture in which
greater than 35% of its total assets is invested in money market instruments or
cash.
The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940, as amended (the "Act"), and, as such, is not
limited by the Act in the proportion of its assets that it may invest in the
obligations of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" under Subchapter
M of the Internal Revenue Code. See "Dividends, Distributions and Taxes." In
order to qualify, among other requirements, the Fund will limit its investments
so that at the close of each quarter of the taxable year, (i) not more than 25%
of the market value of the Fund's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of the market value
of its total assets not more than 5% will be invested in the securities of a
single issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. To the extent that a relatively high percentage
of the Fund's assets may be invested in the obligations of a limited number of
issuers, the Fund's portfolio securities may be more susceptible to any single
economic, political or regulatory occurrence than the portfolio securities of a
diversified investment company. The limitations described in this paragraph are
not fundamental policies and may be revised to the extent applicable Federal
income tax requirements are revised.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, including the risks of default or
bankruptcy of the selling financial institution, the Fund follows procedures
designed to minimize those risks. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions and maintaining adequate collateralization.
10
<PAGE>
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are negotiated,
the price is fixed at the time of the commitment, but delivery and payment can
take place a month or more after the date of the commitment. There is no overall
limit on the percentage of the Fund's assets which may be committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis may increase the volatility of the Fund's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have lost an investment opportunity. There is no overall limit on the
percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage of
the Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value. The Fund may
also sell securities on a "when, as and if issued" basis provided that the
issuance of the security will result automatically from the exchange or
conversion of a security owned by the Fund at the time of the sale.
PRIVATE PLACEMENTS. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
such securities may have an adverse effect on their marketability, and may
prevent the Fund from disposing of them promptly at reasonable prices. The Fund
may have to bear the expense of registering such securities for resale and the
risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Adviser, pursuant to
procedures adopted by the Trustees of the Fund, will make a determination as to
the liquidity of each restricted security purchased by the Fund. If a restricted
security is determined to be "liquid," such security will not be included within
the category "illiquid securities," which under current policy may not exceed
15% of the Fund's net assets. However, investing in Rule 144A securities could
have the effect of increasing the level of Fund illiquidity to the extent the
Fund, at a particular period in time, may be unable to find qualified
institutional buyers in purchasing such securities.
INVESTMENT IN OTHER INVESTMENT VEHICLES. Under the Investment Company Act
of 1940, as amended, the Fund generally may invest up to 10% of its total assets
in the aggregate in shares of other investment companies and up to 5% of its
total assets in any one investment company. The Fund may not own more than 3% of
the voting stock of any investment company. In addition, the Fund may invest in
real estate investment trusts, which pool investors' funds for investments
primarily in commercial real estate properties. Investment in other investment
companies may be the sole or most practical means by which the Fund may
participate in certain securities markets, and investment in real estate
investment trusts may be the most practical available means for the Fund to
invest in the real estate industry (the Fund is prohibited from investing in
real estate directly). As a shareholder in an investment company or real estate
investment trust, the Fund would bear its ratable share of that entity's
expenses, including its advisory and administration fees. At the same time the
Fund would continue to pay its own investment management fees and other
expenses, as a result of which the Fund and its shareholders in effect will be
absorbing
11
<PAGE>
duplicate levels of fees with respect to investments in other investment
companies and in real estate investment trusts.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive their
full value at maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at a
constant rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received on interest-paying securities if prevailing interest rates
rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payments in cash on the security
during the year.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on portfolio
securities and on the U.S. dollar which are or may in the future be listed on
securities exchanges or are written in over-the-counter transactions ("OTC
Options"). Listed options are issued or guaranteed by the exchange on which they
trade or by a clearing corporation such as the Options Clearing Corporation. OTC
options are purchased from or sold (written) to dealers or financial
institutions which have entered into direct agreements with the Fund. The Fund
is permitted to write covered call options on portfolio securities and the U.S.
dollar, without limit, in order to aid it in achieving its investment objective.
The Fund may also write covered put options; however, the aggregate value of the
obligations underlying the puts determined as of the date the options are sold
will not exceed 50% of the Fund's net assets.
The Fund may purchase listed and OTC call and put options on securities and
stock indexes in amounts equalling up to 5% of its total assets. The Fund may
purchase call options to close out a covered call position or to protect against
an increase in the price of a security it anticipates purchasing. The Fund may
purchase put options on securities which it holds in its portfolio only to
protect itself against a decline in the value of the security. The Fund may also
purchase put options to close out written put positions in a manner similar to
call option closing purchase transactions. There are no other limits on the
Fund's ability to purchase call and put options.
The Fund may also purchase and sell interest rate and stock index futures
contracts ("futures contracts") that are traded on U.S. commodity exchanges on
such underlying securities as U.S. Treasury bonds, notes, and bills and GNMA
Certificates ("interest rate" futures) and such indexes as the S&P 500 Index and
the New York Stock Exchange Composite Index ("stock index" futures) and the
Moody's Investment-Grade Corporation Bond Index ("bond index" futures). The Fund
will purchase or sell interest rate futures contracts and bond index futures
contracts for the purpose of hedging its fixed-income portfolio (or anticipated
portfolio) against changes in prevailing interest rates and to alter the Fund's
asset allocation in fixed-income securities. The Fund will purchase or sell
stock index futures contracts for the purpose of hedging its equity portfolio
(or anticipated portfolio) against changes in their prices.
The Fund also may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
12
<PAGE>
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 may generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer. Also,
exchanges may limit the amount by which the price of many futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Adviser could be incorrect in its expectations as to
the direction or extent of various interest rate or price movements or the time
span within which the movements take place. For example, if the Fund sold
futures contracts for the sale of securities in anticipation of an increase in
interest rates, and then interest rates went down instead, causing bond prices
to rise, the Fund would lose money on the sale. Another risk which will arise in
employing futures contracts to protect against the price volatility of portfolio
securities is that the prices of securities, currencies and indexes subject to
futures contracts (and thereby the futures contract prices) may correlate
imperfectly with the behavior of the dollar cash prices of the Fund's portfolio
securities and their denominated currencies. See the Statement of Additional
Information for a further discussion of such risks.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Adviser with a view to
achieving the Fund's investment objective. Robert M. Hanisee, Mark Attanasio,
Kevin A. Hunter and Melissa Weiler, Managing Directors of the Adviser, are the
primary portfolio managers of the Fund. Messrs. Hanisee and Hunter and Ms.
Weiler have been primary portfolio managers of the Fund since April, 1995 and
Mr. Attanasio has been a portfolio manager of the Fund since March, 1996.
Messrs. Hanisee and Hunter have been portfolio managers with affiliates of The
TCW Group, Inc. since 1990 and 1989, respectively. Mr. Attanasio has been a
portfolio manager with the TCW Group Inc. and affiliates thereof since April,
1995. Prior thereto he was Co-Chief Executive Officer and Chief Portfolio
Strategist of Crescent Corporation (April, 1991-April 1995). Ms. Weiler has been
a portfolio manager with affiliates of The TCW Group, Inc. since April, 1995,
and prior thereto was a Vice President and Portfolio Manager of Crescent Capital
Corporation, an Investment Adviser, with which she had been affiliated since
February 1992. 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. The Fund may
incur brokerage commissions on transactions conducted through DWR. Under normal
circumstances it is not anticipated that the portfolio trading will result in
the Fund's portfolio turnover rate exceeding 100% in any one year. The Fund will
incur brokerage costs commensurate with its portfolio turnover rate.
Except as specifically noted, all investment policies and practices
discussed above are not fundamental policies of the Fund and, as such, may be
changed without shareholder approval.
13
<PAGE>
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. For purposes
of the following limitations: (i) all percentage limitations apply immediately
after a purchase or initial investment, and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
The Fund may not:
1. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities.
2. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction does not apply to
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities.
In addition, as a non-fundamental policy, the Fund may not, as to 75% of its
total assets, purchase more than 10% of the voting securities of any issuer.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Manager, shares of
the Fund are distributed by the Distributor and offered by DWR and others (which
may include TCW Brokerage Services, an affiliate of the Adviser) who have
entered into agreements with the Distributor ("Selected Broker-Dealers"). The
principal executive office of the Distributor is located at Two World Trade
Center, New York, New York 10048.
The minimum initial purchase is $1,000 and subsequent purchases of $100 or
more may be made by sending a check, payable to TCW/DW Income and Growth Fund,
directly to Dean Witter Trust Company (the "Transfer Agent") at P.O. Box 1040,
Jersey City, NJ 07303, or by contacting an account executive of DWR or another
Selected Broker-Dealer. The minimum initial purchase in the case of investments
through EasyInvest-SM-, an automatic purchase plan (see "Shareholder Services"),
is $100, provided that the schedule of automatic investments will result in
investments totalling at least $1,000 within the first twelve months. 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.
14
<PAGE>
The offering price will be the net asset value per share next determined
following receipt of an order (see "Determination of Net Asset Value"). Sales
personnel of a Selected Broker-Dealer are compensated for shares of the Fund
sold by them by the Distributor or any of its affiliates and/or the Selected
Broker-Dealer. In addition, some sales personnel of the Selected Broker-Dealer
will receive various types of non-cash compensation as special sales incentives,
including trips, educational and/or business seminars and merchandise. The Fund
and the Distributor reserve the right to reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has entered into a Plan of Distribution pursuant to Rule 12b-1
under the Act with the Distributor whereby the expenses of certain activities
and services, including personal services to shareholders and maintenance of
shareholder accounts, in connection with the distribution of the Fund's shares
are reimbursed. The principal activities and services which may be provided by
DWR, its affiliates or any other Selected Broker-Dealer under the Plan include:
(1) compensation to, and expenses of, DWR account executives and others,
including overhead and telephone expenses; (2) sales incentives and bonuses to
sales representatives and to marketing personnel in connection with promoting
sales of the Fund's shares; (3) expenses incurred in connection with promoting
sales of the Fund's shares; (4) preparing and distributing sales literature; and
(5) providing advertising and promotional activities, including direct mail
solicitation and television, radio, newspaper, magazine and other media
advertisements. Reimbursements for these services will be made in monthly
payments by the Fund, which will in no event exceed an amount equal to a payment
at the annual rate of 0.75% of the Fund's average daily net assets. A portion of
the amount payable pursuant to the Plan, which may not exceed 0.25% 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. Expenses incurred
pursuant to the Plan in any fiscal year in excess of 0.75% of the Fund's average
daily net assets will not be reimbursed by the Fund through payments accrued in
any subsequent fiscal year. The Fund accrued $425,303 to the Distributor
pursuant to the Plan for the fiscal year ended January 31, 1997. This is an
accrual at the annual rate of 0.74% of the Fund's average daily net assets.
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
stock exchange is valued at its latest sale price on that exchange prior to the
time when assets are valued; if there were no sales that day, the security is
valued at the latest bid price (in cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market pursuant to procedures adopted by the Trustees); and (2) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest available bid price prior to the time
of valuation. When market quotations are not readily available, including
circumstances under which it is determined by the Adviser that sale or bid
prices are not reflective of a security's market value, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Fund's Trustees. For
valuation purposes, quotations of foreign portfolio securities are translated
into U.S. dollar equivalents at the prevailing market rates prior to the close
of the New York Stock Exchange. Dividends receivable are accrued as of the
ex-dividend date or as of the time that the relevant ex-dividend date and
amounts become known.
15
<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.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, in determining what
it believes is the fair valuation of the portfolio securities valued by such
pricing service.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the Fund (or, if specified by the shareholder, any other TCW/DW Fund),
unless the shareholder requests that they be paid in cash. Each purchase of
shares of the Fund is made upon the condition that the Transfer Agent is thereby
automatically appointed as agent of the investor to receive all dividends and
capital gains distributions on shares owned by the investor. Such dividends and
distributions will be paid, at the net asset value per share, in shares of the
Fund (or in cash if the shareholder so requests) as of the close of business on
the record date. At any time an investor may request the Transfer Agent, in
writing, to have subsequent dividends and/or capital gains distributions paid to
him or her in cash rather than shares. In order to provide sufficient time to
process the change, such request should be received by the Transfer Agent at
least five business days prior to the record date of the dividend or
distribution. In the case of recently purchased shares for which registration
instructions have not been received on the record date, cash payments will be
made to DWR or another Selected Broker-Dealer, which will be forwarded to the
shareholder, upon the receipt of proper instructions.
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.
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund (see "Purchase of Fund Shares" and "Repurchases and Redemptions --
Involuntary Redemption").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Only shareholders
having accounts in which no share certificates have been issued will be
permitted to enroll in the Withdrawal Plan.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal
16
<PAGE>
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
An "Exchange Privilege," that is, the privilege of exchanging shares of
certain Funds for shares of the Fund, exists whereby shares of TCW/DW Funds
which are open-end investment companies sold with a contingent deferred (at time
of redemption) sales charge ("CDSC Funds") may be exchanged for shares of the
Fund, for shares of TCW/DW North American Government Income Trust, 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 investment companies,
including the Fund, are hereinafter collectively referred to as "Exchange
Funds").
An exchange from a CDSC Fund to an 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 a CDSC Fund, shares of the CDSC Fund are redeemed at their next
calculated net asset value and exchanged for shares of the money market fund at
their net asset value determined the following business day. Additionally,
shares of any Exchange Fund received in an exchange for shares of a CDSC Fund
(regardless of the type of fund originally purchased) may be redeemed and
exchanged for shares of an Exchange Fund or a CDSC Fund. Any applicable
contingent deferred sales charge ("CDSC") will have to be paid upon ultimate
redemption of shares originally purchased from a CDSC Fund. 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. However, in the case of shares exchanged into an Exchange Fund, upon
a redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the Exchange
Fund 12b-1 distribution fees which are attributable to those shares (see
"Purchase of Fund Shares -- Plan of Distribution" in this Prospectus or the
respective other Exchange Fund prospectus for a description of Exchange Fund
12b-1 distribution fees). Exchanges involving CDSC Funds may be made after the
shares of the CDSC Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Manager to be abusive and
contrary to the best interests of the Fund's other shareholders and, at the
Manager's discretion, may be limited by the Fund's refusal to accept additional
purchases and/or exchanges from the investor. Although the Fund does not have
any specific definition of what constitutes a pattern of frequent exchanges, and
will consider all relevant factors in determining whether a particular situation
is abusive and contrary to the best interests of the Fund and its other
shareholders, investors should be aware that the Fund, each of the other TCW/DW
Funds and each of the money market funds may in their discretion limit or
otherwise restrict the number of times this Exchange Privilege may be exercised
by any investor. Any such restriction will be made by the Fund on a prospective
basis only, upon notice to the shareholder not later than ten days following
such shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such TCW/DW Funds or
money market funds for which shares of the Fund have been exchanged, upon such
notice as may be required by applicable regulatory agencies. Shareholders
maintaining margin accounts with DWR or another Selected Broker-Dealer are
referred to their account executive regarding
restric-
17
<PAGE>
tions on exchange of shares pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
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 funds for
which the Exchange Privilege is available pursuant to this Exchange Privilege by
contacting their DWR or other Selected Broker-Dealer account executive (no
Exchange Privilege Authorization Form is required). Other shareholders (and
those shareholders who are clients of DWR or other Selected Broker-Dealers but
who wish to make exchanges directly by writing or telephoning the Transfer
Agent) must complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Transfer Agent, to
initiate an exchange. If the Authorization Form is used, exchanges may be made
in writing or by contacting the Transfer Agent at (800) 869-NEWS (toll free).
The Fund will employ reasonable procedures to confirm that exchange instructions
communicated over the telephone are genuine. The procedures include requiring
various forms of personal identification such as name, mailing address, social
security or other tax identification number and DWR or other Selected Broker-
Dealer account number (if any). Telephone instructions will also be recorded. If
such procedures are not employed, the Fund may be liable for any losses due to
unauthorized or fraudulent transactions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case in the past with
other funds managed by the Manager.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Broker-Dealer account executive or
the Transfer Agent.
REPURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------
REPURCHASES. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value next determined (see "Purchase of Fund Shares -- Determination of
Net Asset Value") after such repurchase order is received by DWR or the other
Selected Broker-Dealer. The offers by DWR and other Selected Broker-Dealers to
repurchase shares from shareholders may be suspended by them at any time. In
that event, shareholders may redeem their shares through the Fund's Transfer
Agent as set forth below under "Redemptions."
REDEMPTIONS. Shares of the Fund can be redeemed for cash at any time at net
asset value per share next determined. If shares are held in a shareholder's
18
<PAGE>
account at the Transfer Agent without a share certificate, a written request for
redemption must be sent to the Fund's Transfer Agent at P.O. Box 983, Jersey
City, NJ 07303. The share certificate, or an accompanying stock power, and the
request for redemption, must be signed by the shareholder or shareholders
exactly as the shares are registered. Each request for redemption, whether or
not accompanied by a share certificate, must be sent to the Fund's Transfer
Agent, which will redeem the shares at their net asset value next determined as
described under "Purchase of Fund Shares -- Determination of Net Asset Value"
after it receives the request, and certificate, if any, in good order. Any
redemption request received after such determination will be redeemed at the
next determined net asset value. The term "good order" means that the share
certificate, if any, and request for redemption are properly signed, accompanied
by any documentation required by the Transfer Agent, and bear signature
guarantees when required by the Fund or the Transfer Agent. If redemption is
requested by a corporation, partnership, trust or fiduciary, the Transfer Agent
may require that written evidence of authority acceptable to the Transfer Agent
be submitted before such request is accepted. With regard to shares of the Fund
acquired pursuant to the Exchange Privilege, any applicable contingent deferred
sales charge will be imposed upon the redemption of such shares (see "Purchase
of Fund Shares -- Exchange Privilege").
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
DWR or another Selected Broker-Dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures must be guaranteed by an eligible
guarantor acceptable to the Transfer Agent (shareholders should contact the
Transfer Agent for a determination as to whether a particular institution is
such an eligible guarantor). A stock power may be obtained from any dealer or
commercial bank. The Fund may change the signature guarantee requirements from
time to time upon notice to shareholders, which may be by means of a revised
prospectus.
PAYMENT FOR SHARES REPURCHASED OR REDEEMED. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 30 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund at net asset value next determined after a reinstatement
request, together with the proceeds, is received by the Transfer Agent.
INVOLUNTARY REDEMPTION. The Fund reserves the right, on 60 days' notice, to
redeem, at their net asset value, the shares of any shareholder (other than
shares held in an individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares due to redemptions
by the shareholder have a value of less than $100 or such lesser amount as may
be fixed by the Trustees or, in the case of an account offered through
EasyInvest, if after twelve months the shareholder has invested less than $1,000
in the account. However, before the Fund redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder that the value of
the shares is less than the applicable amount and allow the shareholder 60 days
to make an additional investment in an amount which will increase the value of
the account to at least the applicable amount before the redemption is
processed.
19
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to pay quarterly dividends
and to distribute substantially all of the Fund's net investment income. The
Fund intends to distribute net short-term and net long-term capital gains, if
any, at least once each year. The Fund may, however, determine either to
distribute or to retain all or part of any net long-term capital gains in any
year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
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 "Shareholders Services
- -- Automatic Investment of Dividends and Distributions.")
TAXES. Because the Fund intends to distribute all of its net investment
income and capital gains to shareholders and otherwise continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code, it
is not expected that the Fund will be required to pay any federal income tax.
Shareholders who are required to pay taxes on their income will normally have to
pay federal income taxes, and any state income taxes, on the dividends and
distributions they receive from the Fund. Such dividends and distributions, to
the extent that they are derived from net investment income or short-term
capital gains, are taxable to the shareholder as ordinary income regardless of
whether the shareholder receives such payments in additional shares or in cash.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the corporate dividends received deduction.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources, in effect, represent a return of a
portion of each shareholder's investment. All, or a portion, of such payments
will not be taxable to shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes.
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 net
investment income of the Fund over a 30-day period by an average value (using
the average number of shares entitled to receive dividends and the net asset
value per share at the end of the period), all in accordance with applicable
regulatory requirements. Such amount is compounded for six months and then
annualized for a twelve-month period to derive the yield of the Fund.
From time to time the Fund may quote its "total return" in advertisements
and sales literature. The total return of the Fund is based on historical
earnings and is not intended to indicate future performance. The "average annual
total return" of the Fund refers to a figure reflecting the average annualized
percentage increase (or decrease) in the value of an initial investment in the
Fund of $1,000 over periods of one, five and ten years, as well as over the life
of the Fund, if less than
20
<PAGE>
any of the foregoing. Average annual total return reflects all income earned by
the Fund, any appreciation or depreciation of the Fund's assets and all expenses
incurred by the Fund, which would be incurred by redeeming shareholders, for the
stated periods. It also assumes reinvestment of all dividends and distributions
paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, and year-by-year or
other types of total return figures. 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. Under
certain circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right under certain circumstances to remove Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for obligations of
the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, in the opinion of Massachusetts
counsel to the Fund, the risk to shareholders of personal liability is remote.
CODE OF ETHICS. The Adviser is subject to a Code of Ethics with respect to
investment transactions in which the Adviser's officers, directors and certain
other persons have a beneficial interest to avoid any actual or potential
conflict or abuse of their fiduciary position. The Code of Ethics, as it
pertains to the TCW/DW Funds, contains several restrictions and procedures
designed to eliminate conflicts of interest including: (a) pre-clearance of
personal investment transactions to ensure that personal transactions by
employees are not being conducted at the same time as the Adviser's clients; (b)
quarterly reporting of personal securities transactions; (c) a prohibition
against personally acquiring securities in an initial public offering, entering
into uncovered short sales and writing uncovered options; (d) a seven day
"black-out period" prior to or subsequent to a TCW/DW Fund transaction during
which portfolio managers are prohibited from making certain transactions in
securities which are being purchased or sold by a TCW/DW Fund; (e) a
prohibition, with respect to certain investment personnel, from profiting in the
purchase and sale, or sale and purchase, of the same (or equivalent) securities
within 60 calendar days; and (f) a prohibition against acquiring any security
which is subject to firm wide or, if applicable, a department restriction of the
Adviser. The Code of Ethics provides that exemptive relief may be given from
certain of its requirements, upon application. The Adviser's Code of Ethics
complies with regulatory requirements and, insofar as it relates to persons
associated with registered investment companies, the 1994 Report of the Advisory
Group on Personal Investing of the Investment Company Institute.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
21
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
<TABLE>
<S> <C>
Aaa Fixed-income securities which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Fixed-income securities which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as high
grade fixed-income securities. They are rated lower than the best fixed-income securities
because margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Fixed-income securities which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa Fixed-income securities which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time. Such
fixed-income securities lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Fixed-income securities rated Aaa, Aa, A and Baa are considered investment grade.
Ba Fixed-income securities which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate, and therefore not well safeguarded during both
good and bad times in the future. Uncertainty of position characterizes bonds in this
class.
B Fixed-income securities which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa Fixed-income securities which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or interest.
Ca Fixed-income securities which are rated Ca present obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Fixed-income securities which are rated C are the lowest rated class of fixed-income
securities, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
</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
fixed-income security rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and a modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
22
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
<TABLE>
<S> <C>
AAA Fixed-income securities rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA Fixed-income securities rated "AA" have a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A Fixed-income securities rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than fixed-income securities in higher-rated
categories.
BBB Fixed-income securities rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal for fixed-income
securities in this category than for fixed-income securities in higher-rated categories.
Fixed-income securities rated AAA, AA, A and BBB are considered investment grade.
BB Fixed-income securities rated "BB" have less near-term vulnerability to default than
other speculative grade fixed-income securities. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic conditions which
could lead to inadequate capacity or willingness to pay interest and repay principal.
B Fixed-income securities rated "B" have a greater vulnerability to default but presently
has the capacity to meet interest payments and principal repayments Adverse business,
financial or economic conditions would likely impair capacity or willingness to pay
interest and repay principal.
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
CCC Fixed-income securities rated "CCC" have a current identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayments of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the capacity to pay
interest and repay principal.
CC The rating "CC" is typically applied to fixed-income securities subordinated to senior
debt which is assigned an actual or implied "CCC" rating.
C The rating "C" is typically applied to fixed-income securities subordinated to senior
debt which is assigned an actual or implied "CCC-" rating.
CI The rating "CI" is reserved for fixed-income securities on which no interest is being
paid.
NR Indicates that no rating has been requested, that there is insufficient information on
which to base a rating or that Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
Fixed-income securities rated "BB", "B", "CCC", "CC" and "C" are regarded as having
predominantly speculative characteristics with respect to capacity to pay interest and
repay principal. "BB" indicates the least degree of speculation and "C" the highest
degree of speculation. While such fixed-income securities will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
Plus (+) or minus (-): The rating from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing with the major ratings categories.
</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.
<TABLE>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is strong. However,
the relative degree of safety is not as overwhelming as for issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying this
designation are, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
</TABLE>
24
<PAGE>
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<PAGE>
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<PAGE>
TCW/DW Income and
Growth Fund
Two World Trade Center
New York, New York 10048
TRUSTEES
John C. Argue
Richard M. DeMartini TCW/DW
Charles A. Fiumefreddo INCOME AND
John R. Haire GROWTH FUND
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and
General Counsel
Robert M. Hanisee
Vice President
Kevin A. Hunter
Vice President
Mark Attanasio
Vice President
Melissa Weiler
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
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.
PROSPECTUS
37882 APRIL 2, 1997
<PAGE>
[LOGO]
INCOME AND
GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
APRIL 2, 1997
- --------------------------------------------------------------------------------
TCW/DW Income and Growth Fund (the "Fund") is an open-end, non-diversified
management investment company, whose investment objective is to generate high
total return by providing a high level of current income and the potential for
capital appreciation. The Fund seeks to achieve its investment objective by
investing primarily in convertible securities, fixed-income securities and
common stocks. See "Investment Objective and Policies."
A Prospectus for the Fund dated April 2, 1997, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below or
from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean Witter
Reynolds Inc. at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
TCW/DW INCOME AND GROWTH FUND
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management.......................................................... 3
Trustees and Officers................................................................ 6
Investment Practices and Policies.................................................... 13
Investment Restrictions.............................................................. 26
Portfolio Transactions and Brokerage................................................. 27
The Distributor...................................................................... 29
Shareholder Services................................................................. 31
Repurchases and Redemptions.......................................................... 35
Dividends, Distributions and Taxes................................................... 35
Performance Information.............................................................. 36
Description of Shares................................................................ 37
Custodian and Transfer Agent......................................................... 38
Independent Accountants.............................................................. 38
Reports to Shareholders.............................................................. 38
Legal Counsel........................................................................ 38
Experts.............................................................................. 38
Registration Statement............................................................... 39
Report of Independent Accountants.................................................... 40
Financial Statements--January 31, 1997............................................... 41
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts business
trust" and was organized under the laws of the Commonwealth of Massachusetts on
November 23, 1992. The Fund is one of the TCW/DW Funds, which currently
consist, in addition to the Fund, of TCW/DW Core Equity Trust, TCW/DW North
American Government Income Trust, TCW/DW Latin American Growth Fund, TCW/DW
Small Cap Growth Fund, TCW/DW Balanced Fund, TCW/DW Mid-Cap Equity Trust,
TCW/DW Global Telecom Trust, TCW/DW Strategic Income Trust, TCW/DW Term Trust
2000, TCW/DW Term Trust 2002, TCW/DW Term Trust 2003, TCW/DW Emerging Markets
Opportunities Trust and TCW/DW Total Return Trust.
THE MANAGER
Dean Witter Services Company Inc. (the "Manager"), a Delaware corporation,
whose address is Two World Trade Center, New York, New York 10048, is the
Fund's Manager. The Manager is a wholly-owned subsidiary of Dean Witter
InterCapital Inc. ("InterCapital"), a Delaware corporation. InterCapital is a
wholly-owned subsidiary of Dean Witter, Discover & Co. ("DWDC"), a Delaware
corporation. In an internal reorganization which took place in January, 1993,
InterCapital assumed the investment advisory, administrative and management
activities previously performed by the InterCapital Division of Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of the Manager. (As
hereinafter used in this Statement of Additional Information, the term
"InterCapital" refers to DWR's InterCapital Division prior to the internal
reorganization and to Dean Witter InterCapital Inc. thereafter.) The daily
management of the Fund is conducted by or under the direction of officers of
the Fund and of the Manager and Adviser (see below), subject to review by the
Fund's Board of Trustees. Information as to these Trustees and officers is
contained under the caption "Trustees and Officers."
Pursuant to a management agreement (the "Management Agreement") with the
Manager, the Fund has retained the Manager to manage the Fund's business
affairs, supervise the overall day-to-day operations of the Fund (other than
rendering investment advice) and provide all administrative services to the
Fund. Under the terms of the Management Agreement, the Manager also maintains
certain of the Fund's books and furnishes, at its own expense, such office
space, facilities, equipment, supplies, clerical help and bookkeeping and legal
services as the Fund may reasonably require in the conduct of its business,
including the preparation of prospectuses, statements of additional
information, proxy statements and reports required to be filed with the federal
and state securities commissions (except insofar as the participation or
assistance of independent accountants and attorneys is, in the opinion of the
Manager, necessary or desirable). In addition, the Manager pays the salaries of
all personnel, including officers of the Fund, who are employees of the
Manager. The Manager also bears the cost of the Fund's telephone service, heat,
light, power and other utilities.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Manager, the Fund pays the Manager
monthly compensation calculated daily by applying the following annual rates to
the net assets of the Fund determined as of the close of each business day:
0.45% of the portion of daily net assets not exceeding $500 million; and 0.42%
of the portion of daily net assets exceeding $500 million. While the total fees
payable under the Management Agreement and the Advisory Agreement (described
below) are higher than that paid by most other investment companies for similar
services, the Board of Trustees determined that the total fees payable under
the Management Agreement and the Advisory Agreement are reasonable in relation
to the scope and quality of services to be provided thereunder. In this regard,
in evaluating the Management Agreement and the Advisory Agreement, the Board of
Trustees recognized that the Manager and the Adviser had, pursuant to an
agreement described under the section entitled "The Adviser," agreed to a
division as between themselves of the total fees necessary for the management
of the business affairs of and the furnishing of investment advice to the Fund.
Accordingly, in reviewing the Management Agreement and Advisory Agreement, the
Board viewed as most significant the question
3
<PAGE>
as to whether the total fees payable under the Management and Advisory
Agreements were in the aggregate reasonable in relation to the services to be
provided thereunder. For the fiscal years ended January 31, 1995, January 31,
1996, and January 31, 1997, the Fund accrued to the Manager and InterCapital
total compensation under the Management Agreement (and the prior management
agreements described below) of $283,555, $247,315 and $260,240, respectively.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Manager is not liable to the Fund or any of its
investors for any act or ommission by the Manager or for any losses sustained
by the Fund or its investors. The Management Agreement in no way restricts the
Manager from acting as manager to others.
InterCapital paid the organizational expenses of the Fund incurred prior to
the offering of the Fund's shares. The Fund has reimbursed InterCapital for
$200,000 of such expenses, in accordance with the terms of the Underwriting
Agreement between the Fund and Dean Witter Distributors Inc. The Fund has
deferred and is amortizing the reimbursed expenses on the straight line method
over a period not to exceed five years from the date of commencement of the
Fund's operations.
The Management Agreement was initially approved by the Trustees on June 4,
1994 and became effective on April 17, 1995. The Management Agreement replaced
a prior management agreement in effect between the Fund and the Manager, which
in turn replaced a management agreement between the Fund and InterCapital, the
parent company of the Manager. The nature and scope of services provided to the
Fund, and the formula to determine fees paid by the Fund under the Management
Agreement, are identical to those of the previous agreement. (The prior
management agreement, in turn, had replaced, on June 30, 1993, upon the
spin-off by Sears, Roebuck and Co. of its remaining shares of DWDC, an earlier
substantially identical management agreement which was approved by the Trustees
on January 21, 1993 and by InterCapital as the then sole shareholder on January
22, 1993.) The Management Agreement may be terminated at any time, without
penalty, on thirty days' notice by the Trustees of the Fund, or by the Manager.
Under its terms, the Management Agreement had an initial term ending April
30, 1995, and provides that it will continue in effect from year to year
thereafter, provided continuance of the Agreement is approved at least annually
by the Trustees of the Fund, including the vote of a majority of the Trustees
of the Fund who are not parties to the Management or Advisory Agreement or
"interested persons" (as defined in the Investment Company Act of 1940, as
amended (the "Act")), of any such party (the "Independent Trustees").
Continuation of the Management Agreement for one year, until April 30, 1997,
was approved by the Trustees, including a majority of the Independent Trustees,
at a meeting called for that purpose on April 17, 1996.
THE ADVISER
TCW Funds Management, Inc. (the "Adviser") is a wholly-owned subsidiary of
The TCW Group, Inc. ("TCW"), whose subsidiaries, including Trust Company of the
West and TCW Asset Management Company, provide a variety of trust, investment
management and investment advisory services. As of February 28, 1997, the
Adviser and its affiliates had over $50 billion under management or committed
to management. The Adviser is headquartered at 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017 and is registered as an investment adviser
under the Investment Advisers Act of 1940. In addition to the Fund, the Adviser
serves as investment adviser to thirteen other TCW/DW Funds: TCW/DW Core Equity
Trust, TCW/DW North American Government Income Trust, TCW/DW Latin American
Growth Fund, TCW/DW Small Cap Growth Fund, TCW/DW Balanced Fund, TCW/DW Mid-Cap
Equity Trust, TCW/DW Term Trust 2000, TCW/ DW Term Trust 2002, TCW/DW Term
Trust 2003, TCW/DW Emerging Markets Opportunities Trust, TCW/DW Global Telecom
Trust, TCW/DW Strategic Income Trust, and TCW/DW Total Return Trust. The
Adviser also serves as investment adviser to TCW Convertible Securities Fund,
Inc., a closed-end investment company traded on the New York Stock Exchange,
and to TCW Galileo
4
<PAGE>
Funds, Inc., an open-end investment company, and acts as adviser or sub-adviser
to other investment companies.
Robert A. Day, who is Chairman of the Board of Directors of TCW, may be
deemed to be a control person of the Adviser by virtue of the aggregate
ownership of Mr. Day and his family of more than 25% of the outstanding voting
stock of TCW.
Pursuant to an investment advisory agreement (the "Advisory Agreement")
with the Adviser, the Fund has retained the Adviser to invest the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. The Adviser obtains and evaluates such information and advice
relating to the economy, securities markets, and specific securities as it
considers necessary or useful to continuously manage the assets of the Fund in
a manner consistent with its investment objective. In addition, the Adviser
pays the salaries of all personnel, including officers of the Fund, who are
employees of the Adviser.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Adviser, the Fund pays the Adviser
monthly compensation calculated daily by applying the following annual rates to
the net assets of the Fund determined as of the close of each business day:
0.30% of the portion of daily net assets not exceeding $500 million; and 0.28%
of the portion of daily net assets exceeding $500 million. For the fiscal years
ended January 31, 1995, January 31, 1996 and January 31, 1997, the Fund accrued
to the Adviser total compensation under the Advisory Agreement of $189,037,
$164,877 and $173,493, respectively.
The Advisory Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations
thereunder, the Adviser is not liable to the Fund or any of its investors for
any act or omission by the Adviser or for any losses sustained by the Fund or
its Investors. The Advisory Agreement in no way restricts the Adviser from
acting as investment adviser to others.
The Advisory Agreement was initially approved by the Trustees on January
21, 1993 and by InterCapital as then sole shareholder on January 22, 1993. The
Advisory Agreement may be terminated at any time, without penalty, on thirty
days' notice by the Trustees of the Fund, by the holders of a majority, as
defined in the Act, of the outstanding shares of the Fund, or by the Adviser.
The Agreement will automatically terminate in the event of its assignment (as
defined in the Act).
Under its terms, the Advisory Agreement continued in effect until April 30,
1994, and provides that it will continue from year to year thereafter, provided
continuance of the Agreement is approved at least annually by the vote of the
holders of a majority, as defined in the Act, of the outstanding shares of the
Fund, or by the Trustees of the Fund; provided that in either event such
continuance is approved annually by the vote of a majority of the Independent
Trustees of the Fund, which vote must be cast in person at a meeting called for
the purpose of voting on such approval. Continuation of the Advisory Agreement
until April 30, 1997 was approved by the Trustees, including a majority of the
Independent Trustees, at a meeting called for that purpose on April 17, 1996.
Expenses not expressly assumed by the Manager under the Management
Agreement, by the Adviser under the Advisory Agreement or by the Distributor of
the Fund's shares, Dean Witter Distributors Inc. ("Distributors" or the
"Distributor") (see "The Distributor"), will be paid by the Fund. The expenses
borne by the Fund include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1 (see "The Distributor"); charges and
expenses of any registrar; custodian, stock transfer and dividend disbursing
agent; brokerage commissions and securities transaction costs; taxes; engraving
and printing of share certificates; registration costs of the Fund and its
shares under federal and state securities laws; the cost and expense of
printing, including typesetting, and distributing Prospectuses and Statements
of Additional Information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Trustees or members of any advisory
board or committee who are not employees of the
5
<PAGE>
Manager or Adviser or any corporate affiliate of either; all expenses incident
to any dividend, withdrawal or redemption options; charges and expenses of any
outside service used for pricing of the Fund's shares; fees and expenses of
legal counsel, including counsel to the Trustees who are not interested persons
of the Fund or of the Manager or the Adviser (not including compensation or
expenses of attorneys who are employees of the Manager or the Adviser) and
independent accountants; membership dues of industry associations; interest on
Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Trustees) of the Fund which inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto); and
all other costs of the Fund's operation.
DWR and TCW have entered into an Agreement for the purpose of creating,
managing, administering and distributing a family of investment companies and
other managed pooled investment vehicles offered on a retail basis within the
United States. The Agreement contemplates that, subject to approval of the
board of trustees or directors of a particular investment entity, DWR or its
affiliates will provide management and distribution services and TCW or its
affiliates will provide investment advisory services for each such investment
entity. The Agreement sets forth the terms and conditions of the relationship
between TCW and its affiliates and DWR and its affiliates and the manner in
which the parties will implement the creation and maintenance of the investment
entities, including the parties' expectations as to respective allocation of
fees to be paid by an investment entity to each party for the services to be
provided to it by such party.
The Fund has acknowledged that each of DWR and TCW owns its own name,
initials and logo. The Fund has agreed to change its name at the request of
either the Manager or the Adviser, or if the Management Agreement between the
Manager and the Fund or the Advisory Agreement between the Adviser and the Fund
is terminated.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Manager or the Adviser, and the affiliated companies of either, and with the 14
TCW/DW Funds and with the 83 investment companies of which InterCapital serves
as investment manager (or investment adviser and administrator) (the "Dean
Witter Funds"), are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ---------------------------------------------
<S> <C>
John C. Argue (65) Of Counsel, Argue Pearson Harbison & Myers
Trustee (law firm); Director, Avery Dennison Corpora-
c/o Argue Pearson Harbison & Myers tion (manufacturer of self-adhesive products
801 South Flower Street and office supplies) and CalMat Company
Los Angeles, California (producer of aggregates, asphalt and ready
mixed concrete); Chairman, Rose Hills
Foundation (charitable foundation); advisory
director, LAACO Ltd. (owner and operator of
private clubs and real estate); director or
trustee of various business and
not-for-profit corporations; Director, Coast
Savings Financial Inc. and Coast Federal
Bank (a subsidiary of Coast Savings
Financial Inc.); Director, TCW Galileo Funds,
Inc.; Trustee, University of Southern
California, Occidental College and Pomona
College; Trustee of the TCW/DW Funds.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Richard M. DeMartini* (44) President and Chief Operating Officer of Dean
Trustee Witter Capital, a division of DWR; Director
Two World Trade Center of DWR, the Manager, InterCapital,
New York, New York Distributors and Dean Witter Trust Company
("DWTC"); Executive Vice President of Dean
Witter Discover & Co. ("DWDC"); Member of
the DWDC Management Committee; Trustee of
the TCW/ DW Funds; Member (since January,
1993) and Chairman (since January, 1995) of
the Board of Directors of NASDAQ.
Charles A. Fiumefreddo* (63) Chairman, Chief Executive Officer and
Chairman of the Board, Chief Director of the Manager, InterCapital and
Executive Officer and Trustee Distributors; Executive Vice President and
Two World Trade Center Director of DWR; formerly Executive Vice
New York, New York President and Director of DWDC (until
February, 1993); Chairman of the Board,
Chief Executive Officer and Trustee of the
TCW/DW Funds; Chairman of the Board,
Director or Trustee, President and Chief
Executive Officer of the Dean Witter Funds;
Chairman and Director of DWTC; Director
and/or officer of various DWDC subsidiaries.
John R. Haire (72) Chairman of the Audit Committee and Chairman
Trustee of the Committee of the Independent Trustees
Two World Trade Center and Trustee of the TCW/DW Funds; Chairman of
New York, New York the Audit Committee and Chairman of the
Committee of Independent Directors or
Trustees of each of the Dean Witter Funds;
formerly President, Council for Aid to
Education (1978-1989) and Chairman and Chief
Executive Officer of Anchor Corporation, an
Investment Adviser (1964-1978); Director of
Washington National Corporation (insurance).
Dr. Manuel H. Johnson (48) Senior Partner, Johnson Smick International,
Trustee Inc., a consulting firm; Trustee of the
c/o Johnson Smick International, Inc. Financial Accounting Foundation (oversight
1133 Connecticut Avenue, N.W. organization of the FASB); Co-Chairman and a
Washington, D.C. founder of the Group of Seven Council (G7C),
an international economic commission (since
September, 1990); Director of NASDAQ (since
June, 1995); Director of Greenwich Capital
Markets, Inc. (broker-dealer); formerly Vice
Chairman of the Board of Governors of the
Federal Reserve System (February,
1986-August, 1990) and Assistant Secretary
of the U.S. Treasury (1982-1986); Trustee of
the TCW/DW Funds; Director or Trustee of the
Dean Witter Funds.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Thomas E. Larkin, Jr.* (57) Executive Vice President and Director, The
President and Trustee TCW Group, Inc.; President and Director of
865 South Figueroa Street Trust Company of the West; Vice Chairman and
Los Angeles, California Director of TCW Asset Management Company;
Chairman of the Adviser; Member of the Board
of Trustees of the University of Notre Dame;
Director of Orthopaedic Hospital of Los Ange-
les; President and Director of TCW Galileo
Funds, Inc.; Senior Vice President of TCW
Convertible Securities Fund, Inc.; President
and Trustee of the TCW/DW Funds.
Michael E. Nugent (60) General Partner, Triumph Capital, L.P., a
Trustee private investment partnership; formerly
c/o Triumph Capital, L.P. Vice President, Bankers Trust Company and BT
237 Park Avenue Capital Corporation (1984-1988); Director of
New York, New York various business organizations; Trustee of
the TCW/DW Funds; Director or Trustee of the
Dean Witter Funds.
John L. Schroeder (66) Retired; Director or Trustee of the Dean
Trustee Witter Funds; Trustee of the TCW/DW Funds;
c/o Gordon Altman Butowsky Weitzen Director of Citizens Utilities Company;
Shalov & Wein formerly Executive Vice President and Chief
Counsel to the Independent Trustees Investment Officer of the Home Insurance
114 West 47th Street Company (August, 1991-September, 1995) and
New York, New York formerly Chairman and Chief Investment
Officer of Axe-Houghton Management and the
Axe-Houghton Funds (April, 1983-June 1991).
Marc I. Stern* (52) Vice President of the Fund; President, The
Trustee TCW Group, Inc. (since May, 1992); President
865 South Figueroa Street and Director of the Adviser (since May,
Los Angeles, California 1992); Vice Chairman and Director of TCW
Asset Management Company (since May, 1992);
Executive Vice President and Director of
Trust Company of the West; Chairman and
Director of TCW Galileo Funds, Inc; Trustee
of the TCW/DW Funds; Chairman of TCW
Americas Development, Inc.; Chairman of TCW
Asia, Limited (since January 1993); Chairman
of TCW London International, Limited (since
March, 1993); formerly President and
Director of SunAmerica, Inc. (financial ser-
vices company); Director of Qualcomm,
Incorporated (wireless communications);
Director or Trustee of various
not-for-profit organizations.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Barry Fink (42) Senior Vice President (since March, 1997) and
Vice President, Secretary and General Counsel Secretary and General Counsel (since
Two World Trade Center February, 1997) of InterCapital and the
New York, New York Manager; Senior Vice President (since March,
1997) and Assistant Secretary and Assistant
General Counsel (since February, 1997) of
Distributors; Assistant Secretary of DWR
(since August, 1996); Vice President,
Secretary and General Counsel of the Dean
Witter Funds and the TCW/DW Funds (since
February, 1997); previously First Vice
President (June 1993-February, 1997), Vice
President (until June, 1993) and Assistant
Secretary and Assistant General Counsel of
InterCapital and the Manager and Assistant
Secretary of the Dean Witter Funds and the
TCW/DW Funds.
Robert M. Hanisee (58) Managing Director of the Adviser; Managing
Vice President Director, Director of Research and Chairman
865 South Figueroa Street of the Equity Policy Committee of Trust
Los Angeles, California Company of the West and TCW Asset Management
Company.
Kevin A. Hunter (38) Senior Vice President of the Adviser, Trust
Vice President Company of the West and TCW Asset Management
865 South Figueroa Street Company.
Los Angeles, California
Mark Attanasio (39) Group Managing Director of TCW Group Inc.;
Vice President formerly Co-Chief Executive Officer and Chief
865 South Figueroa Street Portfolio Strategist of Crescent Capital
Los Angeles, California Corporation (April 1991-April 1995);
formerly a Managing Director of Drexel
Burnham Lambert (March 1990-March 1991).
Melissa Weiler (32) Senior Vice President of the Adviser, Trust
Vice President Company of the West and TCW Asset Management
865 South Figueroa Street Company; Vice President and Portfolio Manager
Los Angeles, California of Crescent Capital Management (an investment
adviser) (since February, 1992); previously
Senior Investment Analyst at First Capital
Holdings Corporation.
Thomas F. Caloia (51) First Vice President and Assistant Treasurer
Treasurer of the Manager and InterCapital and
Two World Trade Center Treasurer of the TCW/DW Funds and the Dean
New York, New York Witter Funds; previously Vice President of
InterCapital.
</TABLE>
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
the Manager, InterCapital, Executive Vice President of Distributors and DWTC
and Director of DWTC, and Robert S. Giambrone, Senior Vice President of
InterCapital, DWSC, Distributors and DWTC, are Vice Presidents of the Fund, and
Marilyn K. Cranney First Vice President and Assistant General Counsel of the
Manager and InterCapital and DWSC, and Lou Anne D. McInnis and Ruth Rossi, Vice
Presidents
9
<PAGE>
and Assistant General Counsels of the Manager and InterCapital and DWSC and
Frank Bruttomesso and Carsten Otto, Staff Attorneys with InterCapital, are
Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same individuals
also serve as trustees for all of the TCW/DW Funds. As of the date of this
Statement of Additional Information, there are a total of 14 TCW/DW Funds. As
of February 28, 1997, the TCW/DW Funds had total net assets of approximately
$4.5 billion and approximately a quarter of a million shareholders.
Five Trustees (56% of the total number) have no affiliation or business
connection with TCW Funds Management, Inc. or Dean Witter Services Company Inc.
or any of their affiliated persons and do not own any stock or other securities
issued by DWDC or TCW, the parent companies of Dean Witter Services Company
Inc. and TCW Funds Management, Inc., respectively. These are the
"disinterested" or "independent" Trustees. The other four Trustees (the
"management Trustees") are affiliated with either Dean Witter Services Company
Inc. or TCW. Four of the five independent Trustees are also Independent
Trustees of the Dean Witter Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The TCW/DW Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Trustees who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee and
the Committee of the Independent Trustees. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1996,
the three Committees held a combined total of fifteen meetings. The Committees
hold some meetings at the offices of the Manager or Adviser and some outside
those offices. Management Trustees or officers do not attend these meetings
unless they are invited for purposes of furnishing information or making a
report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to
time. The Independent Trustees are required to select and nominate individuals
to fill any Independent Trustee vacancy on the Board of any Fund that has a Rule
12b-1 plan of distribution. Each of the open-end TCW/DW Funds has such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
10
<PAGE>
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT COMMITTEE
On July 1, 1996, Mr. Haire became Chairman of the Committee of the
Independent Trustees and the Audit Committee of the TCW/DW Funds. The Chairman
of the Committees maintains an office at the Funds' headquarters in New York.
He is responsible for keeping abreast of regulatory and industry developments
and the Funds' operations and management. He screens and/or prepares written
materials and identifies critical issues for the Independent Trustees to
consider, develops agendas for Committee meetings, determines the type and
amount of information that the Committees will need to form a judgment on
various issues, and arranges to have that information furnished to Committee
members. He also arranges for the services of independent experts and consults
with them in advance of meetings to help refine reports and to focus on
critical issues. Members of the Committees believe that the person who serves
as Chairman of both Committees and guides their efforts is pivotal to the
effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Adviser and the Manager and other
service providers. In effect, the Chairman of the Committees serves as a
combination of chief executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the TCW/DW Funds and as Chairman of the Committee of the Independent
Trustees and the Audit Committee and Independent Director or Trustee of the
Dean Witter Funds. The current Committee Chairman has had more than 35 years
experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL TCW/DW
FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the TCW/DW Funds avoids the duplication
of effort that would arise from having different groups of individuals serving
as Independent Trustees for each of the Funds or even of sub-groups of Funds.
They believe that having the same individuals serve as Independent Trustees of
all the Funds tends to increase their knowledge and expertise regarding matters
which affect the Fund complex generally and enhances their ability to negotiate
on behalf of each Fund with the Fund's service providers. This arrangement also
precludes the possibility of separate groups of Independent Trustees arriving
at conflicting decisions regarding operations and management of the Funds and
avoids the cost and confusion that would likely ensue. Finally, having the same
Independent Trustees serve on all Fund Boards enhances the ability of each Fund
to obtain, at modest cost to each separate Fund, the services of Independent
Trustees, and a Chairman of their Committees, of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
TCW/DW Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $2,225 plus a per
meeting fee of $200 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee of
the Independent Trustees an additional annual fee of $1,200). The Fund also
reimburses such Trustees for travel and other out-of-pocket expenses incurred
by them in connection with attending such meetings. Trustees and officers of
the Fund who are or have been employed by the Manager or the Adviser or an
affiliated company of either receive no compensation or expense reimbursement
from the Fund. The Trustees of the TCW/DW Funds do not have retirement or
deferred compensation plans.
11
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended January 31, 1997.
Fund Compensation
<TABLE>
<CAPTION>
Aggregate
Compensation
Name of Independent Trustee From the Fund
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
John C. Argue.................................................................................... $ 5,491
John R. Haire.................................................................................... 6,753
Dr. Manuel H. Johnson............................................................................ 5,474
Michael E. Nugent................................................................................ 5,254
John L. Schroeder................................................................................ 5,691
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1996 for services
to the 14 TCW/DW Funds and, in the case of Messrs. Haire, Johnson, Nugent and
Schroeder, the 82 Dean Witter Funds that were in operation at December 31,
1996, and, in the case of Mr. Argue, TCW Galileo Funds, Inc. With respect to
Messrs. Haire, Johnson, Nugent and Schroeder, the Dean Witter Funds are
included solely because of a limited exchange privilege between various TCW/DW
Funds and five Dean Witter Money Market Funds. With respect to Mr. Argue, TCW
Galileo Funds, Inc. is included solely because the Fund's Adviser, TCW Funds
Management, Inc., also serves as Adviser to that investment company.
Cash Compensation from Fund Groups
<TABLE>
<CAPTION>
For Service as
For Service as Chairman of
Chairman of Committees of
For Service as Committees of Independent
Director or Independent Directors/
For Service as Trustee and Trustees and Trustees and
Trustee and Committee For Service as Audit Audit
Committee Member of 82 Director of TCW Committees of Committees of
Member of 14 Dean Witter Galileo Funds, 14 TCW/DW 82 Dean
Name of Independent Trustee TCW/DW Funds Funds Inc. Funds Witter Funds
- --------------------------- ---------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
John C. Argue.............. $ 66,483 -- $39,000 -- --
John R. Haire.............. 64,283 $106,400 -- $ 12,187 $195,450
Dr. Manuel H. Johnson...... 66,483 137,100 -- -- --
Michael E. Nugent.......... 64,283 138,850 -- -- --
John L. Schroeder.......... 69,083 137,150 -- -- --
<CAPTION>
Total Cash
Compensation
for Services
to 82 Dean
Witter Funds,
14 TCW/DW
Funds and
TCW Galileo
Name of Independent Trustee Funds, Inc.
- --------------------------- -------------
<S> <C>
John C. Argue.............. $105,483
John R. Haire.............. 378,320
Dr. Manuel H. Johnson...... 203,583
Michael E. Nugent.......... 203,133
John L. Schroeder.......... 206,233
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds have adopted a retirement program under which an Independent
Trustee who retires after serving for at least five years (or such lesser
period as may be determined by the Board) as an Independent Director or Trustee
of any Dean Witter Fund that has adopted the retirement program (each such Fund
referred to as an "Adopting Fund" and each such Trustee referred to as an
"Eligible Trustee") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments are
based upon length of service. Currently, upon retirement, each Eligible Trustee
is entitled to receive from the Adopting Fund, commencing as of his or her
retirement date and continuing for the remainder of his or her life, an annual
retirement benefit (the "Regular Benefit") equal to 25.0% of his or her
Eligible Compensation plus 0.4166666% of such Eligible Compensation for each
full month of service as an Independent Director or Trustee of any Adopting
Fund in excess of five years up to a maximum of 50.0% after ten years of
service. The foregoing percentages may be changed by the Board.(1) "Eligible
Compensation" is one-fifth of the total compensation earned by such Eligible
Trustee for service to the Adopting Fund in the five year period prior to the
date of the Eligible Trustee's retirement. Benefits under the retirement program
are not secured or funded by the Adopting Funds.
12
<PAGE>
The following table illustrates the retirement benefits accrued to Messrs.
Haire, Johnson, Nugent and Schroeder by the 57 Dean Witter Funds for the year
ended December 31, 1996, and the estimated retirement benefits for Messrs.
Haire, Johnson, Nugent and Schroeder, to commence upon their retirement, from
the 57 Dean Witter Funds as of December 31, 1996.
Retirement Benefits From All Dean Witter Funds
<TABLE>
<CAPTION>
Retirement
Benefits
Estimated Accrued as
Credited Years Estimated Expenses
of Service at Percentage of By All
Retirement Eligible Adopting
Name of Independent Trustee (Maximum 10) Compensation Funds
- ----------------------------------------------------------------- ------------------- ----------------- ------------
<S> <C> <C> <C>
John R. Haire.................................................... 10 50.0% $ 46,952
Dr. Manuel H. Johnson............................................ 10 50.0 10,926
Michael E. Nugent................................................ 10 50.0 19,217
John L. Schroeder................................................ 8 41.7 38,700
<CAPTION>
Estimated
Annual
Benefits
Upon
Retirement
From All
Adopting
Name of Independent Trustee Funds(2)
- ----------------------------------------------------------------- ------------
<S> <C>
John R. Haire.................................................... $ 129,550
Dr. Manuel H. Johnson............................................ 51,325
Michael E. Nugent................................................ 51,325
John L. Schroeder................................................ 42,771
</TABLE>
- ---------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement.
The amount estimated to be payable under this method, through the
remainder of the later of the lives of such Eligible Trustee and spouse,
will be the actuarial equivalent of the Regular Benefit. In addition, the
Eligible Trustee may elect that the surviving spouse's periodic payment
of benefits will be equal to either 50% or 100% of the previous periodic
amount, an election that, respectively, increases or decreases the
previous periodic amount so that the resulting payments will be the
actuarial equivalent of the Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES
As discussed in the Prospectus, the Fund may invest in, among other
securities, securities issued by the U.S. Government, its agencies or
instrumentalities. Such securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration, the General Services
Administration, the Maritime Administration and the Small Business
Administration. The maturities of such obligations range from three months
to 30 years.
(3) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but whose issuing
agency or instrumentality has the right to borrow, to meet its obligations,
from an existing line of credit with the U.S. Treasury. Among the agencies
and instrumentalities issuing such obligations are the Tennessee Valley
Authority, the Federal National Mortgage Association ("FNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC") and the U.S. Postal Service.
13
<PAGE>
(4) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but which are
backed by the credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are the Federal
Farm Credit System and the Federal Home Loan Banks.
Neither the value nor the yield of the U.S. Government securities which may
be invested in by the Fund are guaranteed by the U.S. Government. Such values
and yield will fluctuate with changes in prevailing interest rates and other
factors. Generally, as prevailing interest rates rise, the value of any U.S.
Government securities held by the Fund will fall. Such securities with longer
maturities generally tend to produce higher yields and are subject to greater
market fluctuation as a result of changes in interest rates than debt
securities with shorter maturities. The Fund is not limited as to the
maturities of the U.S. Government securities in which it may invest.
MONEY MARKET SECURITIES
As stated in the Prospectus, the U.S. money market instruments which the
Fund may purchase include U.S. Government securities, bank obligations,
Eurodollar certificates of deposit, obligations of savings institutions, fully
insured certificates of deposit and commercial paper. Such securities are
limited to:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government and
having total assets of $1 billion or more, and instruments secured by such
obligations, not including obligations of foreign branches of domestic banks
except to the extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more (investments in Eurodollar certificates may be affected by changes in
currency rates or exchange control regulations, or changes in governmental
administration or economic or monetary policy in the United States and abroad);
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more (investments in savings institutions above $100,000 in principal amount
are not protected by Federal deposit insurance);
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks
and savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is insured by the Bank Insurance Fund or the
Savings Association Insurance Fund (each of which is administered by the
Federal Deposit Insurance Corporation), limited to $100,000 principal amount
per certificate and to 15% or less of the Fund's net assets in all such
obligations and in all illiquid assets, in the aggregate; and
COMMERCIAL PAPER. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation or the highest grade by Moody's Investors
Service, Inc. or, if not rated, issued by a company having an outstanding debt
issue rated at least AAA by Standard & Poor's or Aaa by Moody's.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested
or used for payments of obligations of the Fund. These agreements, which may be
viewed as a type of secured lending by the Fund, typically involve the
acquisition by the Fund of debt securities from a selling financial institution
such as a bank, savings and loan association or broker-dealer. The agreement
provides that the Fund will sell
14
<PAGE>
back to the institution, and that the institution will repurchase, the
underlying security ("collateral") at a specified price and at a fixed time in
the future, usually not more than seven days from the date of purchase. The
collateral will be maintained in a segregated account and will be marked to
market daily to determine that the value of the collateral, as specified in the
agreement, does not decrease below the purchase price plus accrued interest. If
such decrease occurs, additional collateral will be requested and, when
received, added to the account to maintain full collateralization. The Fund will
accrue interest from the institution until the time when the repurchase is to
occur. Although such date is deemed by the Fund to be the maturity date of a
repurchase agreement, the maturities of securities subject to repurchase
agreements are not subject to any limits and may exceed one year.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
whose financial condition will be continually monitored by the Adviser subject
to procedures established by the Board of Trustees of the Fund. In addition, as
described above, the value of the collateral underlying the repurchase
agreement will be at least equal to the repurchase price, including any accrued
interest earned on the repurchase agreement. In the event of a default or
bankruptcy by a selling financial institution, the Fund will seek to liquidate
such collateral. However, the exercising of the Fund's right to liquidate such
collateral could involve certain costs or delays and, to the extent that
proceeds from any sale upon a default of the obligation to repurchase were less
than the repurchase price, the Fund could suffer a loss. It is the current
policy of the Fund not to invest in repurchase agreements that do not mature
within seven days if any such investment, together with any other illiquid
assets held by the Fund, amounts to more than 15% of its net assets. For the
fiscal year ended January 31, 1997, the Fund did not enter into repurchase
agreements in an amount exceeding 5% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
From time to time, in the ordinary course of business, the Fund may
purchase securities on a when-issued or delayed delivery basis and may purchase
or sell securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery and
payment can take place a month or more after the date of the commitment. The
securities so purchased or sold are subject to market fluctuation and no
interest or dividends accrue to the purchaser prior to the settlement date.
While the Fund will only purchase securities on a when-issued, delayed delivery
or forward commitment basis with the intention of acquiring the securities, the
Fund may sell the securities before the settlement date, if it is deemed
advisable. At the time the Fund makes the commitment to purchase or sell
securities on a when-issued, delayed delivery or forward commitment basis, the
Fund will record the transaction and thereafter reflect the value, each day, of
such security purchased or, if a sale, the proceeds to be received, in
determining its net asset value. At the time of delivery of the securities, the
value may be more or less than the purchase or sale price. The Fund will also
establish a segregated account with the Fund's custodian bank in which it will
continuously maintain cash or U.S. Government securities or other liquid
portfolio securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis; subject to this
requirement, the Fund may purchase securities on such basis without limit. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Fund's net asset value. The Adviser does not believe that the
Fund's net asset value or income will be adversely affected by its purchase of
securities on such basis. For the fiscal year ended January 31, 1997, the Fund
did not purchase securities on a when-issued and delayed delivery basis.
WHEN, AS AND IF ISSUED SECURITIES
The Fund may purchase securities on a "when, as and if issued" basis under
which the issuance of the security depends upon the occurrence of a subsequent
event, such as approval of a merger, corporate reorganization, leveraged buyout
or debt restructuring. The commitment for the purchase of any such security
will not be recognized in the portfolio of the Fund until the Adviser determines
15
<PAGE>
that issuance of the security is probable. At such time, the Fund will record
the transaction and, in determining its net asset value, will reflect the value
of the security daily. At such time, the Fund will also establish a segregated
account with its custodian bank in which it will continuously maintain cash or
U.S. Government securities or other liquid portfolio securities equal in value
to recognized commitments for such securities. Settlement of the trade will
occur within five business days of the occurrence of the subsequent event. Once
a segregated account has been established, if the anticipated event does not
occur and the securities are not issued the Fund will have lost an investment
opportunity. The Fund may purchase securities on such basis without limit. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
its net asset value. The Adviser does not believe that the net asset value of
the Fund will be adversely affected by its purchase of securities on such
basis. The Fund may also sell securities on a "when, as and if issued" basis
provided that the issuance of the security will result automatically from the
exchange or conversion of a security owned by the Fund at the time of the sale.
During the fiscal year ended January 31, 1997, the Fund did not purchase any
securities on a when, as and if issued basis.
OPTIONS AND FUTURES TRANSACTIONS
As discussed in the Prospectus, the Fund may write covered call options
against securities held in its portfolio and covered put options on eligible
portfolio securities and purchase options of the same series to effect closing
transactions, and may hedge against potential changes in the market value of
its investments (or anticipated investments) by purchasing put and call options
on portfolio (or eligible portfolio) securities (and the currencies in which
they are denominated) and engaging in transactions involving futures contracts
and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills are listed on
several securities exchanges and are written in over-the-counter transactions
("OTC Options"). Listed options are issued or guaranteed by the exchange on
which they trade or by a clearing corporation such as the Options Clearing
Corporation ("OCC"). Ownership of a listed call option gives the Fund the right
to buy from the OCC or other clearing corporation or exchange, the underlying
security or currency covered by the option at the stated exercise price (the
price per unit of the underlying security or currency) by filing an exercise
notice prior to the expiration date of the option. The writer (seller) of the
option would then have the obligation to sell, to the OCC or other clearing
corporation or exchange, the underlying security or currency at that exercise
price prior to the expiration date of the option, regardless of its then
current market price. Ownership of a listed put option would give the Fund the
right to sell the underlying security to the OCC or other clearing corporation
or exchange at the stated exercise price. Upon notice of exercise of the put
option, the writer of the option would have the obligation to purchase the
underlying security or currency from the OCC (in the U.S.) or other clearing
corporation or exchange at the exercise price.
OTC OPTIONS. Exchange-listed options are issued by the OCC or other
clearing corporation or exchange which assures that all transactions in such
options are properly executed. OTC options are purchased from or sold (written)
to dealers or financial institutions which have entered into direct agreements
with the Fund. With OTC options, such variables as expiration date, exercise
price and premium will be agreed upon between the Fund and the transacting
dealer, without the intermediation of a third party such as the OCC. If the
transacting dealer fails to make or take delivery of the securities or amount
of foreign currency underlying an option it has written, in accordance with the
terms of that option, the Fund would lose the premium paid for the option as
well as any anticipated benefit of the transaction. The Fund will engage in OTC
option transactions only with member banks of the Federal Reserve System or
primary dealers in U.S. Government securities or with affiliates of such banks
or dealers which have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million.
COVERED CALL WRITING. As stated in the Prospectus, the Fund is permitted
to write covered call options on portfolio securities and on the U.S. Dollar,
without limit, in order to aid in achieving its
16
<PAGE>
investment objective. Generally, a call option is "covered" if the Fund owns,
or has the right to acquire, without additional cash consideration (or for
additional cash consideration held for the Fund by its Custodian in a
segregated account) the underlying security (currency) subject to the option
except that in the case of call options on U.S. Treasury Bills, the Fund might
own U.S. Treasury Bills of a different series from those underlying the call
option, but with a principal amount and value corresponding to the exercise
price and a maturity date no later than that of the security (currency)
deliverable under the call option. A call option is also covered if the Fund
holds a call on the same security as the underlying security (currency) of the
written option, where the exercise price of the call used for coverage is equal
to or less than the exercise price of the call written or greater than the
exercise price of the call written if the mark to market difference is
maintained by the Fund in cash, U.S. Government securities or other liquid
portfolio securities which the Fund holds in a segregated account maintained
with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to earn a higher level of current income than it
would earn from holding the underlying securities (currencies) alone. Moreover,
the premium received will offset a portion of the potential loss incurred by
the Fund if the securities (currencies) underlying the option are ultimately
sold (exchanged) by the Fund at a loss. Furthermore, a premium received on a
call written on a foreign currency will ameliorate any potential loss of value
on the portfolio security due to a decline in the value of the currency.
However, during the option period, the covered call writer has, in return for
the premium or the option, given up the opportunity for capital appreciation
above the exercise price should the market price of the underlying security (or
the exchange rate of the currency in which it is denominated) increase, but has
retained the risk of loss should the price of the underlying security (or the
exchange rate of the currency in which it is denominated) decline. The premium
received will fluctuate with varying economic market conditions. If the market
value of the portfolio securities (or the currencies in which they are
denominated) upon which call options have been written increases, the Fund may
receive a lower total return from the portion of its portfolio upon which calls
have been written than it would have had such calls not been written.
As regards listed options and certain OTC options, during the option
period, the Fund may be required, at any time, to deliver the underlying
security (currency) against payment of the exercise price on any calls it has
written (exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing
purchase transaction. A closing purchase transaction is accomplished by
purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit
on an outstanding call option, to prevent an underlying security (currency)
from being called, to permit the sale of an underlying security (or the
exchange of the underlying currency) or to enable the Fund to write another
call option on the underlying security (currency) with either a different
exercise price or expiration date or both. The Fund may realize a net gain or
loss from a closing purchase transaction depending upon whether the amount of
the premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be wholly or partially offset by unrealized
appreciation in the market value of the underlying security (currency).
Conversely, a gain resulting from a closing purchase transaction could be
offset in whole or in part or exceeded by a decline in the market value of the
underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised, the
Fund realizes a gain or loss from the sale of the underlying security
(currency) equal to the difference
17
<PAGE>
between the purchase price of the underlying security (currency) and the
proceeds of the sale of the security (currency) plus the premium received on
the option less the commission paid.
Options written by the Fund will normally have expiration dates of up to
eighteen months from the date written. The exercise price of a call option may
be below, equal to or above the current market value of the underlying security
at the time the option is written. See "Risks of Options and Futures
Transactions," below.
COVERED PUT WRITING. As stated in the Prospectus, as a writer of a covered
put option, the Fund incurs an obligation to buy the security underlying the
option from the purchaser of the put, at the option's exercise price at any
time during the option period, at the purchaser's election (certain listed and
OTC put options written by the Fund will be exercisable by the purchaser only
on a specific date). A put is "covered" if, at all times, the Fund maintains,
in a segregated account maintained on its behalf at the Fund's Custodian, cash,
U.S. Government securities or other liquid portfolio securities in an amount
equal to at least the exercise price of the option, at all times during the
option period. Similarly, a short put position could be covered by the Fund by
its purchase of a put option on the same security (currency) as the underlying
security of the written option, where the exercise price of the purchased
option is equal to or more than the exercise price of the put written or less
than the exercise price of the put written if the marked to market difference
is maintained by the Fund in cash, U.S. Government Securities or other liquid
portfolio securities which the Fund holds in a segregated account maintained at
its Custodian. In writing puts, the Fund assumes the risk of loss should the
market value of the underlying security (currency) decline below the exercise
price of the option (any loss being decreased by the receipt of the premium on
the option written). In the case of listed options, during the option period,
the Fund may be required, at any time, to make payment of the exercise price
against delivery of the underlying security (currency). The operation of and
limitations on covered put options in other respects are substantially
identical to those of call options.
The Fund will write put options for three purposes: (1) to receive the
income derived from the premiums paid by purchasers; (2) when the Adviser
wishes to purchase the security (or a security denominated in the currency
underlying the option) underlying the option at a price lower than its current
market price, in which case it will write the covered put at an exercise price
reflecting the lower purchase price sought; and (3) to close out a long put
option position. The potential gain on a covered put option is limited to the
premium received on the option (less the commissions paid on the transaction)
while the potential loss equals the differences between the exercise price of
the option and the current market price of the underlying securities
(currencies) when the put is exercised, offset by the premium received (less
the commissions paid on the transaction). The aggregate value of the
obligations underlying the puts, determined as of the date the options are
sold, will not exceed 50% of the Fund's net assets.
PURCHASING CALL AND PUT OPTIONS. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options in amounts equalling up to 5% of
its total assets. The Fund may purchase a call option in order to close out a
covered call position (see "Covered Call Writing" above), to protect against an
increase in price of a security it anticipates purchasing or, in the case of a
call option on foreign currency, to hedge against an adverse exchange rate move
of the currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The purchase
of the call option to effect a closing transaction on a call written over-the-
counter may be a listed or an OTC option. In either case, the call purchased is
likely to be on the same securities (currencies) and have the same terms as the
written option. If purchased over-the-counter, the option would generally be
acquired from the dealer or financial institution which purchased the call
written by the Fund.
The Fund may purchase put options on securities (currencies) which it holds
in its portfolio to protect itself against a decline in the value of the
security and to close out written put option positions. If the value of the
underlying security (currency) were to fall below the exercise price of the put
purchased in an amount greater than the premium paid for the option, the Fund
would incur
18
<PAGE>
no additional loss. In addition, the Fund may sell a put option which it has
previously purchased prior to the sale of the securities (currencies)
underlying such option. Such a sale would result in a net gain or loss
depending on whether the amount received on the sale is more or less than the
premium and other transaction costs paid on the put option which is sold. And
such gain or loss could be offset in whole or in part by a change in the market
value of the underlying security (currency). If a put option purchased by the
Fund expired without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of
the underlying security (or the value of its denominated currency) increase,
but has retained the risk of loss should the price of the underlying security
(or the value of its denominated currency) decline. The writer has no control
over the time when it may be required to fulfill its obligation as a writer of
the option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver or receive the underlying securities at the
exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting OTC option, it cannot sell the underlying security until the
option expires or the option is exercised. Accordingly, a covered call option
writer may not be able to sell an underlying security at a time when it might
otherwise be advantageous to do so. A secured put option writer who is unable
to effect a closing purchase transaction or to purchase an offsetting OTC
option would continue to bear the risk of decline in the market price of the
underlying security until the option expires or is exercised. In addition, a
secured put writer would be unable to utilize the amount held in cash or U.S.
Government or other liquid portfolio securities as security for the put option
for other investment purposes until the exercise or expiration of the option.
As discussed in the Prospectus, the Fund's ability to close out its
position as a writer of an option is dependent upon the existence of a liquid
secondary market on Option Exchanges. There is no assurance that such a market
will exist, particularly in the case of OTC options, as such options will
generally only be closed out by entering into a closing purchase transaction
with the purchasing dealer. However, the Fund may be able to purchase an
offsetting option which does not close out its position as a writer but
constitutes an asset of equal value to the obligation under the option written.
If the Fund is not able to either enter into a closing purchase transaction or
purchase an offsetting position, it will be required to maintain the securities
subject to the call, or the collateral underlying the put, even though it might
not be advantageous to do so, until a closing transaction can be entered into
(or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an Exchange or
the OCC to handle current trading volume; or (vi) a decision by one or more
Exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the OCC as a result of trades
on that Exchange would generally continue to be exercisable in accordance with
their terms.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by the Fund,
the Fund could experience a loss of all or part of the value of the option.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Fund's management.
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Each of the Exchanges has established limitations governing the maximum
number of options on the same underlying security or futures contract (whether
or not covered) which may be written by a single investor, whether acting alone
or in concert with others (regardless of whether such options are written on
the same or different Exchanges or are held or written on one or more accounts
or through one or more brokers). An Exchange may order the liquidation of
positions found to be in violation of these limits and it may impose other
sanctions or restrictions. These position limits may restrict the number of
listed options which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
The extent to which the Fund may enter into transactions involving options
may be limited by the Internal Revenue Code's requirements for qualification as
a regulated investment company and the Fund's intention to qualify as such (see
"Dividends, Distributions and Taxes").
STOCK INDEX OPTIONS. Options on stock indexes are similar to options on
stock except that, rather than the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the stock index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to such difference between the closing price of
the index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The multiplier for an index option
performs a function similar to the unit of trading for a stock option. It
determines the total dollar value per contract of each point in the difference
between the exercise price of an option and the current level of the underlying
index. A multiplier of 100 means that a one-point difference will yield $100.
Options on different indexes may have different multipliers. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Unlike stock options, all settlements are in cash and a gain or
loss depends on price movements in the stock market generally (or in a
particular segment of the market) rather than the price movements in individual
stocks. Currently, options are traded on the S&P 100 Index and the S&P 500
Index on the Chicago Board Options Exchange, the Major Market Index and the
Computer Technology Index, Oil Index and Institutional Index on the American
Stock Exchange and the NYSE Index and NYSE Beta Index on the New York Stock
Exchange, The Financial News Composite Index on the Pacific Stock Exchange and
the Value Line Index, National O-T-C Index and Utilities Index on the
Philadelphia Stock Exchange, each of which and any similar index on which
options are traded in the future which include stocks that are not limited to
any particular industry or segment of the market is referred to as a "broadly
based stock market index." The Fund will invest only in broadly based indexes.
Options on broad-based stock indexes provide the Fund with a means of
protecting the Fund against the risk of market wide price movements. If the
Adviser anticipates a market decline, the Fund could purchase a stock index put
option. If the expected market decline materialized, the resulting decrease in
the value of the Fund's portfolio would be offset to the extent of the increase
in the value of the put option. If the Adviser anticipates a market rise, the
Fund may purchase a stock index call option to enable the Fund to participate
in such rise until completion of anticipated common stock purchases by the Fund.
Purchases and sales of stock index options also enable the Adviser to more
speedily achieve changes in the Fund's equity positions.
The Fund will write put options on stock indexes only if such positions are
covered by cash, U.S. Government securities or other liquid portfolio
securities equal to the aggregate exercise price of the puts, or by a put
option on the same stock index with a strike price no lower than the strike
price of the put option sold by the Fund, which cover is held for the Fund in a
segregated account maintained for it by the Fund's Custodian. All call options
on stock indexes written by the Fund will be covered either by a portfolio of
stocks substantially replicating the movement of the index underlying the call
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option or by holding a separate call option on the same stock index with a
strike price no higher than the strike price of the call option sold by the
Fund.
RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are
settled in cash, call writers such as the Fund cannot provide in advance for
their potential settlement obligations by acquiring and holding the underlying
securities. A call writer can offset some of the risk of its writing position
by holding a diversified portfolio of stocks similar to those on which the
underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the
securities held will vary from the value of the index. Even if an index call
writer could assemble a stock portfolio that exactly reproduced the composition
of the underlying index, the writer still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, the writer will not learn that it has been assigned
until the next business day, at the earliest. The time lag between exercise and
notice of assignment poses no risk for the writer of a covered call on a
specific underlying security, such as a common stock, because there the
writer's obligation is to deliver the underlying security, not to pay its value
as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds stocks that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those stocks against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date; and by the time it learns that it has been assigned, the index
may have declined, with a corresponding decrease in the value of its stock
portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is
interrupted, or if trading is interrupted in stocks accounting for a
substantial portion of the value of an index, the trading of options on that
index will ordinarily be halted. If the trading of options on an underlying
index is halted, an exchange may impose restrictions prohibiting the exercise
of such options.
FUTURES CONTRACTS. As stated in the Prospectus, the Fund may purchase and
sell interest rate, currency, and index futures contracts ("futures
contracts"), that are traded on commodity exchanges, on such underlying
securities as U.S. Treasury bonds, notes and bills and/or any foreign government
fixed-income security ("interest rate" futures), on various currencies
("currency futures") and on such indexes of securities as may exist or come
into being ("index" futures).
The Fund will purchase or sell interest rate futures contracts for the
purpose of hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest rates.
If the Adviser anticipates that interest rates may rise and, concomitantly, the
price of certain of its portfolio securities fall, the Fund may sell an
interest rate futures contract. If declining interest rates are anticipated,
the Fund may purchase an interest rate futures contract to protect against a
potential increase in the price of securities the Fund intends to purchase.
Subsequently, appropriate securities may be purchased by the Fund in an orderly
fashion; as securities are purchased, corresponding futures positions would be
terminated by offsetting sales of contracts.
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The Fund will purchase or sell index futures contracts for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) securities
against changes in their prices. If the Adviser anticipates that the prices of
securities held by the Fund may fall, the Fund may sell an index futures
contract. Conversely, if the Fund wishes to hedge against anticipated price
rises in those securities which the Fund intends to purchase, the Fund may
purchase an index futures contract.
In addition to the above, interest rate, index futures will be bought or
sold in order to close out a short or long position maintained by the Fund in a
corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. A futures contract
sale is closed out by effecting a futures contract purchase for the same
aggregate amount of the specific type of security (currency) and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of security (currency) and the same delivery date. If the offsetting sale
price exceeds the purchase price, the purchaser would realize a gain, whereas
if the purchase price exceeds the offsetting sale price, the purchaser would
realize a loss. There is no assurance that the Fund will be able to enter into
a closing transaction.
INTEREST RATE FUTURES CONTRACTS. When the Fund enters into an interest
rate futures contract, it is initially required to deposit with the Fund's
Custodian, in a segregated account in the name of the broker performing the
transaction, an "initial margin" of cash or U.S. Government securities or other
liquid portfolio securities equal to approximately 2% of the contract amount.
Initial margin requirements are established by the Exchanges on which futures
contracts trade and may, from time to time, change. In addition, brokers may
establish margin deposit requirements in excess of those required by the
Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a brokers' client but is, rather, a good faith deposit on the
futures contract which will be returned to the Fund upon the proper termination
of the futures contract. The margin deposits made are marked to market daily
and the Fund may be required to make subsequent deposits called "variation
margin," with the Fund's futures contract clearing broker, which are reflective
of price fluctuations in the futures contract.
INDEX FUTURES CONTRACTS. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future time.
An index futures contract purchase would create an obligation by the Fund, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. In addition, due to
current industry practice, daily variations in gains and losses on open
contracts are required to be reflected in cash in the form of variation margin
payments. The Fund may be required to make additional margin payments during
the term of the contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or gain.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such
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<PAGE>
options to terminate an existing position. An option on a futures contract
gives the purchaser the right (in return for the premium paid) to assume a
position in a futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any time
during the term of the option. Upon exercise of the option, the delivery of the
futures position by the writer of the option to the holder of the option is
accompanied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract at the time of exercise exceeds, in case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, the Adviser
wished to protect against an increase in interest rates and the resulting
negative impact on the value of a portion of its fixed-income portfolio, it
might write a call option on an interest rate futures contract, the underlying
security of which correlates with the portion of the portfolio the Adviser
seeks to hedge. Any premiums received in the writing of options on futures
contracts may, of course, provide a further hedge against losses resulting from
price declines in portions of the Fund's portfolio.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid for
premiums for unexpired options on futures contracts exceeds 5% of the value of
the Fund's total assets, after taking into account unrealized gains and
unrealized losses on such contracts it has entered into, provided, however,
that in the case of an option that is in-the-money (the exercise price of the
call (put) option is less (more) than the market price of the underlying
security) at the time of purchase, the in-the-money amount may be excluded in
calculating the 5%. However, there is no overall limitation on the percentage
of the Fund's assets which may be subject to a hedge position. Except as
described above, there are no other limitations on the use of futures and
options thereon by the Fund.
The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an
option on a futures contract are included in initial margin deposits.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. As stated
in the Prospectus, the Fund may sell a futures contract to protect against the
decline in the value of securities (or the currency in which they are
denominated) held by the Fund. However, it is possible that the futures market
may advance and the value of securities (or the currency in which they are
denominated) held in the portfolio of the Fund may decline. If this occurred,
the Fund would lose money on the futures contract and also experience a decline
in value of its portfolio securities. However, while this could occur for a
very brief period or to a very small degree, over time the value of a
diversified portfolio will tend to move in the same direction as the futures
contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy (or the currency in which they are
denominated), and the value of such securities (currencies) decreases, then the
Fund may determine not to invest in the securities as planned and will realize
a loss on the futures contract that is not offset by a reduction in the price
of the securities.
If the Fund has sold a call option on a futures contract, it will cover
this position by holding in a segregated account maintained at its Custodian,
cash, U.S. Government Securities or other liquid portfolio securities equal in
value (when added to any initial or variation margin on deposit) to the market
value of the securities (currencies) underlying the futures contract or the
exercise price of the option. Such a position may also be covered by owning the
securities (currencies) underlying the futures contract, or by holding a call
option permitting the Fund to purchase the same contract at a price no higher
than the price at which the short position was established.
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In addition, if the Fund holds a long position in a futures contract it
will hold cash, U.S. Government securities or other liquid portfolio securities
equal to the purchase price of the contract (less the amount of initial or
variation margin on deposit) in a segregated account maintained for the Fund by
its Custodian. Alternatively, the Fund could cover its long position by
purchasing a put option on the same futures contract with an exercise price as
high or higher than the price of the contract held by the Fund.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition,
the Fund may be required to take or make delivery of the instruments underlying
interest rate futures contracts it holds at a time when it is disadvantageous
to do so. The inability to close out options and futures positions could also
have an adverse impact on the Fund's ability to effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on
foreign commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage
commissions, clearing costs and other transaction costs may be higher on foreign
exchanges. Greater margin requirements may limit the Fund's ability to enter
into certain commodity transactions on foreign exchanges. Moreover, differences
in clearance and delivery requirements on foreign exchanges may occasion delays
in the settlement of the Fund's transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the
broker and/or incur a loss of all or part of its margin deposits with the
broker. Similarly in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with
brokers or financial institutions deemed creditworthy by the Adviser.
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities (and the currencies in which they
are denominated) is that the prices of securities and indexes subject to
futures contracts (and thereby the futures contract prices) may correlate
imperfectly with the behavior of the cash prices of the Fund's portfolio
securities (and the currencies in which they are denominated). Another such risk
is that prices of interest rate futures contracts may not move in tandem with
the changes in prevailing interest rates against which the Fund seeks a hedge.
A correlation may also be distorted by the fact that the futures market is
dominated by short-term traders seeking to profit from the difference between a
contract or security price objective and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.
As stated in the Prospectus, there may exist an imperfect correlation
between the price movements of futures contracts purchased by the Fund and the
movements in the prices of the securities (currencies) which are the subject of
the hedge. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin deposit
requirements, distortions in the normal relationship between the debt
securities or currency markets and futures markets could result. Price
distortions could also result if investors in futures contracts opt to make or
take delivery of underlying securities rather than engage in closing
transactions due to the resultant
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<PAGE>
reduction in the liquidity of the futures market. In addition, due to the fact
that, from the point of view of speculators, the deposit requirements in the
futures markets are less onerous than margin requirements in the cash market,
increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in
the prices of securities and movements in the prices of futures contracts, a
correct forecast of interest rate trends may still not result in a successful
hedging transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Fund
may invest. In the event a liquid market does not exist, it may not be possible
to close out a futures position, and in the event of adverse price movements,
the Fund would continue to be required to make daily cash payments of variation
margin. In addition, limitations imposed by an exchange or board of trade on
which futures contracts are traded may compel or prevent the Fund from closing
out a contract which may result in reduced gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to
make or take delivery of the underlying securities (currencies) at a time when
it may be disadvantageous to do so.
The extent to which the Fund may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the Fund's
intention to qualify as such (see "Dividends, Distributions and Taxes").
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not
result in a loss, as in the instance where there is no movement in the prices
of the futures contract or underlying securities.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund (subject to
notice provisions described below), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account pursuant
to applicable regulations and that are equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is that
the Fund continues to receive the income on the loaned securities while at the
same time earning interest on the cash amounts deposited as collateral, which
will be invested in short-term obligations. The Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which its shares are qualified for sale and will not lend more
than 25% of the value of its total assets. A loan may be terminated by the
borrower on one business day's notice, or by the Fund on two business days'
notice. If the borrower fails to deliver the loaned securities within two days
after receipt of notice, the Fund could use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Fund's management to be
creditworthy and when the income which can be earned from such loans justifies
the attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price during
the loan period would inure to the Fund. The creditworthiness of firms to which
the Fund lends its portfolio securities will be monitored on an ongoing basis
by the Adviser pursuant to procedures adopted and reviewed, on an ongoing
basis, by the Board of Trustees of the Fund.
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When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment
in such loaned securities. The Fund will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate generally will
not exceed 100%. A 100% turnover rate would occur, for example, if 100% of the
securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced within
one year.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund.
The Fund may not:
1. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities secured by
real estate or interests therein.
2. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the
Fund may invest in the securities of companies which operate, invest in, or
sponsor such programs.
3. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at
the lower of cost or current value) of its total assets (not including the
amount borrowed).
4. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in
restriction (3). For the purpose of this restriction, collateral
arrangements with respect to initial or variation margin for futures are
not deemed to be pledges of assets.
5. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase agreement; (b) purchasing any securities on a
when-issued or delayed delivery basis; (c) purchasing or selling any
financial futures contracts or options thereon; (d) borrowing money in
accordance with restrictions described above; or (e) lending portfolio
securities.
6. Make loans of money or securities, except: (a) by the purchase of
portfolio securities in which the Fund may invest consistent with its
investment objective and policies; (b) by investment in repurchase
agreements; or (c) by lending its portfolio securities.
7. Make short sales of securities.
8. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit
or payment by the Fund of initial or variation margin in connection with
futures contracts is not considered the purchase of a security on margin.
9. Purchase or sell commodities or commodities contracts except that the
Fund may purchase or sell futures contracts or options on futures.
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<PAGE>
10.Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security. (The Fund may invest in restricted
securities subject to the non-fundamental limitations contained in the
Prospectus.)
11.Invest for the purpose of exercising control or management of any
other issuer.
In addition, as a nonfundamental policy, the Fund may not (i) invest in
securities of any issuer if, to the knowledge of the Fund, any officer or
trustee of the Fund or any officer or director of the Manager or the Adviser
owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuers; or (ii)
purchase securities of other investment companies, except in connection with a
merger, consolidation, reorganization or acquisition of assets or by purchase
in the open market of securities of closed-end investment companies where no
underwriter's or dealer's commission or profit, other than customary broker's
commissions, is involved and only if immediately thereafter not more than (a)
5% of the Fund's total assets, taken at market value, would be invested in any
one such company, (b) 10% of the Fund's total assets taken at market value,
would be invested in such securities and (c) 3% of any one such company's
voting securities would be owned by the Fund.
If (except with respect to Restriction 3) a percentage restriction is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from a change in values of portfolio securities or amount
of total or net assets will not be considered a violation of any of the
foregoing restrictions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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Subject to the general supervision of the Trustees, the Adviser is
responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. In the over-the-counter market, securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually
includes a profit to the dealer. In addition, securities may be purchased at
times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
Futures transactions will usually be effected through a broker and a commission
will be charged. On occasion, the Fund may also purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid. During the fiscal years ended January 31, 1995, 1996 and 1997, the
Fund paid $14,033, $6,583, and $10,668, respectively, in brokerage commissions.
The Adviser currently serves as investment adviser to a number of clients,
including other investment companies, and may in the future act as investment
adviser to others. It is the practice of the Adviser to cause purchase and sale
transactions to be allocated among the Fund and others whose assets it manages
in such manner as it deems equitable. In making such allocations among the Fund
and other client accounts, the main factors considered are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client accounts.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid
in all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective
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<PAGE>
portfolio management and preclude the Fund and the Adviser from obtaining a
high quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Adviser
relies upon its experience and knowledge regarding commissions generally
charged by various brokers and on its judgment in evaluating the brokerage and
research services received from the broker effecting the transaction. Such
determinations are necessarily subjective and imprecise, as in most cases an
exact dollar value for those services is not ascertainable.
In seeking to implement the Fund's policies, the Adviser effects
transactions with those brokers and dealers who the Adviser believes provide
the most favorable prices and are capable of providing efficient executions. If
the Adviser believes such prices and executions are obtainable from more than
one broker or dealer, it may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Adviser. Such services may include, but are not
limited to, any one or more of the following: reports on industries and
companies, economic analyses and review of business conditions, portfolio
strategy, analytic computer software, account performance services, computer
terminals and various trading and/or quotation equipment. They also include
advice from broker-dealers as to the value of securities, availability of
securities, availability of buyers, and availability of sellers. In addition,
they include recommendations as to purchase and sale of individual securities
and timing of such transactions. The Fund will not purchase at a higher price
or sell at a lower price in connection with transactions affected with a
dealer, acting as principal, who furnishes research services to the Fund than
would be the case if no weight were given by the Fund to the dealer's
furnishing of such services. During the fiscal year ended January 31, 1997, the
Fund directed the payment of $1,295 in brokerage commissions in connection with
transactions in the aggregate amount of $1,188,603 to brokers because of
research services provided.
The information and services received by the Adviser from brokers and
dealers may be of benefit to the Adviser in the management of accounts of some
of its other clients and may not in all cases benefit the Fund directly. While
the receipt of such information and services is useful in varying degrees and
would generally reduce the amount of research or services otherwise performed
by the Adviser and thereby reduce its expenses, it is of indeterminable value
and the advisory fee paid to the Adviser is not reduced by any amount that may
be attributable to the value of such services. During the fiscal year ended
January 31, 1997, the Fund purchased convertible corporate bonds and
convertible preferred stock issued by Merrill Lynch & Co., Inc., Morgan Stanley
Group Inc. and Salomon Inc. which issuers were among the top ten brokers or the
ten dealers which executed transactions for or with the Fund in the largest
dollar amounts during the year. At January 31, 1997, the Fund held convertible
preferred stock of Merrill Lynch & Co., Inc. with a market value of $329,175,
convertible corporate bonds and convertible preferred stock of Morgan Stanley
Group, Inc. with a market value of $989,263 and convertible preferred stock of
Salomon Inc. with a market value of $354,750.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR. In order for DWR to effect any portfolio transactions
for the Fund, the commissions, fees or other remuneration received by DWR must
be reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time. This standard would allow DWR to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker
in a commensurate arm's-length transaction. Furthermore, the Board of Trustees
of the Fund, including a majority of the Trustees who are not "interested"
persons of the Fund, as defined in the Act, have adopted procedures which are
reasonably designed to provide that any commissions, fees or other remuneration
paid to DWR are consistent with the foregoing standard. During the fiscal years
ended January 31, 1995, 1996 and 1997, the Fund paid no brokerage commissions
to DWR.
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<PAGE>
THE DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into a
selected dealer agreement with DWR, which through its own sales organization
sells shares of the Fund, and may enter into selected broker-dealer agreements
with others. The Distributor, a Delaware corporation, is a wholly-owned
subsidiary of DWDC. As part of an internal reorganization that took place in
January, 1993, the Distributor assumed the investment company share distribution
activities previously performed by DWR. The Trustees of the Fund, including a
majority of the Independent Trustees, approved, at their meeting on January 21,
1993, a Distribution Agreement appointing the Distributor exclusive distributor
of the Fund's shares and providing for the Distributor to bear distribution
expenses not borne by the Fund. The present Distribution Agreement is
substantively identical to a prior distribution agreement also initially
approved by the Trustees on January 21, 1993. The Distribution Agreement took
effect on June 30, 1993 upon the spin-off by Sears, Roebuck and Co. of its
remaining shares of DWDC. By its terms, the Distribution Agreement had an
initial term ending April 30, 1994, and provides that it will remain in effect
from year to year thereafter if approved by the Board. At their meeting held on
April 17, 1996, the Trustees, including a majority of the Independent Trustees,
approved the most recent continuance of the Distribution Agreement until April
30, 1997.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws. The Fund and Distributor have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. Under the Distribution
Agreement, the Distributor uses its best efforts in rendering services to the
Fund, but in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations, the Distributor is not liable to the Fund
or any of its shareholders for any error of judgment or mistake of law or for
any act or omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
As discussed in the Prospectus, the Fund has entered into a Plan of
Distribution pursuant to Rule 12b-1 under the Act with the Distributor whereby
the expenses of certain activities in connection with the distribution of shares
of the Fund are reimbursed. The Plan was initially approved by the Trustees of
the Fund on January 21, 1993 and by InterCapital as the then sole shareholder of
the Fund on January 22, 1993. The vote of the Trustees included a majority of
the Trustees who are not and were not at the time of their votes interested
persons of the Fund and who have and had at the time of their votes no direct or
indirect financial interest in the operation of the Plan (the "Independent 12b-1
Trustees"), cast in person at a meeting called for the purpose of voting on such
Plan. In determining to approve the Plan, the Trustees, including the
Independent 12b-1 Trustees, concluded that, in their judgment, there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
The Plan provides that the Distributor will bear the expense of all
promotional and distribution related activities on behalf of the Fund, except
for expenses that the Trustees determine to reimburse, as described below. The
following activities and services may be provided by the Distributor, DWR, its
affiliates and any selected broker-dealer under the Plan: (1) compensation to
and expenses of account executives and other employees of DWR, its affiliates
and other selected broker-dealers, including overhead and telephone expenses;
(2) sales incentives and bonuses to sales representatives, and to marketing
personnel in connection with promoting sales of the Fund's shares; (3) expenses
incurred in connection with promoting sales of the Fund's shares; (4) preparing
and distributing sales literature; and (5) providing advertising and promotional
activities, including direct mail solicitation and television, radio, newspaper,
magazine and other media advertisements.
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<PAGE>
The Fund is authorized to reimburse specific expenses incurred or to be
incurred in promoting the distribution of the Fund's shares and in servicing
shareholder accounts. Reimbursement is made through monthly payments in amounts
determined in advance of each fiscal quarter by the Trustees, including a
majority of the Independent 12b-1 Trustees. The amount of each monthly payment
may in no event exceed an amount equal to a payment at the annual rate of 0.75
of 1% of the Fund's average daily net assets during the month. No interest or
other financing charges, if any, incurred on any distribution expenses will be
reimbursable under the Plan. In making quarterly determinations of the amounts
that may be expended by the Fund, the Distributor will provide and the Trustees
will review a quarterly budget of projected distribution expenses to be incurred
on behalf of the Fund, together with a report explaining the purposes and
anticipated benefits of incurring such expenses. The Trustees will determine
which particular expenses, and the portions thereof, that may be borne by the
Fund, and in making such a determination shall consider the scope of the
Distributor's commitment to promoting the distribution of the Fund's shares.
The Distributor has informed the Fund that a portion of the fees payable by
the Fund each year pursuant to the Plan equal to 0.25% of the Fund's average
daily net assets is characterized as a "service fee" under the Rules of Fair
Practice of the National Association of Securities Dealers (of which the
Distributor is a member). Such portion of the fee is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion of
the plan fees payable by the Fund is characterized as an "asset-based sales
charge" as defined by the aforementioned Rules of Fair Practice.
DWR's account executives are credited with an annual gross residual
commission, currently a gross residual of up to 0.75% of the current value of
the respective accounts for which they are the account executives or dealers of
record. The "gross residual" is a charge which reflects residual commissions
paid by DWR to its account executives and expenses of DWR and its affiliates
associated with the servicing of shareholders' accounts, including the expenses
of operating branch offices in connection with the servicing of shareholders'
accounts, which expenses include lease costs, the salaries and employee benefits
of operations and sales support personnel, utility costs, communications costs
and the costs of stationery and supplies and other expenses relating to branch
office servicing of shareholder accounts. The portion of an account executive's
annual gross residual commission allocated to servicing of shareholders'
accounts does not exceed 0.25% of the average annual net asset value of shares
of accounts for which he or she is account executive of record.
Under the Plan, the Distributor uses its best efforts in rendering services
to the Fund, but in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations, the Distributor is not
liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
The Fund accrued $425,303 to the Distributor, pursuant to the Plan, for the
fiscal year ended January 31, 1997. This amount represents an annual rate of
0.74 of 1% of the Fund's average daily net assets for the period. Based upon the
total amounts spent by the Distributor during the period, it is estimated by the
Distributor that the amount paid by the Fund to the Distributor for distribution
was spent in approximately the following ways: (i) advertising -- $-0-; (ii)
printing and mailing prospectuses to other than current shareholders -- $-0-;
(iii) compensation to underwriters -- $-0-; (iv) compensation to dealers --
$-0-; (v) compensation to sales personnel -- $-0-; and (vi) other, which
includes payments to DWR for expenses substantially all of which relate to
compensation of sales personnel (including compensation for servicing
shareholder accounts and associated overhead expenses) -- $425,303.
The Plan remained in effect until April 30, 1993, and under its terms will
continue from year to year thereafter, provided such continuance is approved
annually by a vote of the Trustees, including a majority of the Independent
12b-1 Trustees. At their meeting held April 17, 1996, the Trustees, including a
majority of the Independent 12b-1 Trustees, approved the most recent continuance
of the Plan until April 30, 1997. Any amendment to increase materially the
maximum amount authorized to be spent under the Plan must be approved by the
shareholders of the Fund, and all material amendments to the Plan must be
approved by the Trustees in the manner described above. The Plan may be
terminated at any time, without payment of any penalty, by vote of a majority of
the Independent Trustees or by a vote of the holders of a majority of the
outstanding voting securities of the Fund (as defined in the Act) on not more
than 30 days written notice to any
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other party to the Plan. So long as the Plan is in effect, the selection or
nomination of the Independent Trustees is committed to the discretion of the
Independent Trustees.
Under the Plan, the Distributor provides the Fund, for review by the
Trustees, and the Trustees review, promptly after the end of each calendar
quarter, a written report regarding the distribution expenses incurred during
such calendar quarter, which report includes (1) an itemization of the types of
expenses and the purposes therefor; (2) the amounts of such expenses; and (3) a
description of the benefits derived by the Fund. In the Trustees' quarterly
review of the Plan they consider its continued appropriateness and the level of
compensation provided therein.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or indirect
financial interest in the operation of the Plan except to the extent that DWR,
InterCapital the Distributor or the Manager, or certain of their employees, may
be deemed to have such an interest as a result of benefits derived from the
successful operation of the Plan or as a result of receiving a portion of the
amounts expended thereunder by the Fund.
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, short-term debt securities with remaining
maturities of 60 days or less at the time of purchase are valued at amortized
cost, unless the Trustees determine such does not reflect the securities' market
value, in which case these securities will be valued at their fair value as
determined by the Trustees. Other short-term debt securities will be valued on a
mark-to-market basis until such time as they reach a remaining maturity of 60
days, whereupon they will be valued at amortized cost using their value on the
61st day unless the Trustees determine such does not reflect the securities'
market value, in which case these securities will be valued at their fair value
as determined by the Trustees. Listed options on debt securities are valued at
the latest sale price on the exchange on which they are listed unless no sales
of such options have taken place that day, in which case they will be valued at
the mean between their latest bid and asked prices. Unlisted options on debt
securities and all options on equity securities are valued at the mean between
their latest bid and asked prices. Futures are valued at the latest sale price
on the commodities exchange on which they trade unless the Trustees determine
that such price does not reflect their market value, in which case they will be
valued at their fair value as determined by the Trustees. All other securities
and other assets are valued at their fair value as determined in good faith
under procedures established by and under the supervision of the Trustees.
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier time), on each day that the New York Stock
Exchange is open by taking the value of all assets of the Fund, subtracting its
liabilities, dividing by the number of shares outstanding and adjusting to the
nearest cent. The New York Stock Exchange currently observes the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
SHAREHOLDER SERVICES
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SHAREHOLDER INVESTMENT ACCOUNT. Upon purchase of shares of the Fund, a
Shareholder Investment Account is opened for the investor on the books of the
Fund, maintained by Dean Witter Trust Company (the "Transfer Agent"), in full
and fractional shares of the Fund (rounded to the nearest 1/100 of a share).
This is an open account in which shares owned by the investor are credited by
the Transfer Agent in lieu of issuance of a share certificate. If a share
certificate is desired, it must be requested in writing for each transaction.
Certificates are issued only for full shares and may be redeposited in the
account at any time. There is no charge to the investor for issuance of a
certificate. No certificates will be issued for fractional shares or to
shareholders who have elected the Systematic Withdrawal Plan for withdrawing
cash from their accounts. Whenever a shareholder-instituted transaction takes
place in the Shareholder Investment Account, the shareholder will be mailed a
confirmation of the transaction from the Fund or from DWR or another selected
broker-dealer.
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AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All dividends and
capital gains distributions are automatically paid in full and fractional shares
of the Fund, unless the shareholder requests that they be paid in cash. Each
purchase of shares of the Fund is made upon the condition that the Transfer
Agent is thereby automatically appointed as agent of the investor to receive all
dividends and capital gains distributions on shares owned by the investor. Such
dividends and distributions will be paid in shares of the Fund (or in cash if
the shareholder so requests) at the net asset value per share as of the close of
business on the record date. At any time an investor may request the Transfer
Agent in writing to have subsequent dividends and/or capital gains distributions
paid in cash rather than shares. To assume sufficient time to process the
change, such request should be received by the Transfer Agent at least five (5)
business days prior to the record date for which it commences to take effect. In
case of recently purchased shares for which registration instructions have not
been received on the record date, cash payments will be made to DWR or another
selected broker-dealer, and will be forwarded to the shareholder, upon receipt
of proper instructions.
EASYINVEST.-SM- Shareholders may subscribe to Easyinvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. 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.
INVESTMENT OF DISTRIBUTIONS RECEIVED IN CASH. As discussed in the
Prospectus, any shareholder who receives a cash payment representing a dividend
or capital gains distribution may invest such dividend or distribution at net
asset value (without sales charge) by returning the check or the proceeds to the
Transfer Agent within 30 days after the payment date. If the shareholder returns
the proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset value
per share next determined after receipt of the check or the proceeds by the
Transfer Agent.
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
a shareholder may make additional investments in Fund shares at any time by
sending a check in any amount, not less than $100, payable to TCW/DW Income and
Growth Fund, directly to the Transfer Agent. Such amounts will be applied to the
purchase of Fund shares at the net asset value per share next computed after
receipt of the check of purchase payment by the Transfer Agent. The shares so
purchased will be credited to the investor's account.
TARGETED DIVIDENDS-SM-. In states where it is legally permissible to do so,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of a TCW/DW Fund other than TCW/DW Income and
Growth Fund. Such investment will be made as described above for automatic
investment in shares of the Fund, at the net asset value per share of the
selected TCW/DW Fund as of the close of business of the payment date of the
dividend or distribution, and will begin to earn dividends, if any, in the
selected TCW/DW Fund on the next business day. To participate in the Targeted
Dividends program, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent. Shareholders of the Fund
must be shareholders of the TCW/DW Fund targeted to receive investments from
dividends at the time they enter the Targeted Dividends program. Investors
should review the prospectus of the targeted TCW/DW Fund before entering the
program.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a systematic
withdrawal plan is available for shareholders who own or purchase shares of the
Fund having a minimum value of $10,000 based upon the then current net asset
value. The plan provides for monthly or quarterly (March, June, September and
December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. The shares will be
redeemed at their net asset value determined, at the shareholder's option, on
the tenth or twenty-fifth day (or next following business day) of the relevant
month or quarter and normally a check for the proceeds will be mailed by the
Transfer Agent, or amounts credited to a shareholder's DWR or other selected
broker-dealer brokerage account, within five business days after the date of
redemption.
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Dividends and capital gains distributions on shares held under the
Systematic Withdrawal Plan will be invested in additional full and fractional
shares at net asset value (without a sales charge). Shares will be credited to
an open account for the investor by the Transfer Agent; no share certificates
will be issued. A shareholder is entitled to a share certificate upon written
request to the Transfer Agent, although in that event the shareholder's
Systematic Withdrawal Plan will be terminated.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent within five business days after the date of redemption.
The Withdrawal Plan may be terminated at any time by the Fund.
A shareholder, may, at any time, change the amount and interval of
withdrawal payments and the address to which checks are mailed by written
notification to the Transfer Agent. The shareholder's signature on such
notification must be guaranteed by an eligible guarantor acceptable to the
Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is such an eligible
guarantor). The shareholder may also terminate the Systematic Withdrawal Plan at
any time by written notice to the Transfer Agent. In the event of such
termination, the account will be continued as a Shareholder Investment Account.
The shareholder may also redeem all or part of the shares held in the Systematic
Withdrawal Plan account (see "Repurchases and Redemptions" in the Prospectus) at
any time.
EXCHANGE PRIVILEGE
As discussed in the Prospectus under the caption "Exchange Privilege," an
Exchange Privilege exists whereby investors who have purchased shares of any
TCW/DW Fund sold with a contingent deferred sales charge ("CDSC Funds") will be
permitted, after the shares of the fund acquired by purchase (not by exchange or
dividend reinvestment) have been held for thirty days, to redeem all or part of
their shares in that fund, have the proceeds invested in shares of the Fund, in
shares of TCW/DW North American Government Income Trust and TCW/DW Balanced
Fund, and in shares of five money market funds for which InterCapital serves as
investment manager: Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free
Daily Income Trust, Dean Witter California Tax-Free Daily Income Trust, Dean
Witter New York Municipal Money Market Trust or Dean Witter U.S. Government
Money Market Trust (these eight funds, including the Fund, are hereinafter
collectively referred to as "Exchange Funds"). There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment. Shares of
Exchange Funds received in an exchange for shares of a CDSC Fund (regardless of
the type of fund originally purchased) may be redeemed and exchanged for shares
of other Exchange Funds or CDSC Funds. Ultimately, any applicable contingent
deferred sales charge ("CDSC") will have to be paid upon redemption of shares
originally purchased from a CDSC Fund. An exchange will be treated for federal
income tax purposes the same as a repurchase or redemption of shares, on which
the shareholder may realize a capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
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<PAGE>
When shares of any CDSC Fund are exchanged for shares of an Exchange Fund,
the exchange is executed at no charge to the shareholder, without the imposition
of the CDSC at the time of the exchange. During the period of time the
shareholder remains in the Fund or in the money market fund (calculated from the
last day of the month in which the Exchange Fund shares were acquired), the
holding period or "year since purchase payment made" is frozen. When shares are
redeemed out of the Exchange Fund, they will be subject to a CDSC which would be
based upon the period of time the shareholder held shares in a CDSC Fund.
However, in the case of shares of a CDSC Fund exchanged into an Exchange Fund,
upon redemption of shares which results in a CDSC being imposed, a credit (not
to exceed the amount of the CDSC) will be given in an amount equal to the
Exchange Fund 12b-1 distribution fees which are attributable to those shares.
Shareholders acquiring shares of an Exchange Fund pursuant to this exchange
privilege may exchange those shares back into a CDSC fund from the Exchange with
no CDSC being imposed on such exchange. The holding period previously frozen
when shares were first exchanged for shares of the Exchange Fund resumes on the
last day of the month in which shares of a CDSC Fund are reacquired. Thus, a
CDSC is imposed only upon an ultimate redemption, based upon the time
(calculated as described above) the shareholder was invested in a CDSC Fund.
When shares initially purchased in a CDSC Fund are exchanged for shares of
another CDSC Fund or for shares of an Exchange Fund, the date of purchase of the
shares of the fund exchanged into, for purposes of the CDSC upon redemption,
will be the last day of the month in which the shares being exchanged were
originally purchased. In allocating the purchase payments between funds for
purposes of the CDSC, the amount which represents the current net asset value of
shares at the time of the exchange which were (i) purchased more than six years
prior to the exchange and (ii) originally acquired through reinvestment of
dividends or distributions (all such shares called "Free Shares"), will be
exchanged first. After an exchange, all dividends earned on shares in the
Exchange Fund will be considered Free Shares. If the exchanged amount exceeds
the value of such Free Shares, an exchange is made, on a block-by-block basis,
of non-Free Shares held for the longest period of time. Shares equal to any
appreciation in the value of non-Free Shares exchanged will be treated as Free
Shares, and the amount of the purchase payments for the non-Free Shares of the
fund exchanged into will be equal to the lesser of (a) the purchase payments
for, or (b) the current net asset value of, the exchanged non-Free Shares. If an
exchange between funds would result in exchange of only part of a particular
block of non-Free Shares, then shares equal to any appreciation in the value of
the block (up to the amount of the exchange) will be treated as Free Shares and
exchanged first, and the purchase payment for that block will be allocated on a
pro rata basis between the non-Free Shares of that block to be retained and the
non-Free Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase payment
for such shares, and the amount of purchase payment for the exchanged non-Free
Shares will be equal to the lesser of (a) the prorated amount of the purchase
payment for, or (b) the current net asset value of, those exchanged non-Free
Shares. Based upon the procedures described in the CDSC Fund Prospectus under
the caption "Contingent Deferred Sales Charge," any applicable CDSC will be
imposed upon the ultimate redemption of shares of any fund, regardless of the
number of exchanges since those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer.
With respect to exchanges, redemptions or repurchases, the Transfer Agent
shall be liable for its own negligence and not for the default or negligence of
its correspondents or for losses in transit. The Fund shall not be liable for
any default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of the shares of any
other fund and the general administration of the Exchange Privilege. No
commission or discounts will be paid to the Distributor or any selected
broker-dealer for any transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000 for
Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust,
Dean Witter California Tax-Free Daily Income Trust and Dean Witter New York
34
<PAGE>
Municipal Money Market Trust, although those funds may, at their discretion,
accept initial investments of as low as $1,000. The minimum initial investment
for Dean Witter U.S. Government Money Market Trust and all TCW/DW Funds is
$1,000.) Upon exchange into a money market fund, the shares of that fund will be
held in a special Exchange Privilege Account separately from accounts of those
shareholders who have acquired their shares directly from that fund. As a
result, certain services normally available to shareholders of money market
funds, including the check writing feature, will not be available for funds held
in that account.
The Fund, each of the other TCW/DW Funds and each of the money market funds
may limit the number of times this Exchange Privilege may be exercised by any
investor within a specified period of time. Also, the Exchange Privilege may be
terminated or revised at any time by any of the TCW/DW Funds or the money market
funds, upon such notice as may be required by applicable regulatory agencies
(presently sixty days for termination or material revision), provided that six
months' prior written notice of termination will be given to the shareholders
who hold shares of Exchange Funds, pursuant to this Exchange Privilege, and
provided further that the Exchange Privilege may be terminated or materially
revised at times (a) when the New York Stock Exchange is closed for other than
customary weekends and holidays, (b) when trading on that Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, (d) during any other period when the Securities and Exchange Commission
by order so permits (provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist), or (e), if the Fund would be unable to invest
amounts effectively in accordance with its investment objective(s), policies and
restrictions. Shareholders maintaining margin accounts with DWR or another
selected broker-dealer are referred to their account executive regarding
restrictions on exchange of shares of the Fund pledged in the margin account.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REPURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------
PAYMENT FOR SHARES REPURCHASED OR REDEEMED. As discussed in the Prospectus,
payment for shares presented for repurchase or redemption will be ordinarily
made by check within seven days after receipt by the Transfer Agent of the
certificate and/or written request in good order. Such payment may be postponed
or the right of redemption suspended at times (a) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (b) when
trading on that Exchange is restricted, (c) when an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check and the check has not yet cleared, payment of
redemption proceeds may be delayed until the check has cleared (not more than
fifteen days from the time of receipt of the check by the Transfer Agent).
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and shareholders will be required to include such undistributed
gains in their taxable income and will be able to claim their share of the tax
paid by the Fund as a credit against their individual federal income tax.
Because the Fund intends to distribute all of its net investment income and
net capital gains to shareholders and otherwise continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code, it
is not expected that the Fund will be required to pay any federal income tax.
Shareholders
35
<PAGE>
will normally have to pay federal income taxes, and any state income taxes, on
the dividends and distributions they receive from the Fund. Such dividends and
distributions, to the extent that they are derived from net investment income or
net short-term capital gains, are taxable to the shareholder as ordinary income
regardless of whether the shareholder receives such payments in additional
shares or in cash. Any dividends declared in the last quarter of any calendar
year which are paid in the following year prior to February 1 will be deemed
received by the shareholder in the prior calendar year.
Gains or losses on sales of securities by the Fund will be long-term capital
gains or losses if the securities have been held by the Fund for more than
twelve months. Gains or losses on the sale of securities held for twelve months
or less will be short-term gains or losses.
The Fund's transactions, if any, in options and futures contracts may be
subject to special provisions of the Internal Revenue Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These rules also (a) could require the Fund to mark-to-market
certain types of the positions in its portfolio (i.e., treat them as if they
were closed out) and (b) may cause the Fund to recognize income without
receiving cash with which to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding income and
excise taxes.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized net long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable at either ordinary or capital gain rates.
Therefore, an investor should consider the tax implications of purchasing Fund
shares immediately prior to a dividend or distribution record date.
Dividend payments will be eligible for the federal dividends received
deduction available to the Fund's corporate shareholders only to the extent the
aggregate dividends received by the Fund would be eligible for the deduction if
the Fund were the shareholder claiming the dividends received deduction. The
amount of dividends paid by the Fund which may qualify for the dividends
received deduction is limited to the aggregate amount of qualifying dividends
which the Fund derives from its portfolio investments which the Fund has held
for a minimum period, usually 46 days. Any distributions made by the Fund will
not be eligible for the dividends received deduction with respect to shares
which are held by the shareholder for 45 days or less. Any long-term capital
gain distributions will also not be eligible for the dividends received
deduction. The ability to take the dividends received deduction will also be
limited in the case of a Fund shareholder which incurs or continues indebtedness
which is directly attributable to its investment in the Fund.
After the end of the year, shareholders will be sent full information on
their dividends and capital gains distributions for tax purposes, including
information as to the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the portion eligible for the dividends received
deduction. To avoid being subject to a 31% federal backup withholding tax on
taxable dividends, capital gains distributions and the proceeds of redemptions
and repurchases, shareholders' taxpayer identification numbers must be furnished
and certified as to their accuracy.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature. Yield
is calculated for any 30-day period as follows: the amount of interest and/or
dividend income for each security in the Fund's portfolio is determined in
accordance with
36
<PAGE>
regulatory requirements; the total for the entire portfolio constitutes the
Fund's gross income for the period. Expenses accrued during the period are
subtracted to arrive at "net investment income". The resulting amount is divided
by the product of the maximum offering price per share on the last day of the
period multiplied by the average number of Fund shares outstanding during the
period that were entitled to dividends. This amount is added to 1 and raised to
the sixth power. 1 is then subtracted from the result and the difference is
multiplied by 2 to arrive at the annualized yield. The Fund's yield for the
30-day period ended January 31, 1997 was 4.85%.
The Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment, taking a root of the quotient (where the root is equivalent to the
number of years in the period) and subtracting 1 from the result. The average
annual total returns of the Fund for the fiscal year ended January 31, 1997 and
for the period from March 31, 1993 (commencement of operations) through January
31, 1997 were 13.46% and 10.86%, respectively.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, year-by-year or other types of
total return figures. The Fund also may compute its aggregate total return for
specified periods by determining the aggregate percentage rate which will result
in the ending value of a hypothetical $1,000 investment made at the beginning of
the period. For the purpose of this calculation, it is assumed that all
dividends and distributions are reinvested. The formula for computing aggregate
total return involves a percentage obtained by dividing the ending value by the
initial $1,000 investment and subtracting 1 from the result. Based on the
foregoing calculation, the Fund's total returns for the fiscal year ended
January 31, 1997 and for the period from March 31, 1993 through January 31, 1997
were 13.46% and 48.54%, respectively.
The Fund may also advertise the growth of a hypothetical investment of
$10,000, $50,000 or $100,000 in shares of the Fund by adding 1 to the Fund's
aggregate total return (expressed as a decimal) and multiplying by $10,000,
$50,000 or $100,000, as the case may be. Investments of $10,000, $50,000 and
$100,000 in the Fund at inception would have grown to $14,854, $74,270 and
$148,540, respectively, at January 31, 1997.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
held. The Trustees were elected by InterCapital in January, 1993 as the then
sole shareholder of the Fund or, in the case of Messrs. Schroeder and Stern, by
the other Trustees on April 20, 1995. The Trustees themselves have the power to
alter the number and the terms of office of the Trustees, and they may at any
time lengthen their own terms or make their terms of unlimited duration and
appoint their own successors, provided that always at least a majority of the
Trustees has been elected by the shareholders of the Fund. Under certain
circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right to remove the Trustees following a meeting
called for that purpose requested in writing by the record holders of not less
than ten percent of the Fund's outstanding shares. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of
37
<PAGE>
shareholders, as might be required by future regulations or other unforeseen
circumstances). However, the Trustees presently have not authorized any such
additional series or classes of shares.
The Declaration of Trust provides that no Trustee, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, nor is any Trustee,
officer, employee or agent liable to any third persons in connection with the
affairs of the Fund, except as such liability may arise from his own bad faith,
willful misfeasance, gross negligence, or reckless disregard of his duties. It
also provides that all third persons shall look solely to the Fund's property
for satisfaction of claims arising in connection with the affairs of the Fund.
With the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liabilities
in connection with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of beneficial
interest. The Fund shall be of unlimited duration, subject to the provisions in
the Declaration of Trust concerning termination by action of the shareholders.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust Company is an affiliate of Dean Witter Services Company Inc., the
Fund's Manager, and of Dean Witter Distributors Inc., the Fund's Distributor. As
Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust Company's
responsibilities include maintaining shareholder accounts, disbursing cash
dividends and reinvesting dividends, processing account registration changes,
handling purchase and redemption transactions, mailing prospectuses and reports,
mailing and tabulating proxies, processing share certificate transactions, and
maintaining shareholder records and lists. For these services Dean Witter Trust
Company receives a per shareholder account fee.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on January 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the Manager,
is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund included in this Statement of
Additional Information and incorporated by reference in the Prospectus have been
so included and incorporated in reliance on the report of Price
38
<PAGE>
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
39
<PAGE>
TCW/DW INCOME AND GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of TCW/DW Income and Growth Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of TCW/DW Income and Growth Fund (the
"Fund") at January 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the three years in the
period then ended and for the period March 31, 1993 (commencement of operations)
through January 31, 1994, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at January 31, 1997 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
March 13, 1997
1997 FEDERAL TAX NOTICE
During the year ended January 31, 1997, the Fund paid to its
shareholders $0.40 per share from long-term capital gains. For such
period, 7.94% of the income paid qualified for the dividends received
deduction available to corporations.
40
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONVERTIBLE BONDS (40.9%)
ADVERTISING (1.1%)
$ 620 Omicom Group, Inc............................. 4.25 % 01/03/07 $ 652,550
--------------
AEROSPACE (1.2%)
345 Hexcel Corp................................... 7.00 08/01/03 473,081
235 Titan Corp.................................... 8.25 11/01/03 273,187
--------------
746,268
--------------
AUTO PARTS (0.6%)
320 Magna International, Inc. (Canada)............ 5.00 10/15/02 369,955
--------------
BANKS - INTERNATIONAL (0.2%)
130 MBL International Finance (Bermuda)........... 3.00 11/30/02 128,849
--------------
BIOTECHNOLOGY (0.8%)
330 Sepracor Inc. - 144A*......................... 7.00 12/01/02 488,400
--------------
CABLE & TELECOMMUNICATIONS (0.5%)
370 Tele-Communications International, Inc........ 4.50 02/15/06 296,925
--------------
COMPUTER EQUIPMENT (1.4%)
1,570 Silicon Graphics, Inc. - 144A*................ 0.00 11/02/13 849,291
--------------
COMPUTER SOFTWARE & SERVICES (0.5%)
350 UBS Finance, Inc. (1)......................... 2.00 05/22/02 322,000
--------------
CONSUMER PRODUCTS (0.5%)
260 Central Garden & Pet Co....................... 6.00 11/15/03 304,564
--------------
ELECTRONICS (1.5%)
280 General Instrument Corp....................... 5.00 06/15/00 303,976
240 Metricom, Inc. - 144A*........................ 8.00 09/15/03 264,000
275 SCI Systems, Inc.............................. 5.00 05/01/06 374,000
--------------
941,976
--------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (1.9%)
365 Analog Devices................................ 3.50 12/01/00 546,496
530 Xilinx Inc. - 144A*........................... 5.25 11/01/02 587,797
--------------
1,134,293
--------------
ENGINEERING & CONSTRUCTION (0.7%)
345 New World Infrastructure Ltd. - 144A* (Hong
Kong)....................................... 5.00 07/15/01 406,238
--------------
ENTERTAINMENT (0.4%)
250 California Hotel Finance Corp................. 11.00 12/01/02 262,500
--------------
ENVIRONMENTAL CONTROL (0.9%)
320 Molten Metal Technology, Inc. - 144A*......... 5.50 05/01/06 217,430
275 United Waste Systems, Inc..................... 4.50 06/01/01 350,281
--------------
567,711
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FINANCIAL SERVICES (2.7%)
$ 355 Berkshire Hathaway............................ 1.00 % 12/02/01 $ 362,544
800 Deutsche Bank Finance BV - 144A*
(Netherlands)............................... 0.00 02/12/17 327,400
190 Morgan Stanley Group, Inc. (2)................ 0.00 09/30/00 231,563
400 Morgan Stanley Group, Inc. (3)................ 2.00 03/29/02 429,500
265 Southern Pacific Funding...................... 6.75 10/15/06 304,750
--------------
1,655,757
--------------
HEALTHCARE (3.5%)
280 Assisted Living Concepts, Inc. - 144A*........ 7.00 07/31/05 312,665
380 Phymatrix Corp. - 144A*....................... 6.75 06/15/03 325,850
325 Physician Resource Group - 144A*.............. 6.00 12/01/01 314,438
235 Renal Treatment Centers, Inc. - 144A*......... 5.625 07/15/06 241,658
470 Tenet Healthcare Corp......................... 6.00 12/01/05 491,150
320 Vivra, Inc. - 144A*........................... 5.00 07/01/01 331,334
95 Vivra, Inc.................................... 5.00 07/01/01 98,266
--------------
2,115,361
--------------
HEALTHCARE SERVICES (0.6%)
305 Quintiles Transportational Corp. - 144A*...... 4.25 05/31/00 339,337
--------------
HOTELS (0.9%)
580 Marriott International Inc.................... 0.00 03/25/11 322,468
240 Signature Resorts............................. 5.75 01/15/07 246,600
--------------
569,068
--------------
INDUSTRIALS (0.6%)
385 U.S. Office Products Co....................... 5.50 05/15/03 361,900
--------------
MEDIA GROUP (0.5%)
715 News America Holdings, Inc.................... 0.00 03/11/13 319,705
--------------
MEDICAL SERVICES (1.1%)
155 ARV Assisted Living - 144A*................... 6.75 04/01/06 130,200
310 Occusystems, Inc. - 144A*..................... 6.00 12/15/01 316,783
320 Sterling House Corp........................... 6.75 06/30/06 224,000
--------------
670,983
--------------
OIL & GAS PRODUCTS (0.5%)
250 Apache Corp. - 144A*.......................... 6.00 01/15/02 332,588
--------------
PHARMACEUTICALS (2.0%)
335 Alza Corp..................................... 5.00 05/01/06 335,419
790 Sandoz Capital BVI, Ltd. - 144A*
(Switzerland)............................... 2.00 10/06/02 859,125
--------------
1,194,544
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
POLLUTION CONTROL (3.6%)
$ 995 Thermo Electron Corp. - 144A*................. 4.25 % 01/01/03 $ 1,092,152
945 U.S. Filter Corp.............................. 4.50 12/15/01 1,045,406
--------------
2,137,558
--------------
PUBLISHING (0.7%)
410 Scholastic Corp. - 144A*...................... 5.00 08/15/05 425,465
--------------
REAL ESTATE INVESTMENT TRUST (1.5%)
270 Liberty Property Trust........................ 8.00 07/01/01 345,938
280 LTC Properties, Inc........................... 8.50 01/01/01 326,018
245 LTC Properties, Inc........................... 8.25 07/01/01 254,976
--------------
926,932
--------------
RESTAURANTS (0.6%)
1,235 Boston Chicken, Inc........................... 0.00 06/01/15 377,367
--------------
RETAIL (4.1%)
305 Charming Shoppes, Inc......................... 7.50 07/15/06 292,800
310 Federated Department Stores, Inc.............. 5.00 10/01/03 348,493
530 Home Depot, Inc............................... 3.25 10/01/01 512,711
300 Nine West Group, Inc. - 144A*................. 5.50 07/15/03 316,500
880 Staples, Inc. - 144A*......................... 4.50 10/01/00 987,606
--------------
2,458,110
--------------
SEMICONDUCTORS (0.6%)
285 C-Cube Microsystems, Inc...................... 5.875 11/01/05 365,250
--------------
TECHNOLOGY (1.8%)
390 Adaptec, Inc. - 144A*......................... 4.75 02/01/04 421,688
330 HMT Technology Corp. - 144A*.................. 5.75 01/15/04 352,688
300 Safeguard Scientifics - 144A*................. 6.00 02/01/06 309,321
--------------
1,083,697
--------------
TELECOMMUNICATIONS (2.0%)
1,500 Motorola, Inc................................. 0.00 09/27/13 1,237,500
--------------
TRANSPORTATION (0.9%)
500 Blue Bird Body Co. (Series B)................. 10.75 11/15/06 527,500
--------------
UTILITIES - ELECTRIC (0.5%)
320 Korea Electric Power Corp.
(South Korea)............................... 5.00 08/01/01 332,800
--------------
TOTAL CONVERTIBLE BONDS
(IDENTIFIED COST $23,365,807).......................................... 24,902,942
--------------
CORPORATE BONDS (42.5%)
BANKS (0.9%)
500 First Nationwide Escrow - 144A*............... 10.625 10/01/03 545,000
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BUILDING MATERIALS (0.4%)
$ 250 Collins & Aikman Floorcoverings,
Inc. - 144A*................................ 10.00 % 01/15/07 $ 253,750
--------------
BUSINESS SERVICES (2.5%)
531 American Pad & Paper Co....................... 13.00 11/15/05 621,270
320 Big Flower Press, Inc......................... 10.75 08/01/03 334,400
316 Big Flower Press, Inc. (Series A) - 144A*..... 10.75 08/01/03 328,640
235 Jorgensen (Earle M.) Co....................... 10.75 03/01/00 240,875
--------------
1,525,185
--------------
BUSINESS SERVICES - DISTRIBUTORS (1.7%)
250 Data Documents, Inc........................... 13.50 07/15/02 281,250
500 Envirosource, Inc............................. 9.75 06/15/03 476,250
250 Iron Mountain, Inc............................ 10.125 10/01/06 265,000
--------------
1,022,500
--------------
CABLE/CELLULAR (0.9%)
500 Rogers Communications, Inc. (Canada).......... 10.875 04/15/04 525,000
--------------
CHEMICALS (0.7%)
375 NL Industries Inc............................. 11.75 10/15/03 396,562
--------------
COMPUTERS (1.1%)
380 Quantum Corp.................................. 5.00 03/01/03 675,002
--------------
CONSUMER - NON-CYCLICAL (0.6%)
100 E&S Holdings Corp. - 144A*.................... 10.375 10/01/06 104,750
250 International Home Foods,
Inc. - 144A*................................ 10.375 11/01/06 259,375
--------------
364,125
--------------
CONTAINERS (0.8%)
275 Plastic Container, Inc. - 144A*............... 10.00 12/15/06 283,937
225 US Can Corp. - 144A*.......................... 10.125 10/15/06 237,375
--------------
521,312
--------------
ENERGY (1.7%)
250 Chesapeake Energy Corp........................ 12.00 03/01/01 277,500
640 Flores & Rucks, Inc........................... 13.50 12/01/04 764,800
--------------
1,042,300
--------------
ENTERTAINMENT & LEISURE TIME (1.3%)
750 United Artists Theatres....................... 11.50 05/01/02 792,187
--------------
ENTERTAINMENT/GAMING (1.8%)
695 Fitzgeralds Gaming Corp. (Units) ++........... 13.00 12/31/02 608,125
500 Showboat, Inc................................. 9.25 05/01/08 505,000
--------------
1,113,125
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FINANCIAL SERVICES (1.1%)
$ 400 American Annuity Group, Inc................... 11.125 % 02/01/03 $ 428,060
250 Outsourcing Solutions, Inc. - 144A*........... 11.00 11/01/06 265,000
--------------
693,060
--------------
FOODS (0.5%)
290 American Rice, Inc............................ 13.00 07/31/02 284,200
--------------
HEALTHCARE (0.9%)
500 Dade International, Inc. (Series B)........... 11.125 05/01/06 540,000
--------------
HOME BUILDING (0.6%)
350 U.S. Home Corp................................ 9.75 06/15/03 362,250
--------------
INDUSTRIALS (3.1%)
250 American Media Operations, Inc................ 11.625 11/15/04 266,875
885 Corporate Express, Inc........................ 4.50 07/01/00 840,750
250 Hayes Wheels International, Inc............... 11.00 07/15/06 275,000
210 Oregon Steel Mills, Inc....................... 11.00 06/15/03 229,163
250 Pierce Leahy Corp............................. 11.125 07/15/06 272,500
--------------
1,884,288
--------------
MANUFACTURING (6.7%)
335 Communications & Power Industries, Inc.
(Series B).................................. 12.00 08/01/05 369,338
350 Foamex L.P.................................... 11.25 10/01/02 372,750
250 Mettler Toledo, Inc........................... 9.75 10/01/06 263,125
575 Newflo Corp................................... 13.25 11/15/02 629,625
1,000 Sweetheart Cup, Inc........................... 10.50 09/01/03 1,050,000
750 Talley Manufacturing & Technology Inc......... 10.75 10/15/03 787,500
600 Telex Communications Inc...................... 12.00 07/15/04 660,750
--------------
4,133,088
--------------
MEDIA GROUP (4.8%)
375 Ackerly Communications, Inc. (Series B)....... 10.75 10/01/03 400,313
500 Adams Outdoor Advertising..................... 10.75 03/15/06 535,000
545 Garden State Newspapers, Inc.................. 12.00 07/01/04 594,050
575 Heritage Media Services Inc................... 11.00 06/15/02 615,250
500 K-III Communications Corp..................... 10.625 05/01/02 521,250
250 Outdoor Systems, Inc.......................... 9.375 10/15/06 253,125
--------------
2,918,988
--------------
MULTI-INDUSTRY (0.8%)
500 Valcor, Inc................................... 9.625 11/01/03 497,500
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PAPER & FOREST PRODUCTS (3.5%)
$ 935 Malette, Inc. (Canada)........................ 12.25 % 07/15/04 $ 1,005,125
500 Rainy River Forest Product (Canada)........... 10.75 10/15/01 538,125
550 Stone Container Corp.......................... 10.75 10/01/02 565,125
--------------
2,108,375
--------------
REAL ESTATE INVESTMENT TRUST (0.7%)
415 Trizec Finance Ltd. (Canada).................. 10.875 10/15/05 455,981
--------------
RETAIL (0.8%)
420 Cole National Group, Inc...................... 11.25 10/01/01 463,050
--------------
RETAIL - DRUG STORES (0.6%)
350 Di Giorgio Corp............................... 12.00 02/15/03 360,500
--------------
RETAIL - FOOD CHAINS (1.8%)
375 Grand Union Co................................ 12.00 09/01/04 377,812
625 Smith's Food & Drug Centers, Inc.............. 11.25 05/15/07 696,875
--------------
1,074,687
--------------
TELEPHONES (0.4%)
250 Sprint Spectrum L.P........................... 11.00 08/15/06 270,000
--------------
TRANSPORTATION (1.0%)
550 Moran Transportation Co....................... 11.75 07/15/04 594,000
--------------
UTILITIES (0.8%)
490 Texas-New Mexico Power Co..................... 10.75 09/15/03 522,071
--------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $24,747,160).......................................... 25,938,086
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS (11.3%)
FINANCIAL (0.6%)
7,700 Allstate Corp. $2.30 (4).................................................. 342,650
--------------
FINANCIAL SERVICES (1.6%)
15,400 Merrill Lynch & Co., Inc. $3.12 (5)....................................... 329,175
4,800 Morgan Stanley Group, Inc. $3.99 (6)...................................... 328,200
5,000 Penncorp Financial Group, Inc. $3.50 - 144A*.............................. 299,375
--------------
956,750
--------------
FUNERAL SERVICES (0.2%)
1,200 SCI Finance L.L.C. (Series A) $3.125...................................... 117,150
--------------
HEALTHCARE HMOS (1.1%)
8,600 Aetna Inc. $4.758......................................................... 672,950
--------------
HOTELS (0.5%)
6,200 Host Marriott Financial Trust $3.375 - 144A*.............................. 346,425
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
INDUSTRIALS (2.0%)
5,300 Crown Cork & Seal Co., Inc. $1.885........................................ $ 284,875
6,200 TCI Pacific Communications $5.00 (7)...................................... 578,925
8,300 Vanstar Financing Trust $3.375 - 144A*.................................... 342,375
--------------
1,206,175
--------------
INSURANCE (1.0%)
3,800 American Bankers Insurance Group, Inc. (Series B) $3.125.................. 247,950
11,000 Salomon, Inc. $7.625 (8).................................................. 354,750
--------------
602,700
--------------
MEDIA GROUP (0.4%)
4,900 SFX Broadcasting, Inc. (Series D) $3.25................................... 230,300
--------------
OIL & GAS PRODUCTS (1.1%)
5,200 Occidental Petroleum Corp. (Series A) $3.00 (9)........................... 349,050
5,300 Occidental Petroleum Corp. $3.875 - 144A*................................. 318,662
--------------
667,712
--------------
PUBLISHING (0.6%)
6,700 Golden Books Financing Trust $4.375 - 144A*............................... 378,550
--------------
RETAIL (0.9%)
10,500 Kmart Financing I $3.875.................................................. 535,500
--------------
TELECOMMUNICATION EQUIPMENT (0.8%)
7,800 Corning Delaware, L.P. $3.00.............................................. 477,750
--------------
TELECOMMUNICATIONS (0.5%)
6,100 Loral Space & Communications $3.00 - 144A*................................ 330,547
--------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST $6,199,577).............................................. 6,865,159
--------------
COMMON STOCK (1.1%)
COMPUTER EQUIPMENT
13,475 Storage Technology Corp. (Identified Cost $515,180)....................... 660,275
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- ----------- -----------
<C> <S> <C> <C>
WARRANT (0.0%)
ENTERTAINMENT/GAMING
6,654 Fitzgeralds Gaming Corp. - 144A*
(Identified Cost $29,943)................................ 12/19/98 18,299
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENT (2.3%)
REPURCHASE AGREEMENT
$ 1,416 The Bank of New York (dated 1/31/97; proceeds
$1,416,703; collateralized by $1,415,570
Federal Farm Credit Bank 4.95% due 03/03/97
valued at $1,444,406)
(Identified Cost $1,416,083)................ 5.25 % 02/03/97 $ 1,416,083
--------------
TOTAL INVESTMENTS
(IDENTIFIED COST $56,273,750)(A)............................................ 98.1% 59,800,844
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.............................. 1.9 1,139,730
------ -----------
NET ASSETS.................................................................. 100.0% $60,940,574
------ -----------
------ -----------
<FN>
- ---------------------
* Resale is restricted to qualified institutional investors.
++ Consists of more than one class of securities traded together as a unit;
bonds with attached warrants.
(1) Exchangeable into General Motors - Class E common stock.
(2) Exchangeable into Boeing Co. common stock.
(3) Exchangeable into Johnson & Johnson Co. common stock.
(4) Exchangeable into PMI Group Inc. common stock.
(5) Exchangeable into Cox Communications Inc. common stock.
(6) Exchangeable into Cisco Systems Inc. common stock.
(7) Exchangeable into Tele-Communications - Class A common stock.
(8) Exchangeable into Financial Security Assurance Holdings, Ltd. common
stock.
(9) Exchangeable into Canadian Occidental Petroleum common stock.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $4,260,414 and the
aggregate gross unrealized depreciation is $733,320, resulting in net
unrealized appreciation of $3,527,094.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
TCW/DW INCOME AND GROWTH FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $56,273,750)............................. $59,800,844
Cash........................................................ 397,325
Receivable for:
Investments sold........................................ 1,424,926
Interest................................................ 872,434
Shares of beneficial interest sold...................... 155,642
Dividends............................................... 16,544
Deferred organizational expenses............................ 46,235
Prepaid expenses............................................ 31,554
-----------
TOTAL ASSETS........................................... 62,745,504
-----------
LIABILITIES:
Payable for:
Investments purchased................................... 1,619,309
Shares of beneficial interest repurchased............... 57,389
Plan of distribution fee................................ 33,360
Management fee.......................................... 22,880
Investment advisory fee................................. 15,254
Accrued expenses and other payables......................... 56,738
-----------
TOTAL LIABILITIES...................................... 1,804,930
-----------
NET ASSETS:
Paid-in-capital............................................. 56,114,695
Net unrealized appreciation................................. 3,527,094
Accumulated undistributed net investment income............. 443,330
Accumulated undistributed net realized gain................. 855,455
-----------
NET ASSETS............................................. $60,940,574
-----------
-----------
NET ASSET VALUE PER SHARE,
5,335,701 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$11.42
-----------
-----------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1997
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.................................................... $3,854,394
Dividends................................................... 316,816
----------
TOTAL INCOME........................................... 4,171,210
----------
EXPENSES
Plan of distribution fee.................................... 425,303
Management fee.............................................. 260,240
Investment advisory fee..................................... 173,493
Professional fees........................................... 64,615
Transfer agent fees and expenses............................ 52,401
Shareholder reports and notices............................. 47,068
Organizational expenses..................................... 39,916
Trustees' fees and expenses................................. 38,303
Registration fees........................................... 28,555
Custodian fees.............................................. 20,451
Other....................................................... 19,597
----------
TOTAL EXPENSES......................................... 1,169,942
----------
NET INVESTMENT INCOME.................................. 3,001,268
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 3,798,985
Net change in unrealized appreciation....................... 475,436
----------
NET GAIN............................................... 4,274,421
----------
NET INCREASE................................................ $7,275,689
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
TCW/DW INCOME AND GROWTH FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, 1997 JANUARY 31, 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 3,001,268 $ 2,973,403
Net realized gain........................................... 3,798,985 1,186,265
Net change in unrealized appreciation....................... 475,436 6,051,315
---------------- ----------------
NET INCREASE........................................... 7,275,689 10,210,983
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (3,008,077) (3,087,769)
Net realized gain........................................... (2,721,147) --
---------------- ----------------
TOTAL.................................................. (5,729,224) (3,087,769)
---------------- ----------------
Net increase (decrease) from transactions in shares of
beneficial interest....................................... 1,763,514 (4,827,749)
---------------- ----------------
NET INCREASE........................................... 3,309,979 2,295,465
---------------- ----------------
NET ASSETS:
Beginning of period......................................... 57,630,595 55,335,130
---------------- ----------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$443,330 AND $450,139, RESPECTIVELY).................... $60,940,574 $57,630,595
---------------- ----------------
---------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
TCW/DW INCOME AND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1997
1. ORGANIZATIONAL AND ACCOUNTING POLICIES
TCW/DW Income and Growth Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The Fund's investment objective is to generate
high total return by providing a high level of current income and the potential
for capital appreciation. The Fund seeks to achieve its objective by investing
in bonds or preferred stock convertible into common stock, other fixed income
securities, common stocks and U.S. Government securities. The Fund was organized
as a Massachusetts business trust on November 23, 1992 and commenced operations
on March 31, 1993.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by TCW Funds Management, Inc. (the "Adviser") that sale or bid prices
are not reflective of a security's market value, portfolio securities are valued
at their fair value as determined in good faith under procedures established by
and under the general supervision of the Trustees (valuation of debt securities
for which market quotations are not readily available may be based upon current
market prices of securities which are comparable in coupon, rating and maturity
or an appropriate matrix utilizing similar factors); (4) certain portfolio
securities may be valued by an outside pricing service approved by the Trustees.
The pricing service may utilize a matrix system incorporating security quality,
maturity and coupon as the evaluation model parameters, and/or research and
evaluations by its staff, including review of broker-dealer market price
quotations, if available, in determining what it believes is the fair valuation
of the securities valued by such pricing service; and (5) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-
51
<PAGE>
TCW/DW INCOME AND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1997, CONTINUED
to-market basis until sixty days prior to maturity and thereafter at amortized
cost based on their value on the 61st day. Short-term debt securities having a
maturity date of sixty days or less at the time of purchase are valued at
amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Dividend
income and other distributions are recorded on the ex-dividend date. Interest
income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc., an affiliate of
Dean Witter Services Company Inc. (the "Manager") paid the organizational
expenses of the Fund in the amount of approximately $206,000 of which $200,000
have been reimbursed. Such expenses have been deferred and are being amortized
on the straight-line method over a period not to exceed five years from the
commencement of operations.
52
<PAGE>
TCW/DW INCOME AND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1997, CONTINUED
2. MANAGEMENT AGREEMENT
Pursuant to a Management Agreement, the Fund pays the Investment Manager a
management fee, accrued daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined as of the close of each
business day: 0.45% to the portion of daily net assets not exceeding $500
million and 0.42% to the portion of the daily net assets exceeding $500 million.
Under the terms of the Management Agreement, the Manager maintains certain of
the Fund's books and records and furnishes, at its own expense, office space,
facilities, equipment, clerical, bookkeeping and certain legal services and pays
the salaries of all personnel, including officers of the Fund who are employees
of the Manager. The Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, the Fund pays the Adviser an
advisory fee, accrued daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined as of the close of each
business day: 0.30% to the portion of daily net assets not exceeding $500
million and 0.28% to the portion of the daily net assets exceeding $500 million.
Under the terms of the Investment Advisory Agreement, the Fund has retained the
Adviser to invest the Fund's assets, including placing orders for the purchase
and sale of portfolio securities. The Adviser obtains and evaluates such
information and advice relating to the economy, securities markets, and specific
securities as it considers necessary or useful to continuously manage the assets
of the Fund in a manner consistent with its investment objective. In addition,
the Adviser pays the salaries of all personnel, including officers of the Fund,
who are employees of the Adviser.
4. PLAN OF DISTRIBUTION
Dean Witter Distributors Inc. (the "Distributor"), an affiliate of the Manager,
is the distributor of the Fund's shares and, in accordance with a Plan of
Distribution (the "Plan") pursuant to Rule 12b-1 under the Act, finances certain
expenses in connection therewith.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Fund, except for expenses that
the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor, Dean Witter Reynolds
Inc. ("DWR"), an affiliate of the Distributor and Manager, its affiliates and
any other selected broker-dealers under the Plan: (1) compensation to, and
expenses of, DWR's account executives and others, including overhead and
telephone expenses; (2) sales incentives and bonuses
53
<PAGE>
TCW/DW INCOME AND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1997, CONTINUED
to sales representatives and to marketing personnel in connection with promoting
sales of the Fund's shares; (3) expenses incurred in connection with promoting
sales of the Fund's shares; (4) preparing and distributing sales literature; and
(5) providing advertising and promotional activities, including direct mail
solicitation and television, radio, newspaper, magazine and other media
advertisements.
The Fund is authorized to reimburse the Distributor for specific expenses the
Distributor incurs or plans to incur in promoting the distribution of the Fund's
shares. The amount of each monthly reimbursement payment may in no event exceed
an amount equal to a payment at the annual rate of 0.75% of the Fund's average
daily net assets during the month. Expenses incurred by the Distributor pursuant
to the Plan in any fiscal year will not be reimbursed by the Fund through
payments accrued in any subsequent fiscal year. For the year ended January 31,
1997, the distribution fee was accrued at the annual rate of 0.74%.
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended January 31, 1997 aggregated
$57,069,874 and $58,830,492, respectively.
Dean Witter Trust Company, an affiliate of the Manager and Distributor, is the
Fund's transfer agent. At January 31, 1997, the Fund had transfer agent fees and
expenses payable of approximately $4,000.
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, 1997 JANUARY 31, 1996
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 1,635,756 $ 18,613,081 1,236,686 $ 13,236,674
Reinvestment of dividends and distributions...................... 431,286 4,808,760 224,382 2,370,537
---------- ------------ ---------- ------------
2,067,042 23,421,841 1,461,068 15,607,211
Repurchased...................................................... (1,909,009) (21,658,327) (1,948,190) (20,434,960)
---------- ------------ ---------- ------------
Net increase (decrease).......................................... 158,033 $ 1,763,514 (487,122) $ (4,827,749)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
7. FEDERAL INCOME TAX STATUS
During the year ended January 31, 1997, the Fund utilized its net capital loss
carryover of approximately $206,000.
54
<PAGE>
TCW/DW INCOME AND GROWTH FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JANUARY 31, MARCH 31, 1993*
--------------------------------- THROUGH JANUARY
1997 1996 1995 31, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.13 $ 9.77 $ 10.98 $ 10.00
------- ------- ------- ------
Net investment income.............. 0.60 0.59 0.59 0.45
Net realized and unrealized gain
(loss)............................ 0.84 1.37 (1.20) 1.02
------- ------- ------- ------
Total from investment operations... 1.44 1.96 (0.61) 1.47
------- ------- ------- ------
Less dividends and distributions
from:
Net investment income........... (0.60) (0.60) (0.55) (0.39)
Net realized gain............... (0.55) -- (0.05) (0.10)
------- ------- ------- ------
Total dividends and
distributions..................... (1.15) (0.60) (0.60) (0.49)
------- ------- ------- ------
Net asset value, end of period..... $ 11.42 $ 11.13 $ 9.77 $ 10.98
------- ------- ------- ------
------- ------- ------- ------
TOTAL INVESTMENT RETURN+........... 13.46% 20.52% (5.59)% 15.06%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 2.02% 2.21% 2.04% 1.57%(2)(3)
Net investment income.............. 5.19% 5.41% 5.83% 5.62%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $60,941 $57,631 $55,335 $64,370
Portfolio turnover rate............ 102% 79% 88% 84%(1)
Average commission rate paid....... $0.0540 -- -- --
<FN>
- ---------------------
* Commencement of operations.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne expenses that were reimbursed or waived by the
Manager and Investment Adviser, the annualized expense and net investment
income ratios would have been 2.00% and 5.18%, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
TCW/DW INCOME AND GROWTH FUND
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS
(1) Financial statements and schedules, included in Prospectus
(Part A):
Page
in Prosp.
---------
Financial highlights for the period March 31, 1993
through January 31, 1994 and for the years ended
January 31, 1995, 1996 and 1997. . . . . . . . . . . . . . 5
(2) Financial statements included in the Statement of
Additional Information (Part B):
Page
in SAI
------
Portfolio of Investments at January 31, 1997 . . . . . . . 41
Statement of assets and liabilities at
January 31, 1997 . . . . . . . . . . . . . . . . . . . . . 49
Statement of operations for the year ended
January 31, 1997 . . . . . . . . . . . . . . . . . . . . . 49
Statement of changes in net assets for the years
ended January 31, 1996 and 1997. . . . . . . . . . . . . . 50
Notes to Financial Statements. . . . . . . . . . . . . . . 51
Financial highlights for the period March 31, 1993
through January 31, 1994 and for the years ended
January 31, 1995, 1996 and 1997. . . . . . . . . . . . . . 55
(3) Financial statements included in Part C:
None
(b) EXHIBITS:
Exhibit
Number Description
- ------ -----------
2. -- Amended and Restated By-Laws of the Registrant dated as
of October 25, 1996
8. -- Amendment to the Custodian Agreement between
Registrant and The Bank of New York
11. -- Consent of Independent Accountants
16. -- Schedules for Computation of Performance Quotations
1
<PAGE>
27. -- Financial Data Schedule
- -------------------------
All other exhibits were previously filed and are hereby incorporated by
reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
Item 26. NUMBER OF HOLDERS OF SECURITIES.
(1) (2)
Number of Record Holders
Title of Class at February 28, 1997
-------------- ------------------------
Shares of Beneficial Interest 4,056
Item 27. INDEMNIFICATION.
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the Registrant. Trustees,
officers, employees and agents will be indemnified for the expense of litigation
if it is determined that they are entitled to indemnification against any
liability established in such litigation. The Registrant may also advance money
for these expenses provided that they give their undertakings to repay the
Registrant unless their conduct is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Management and Advisory Agreements, none of the
Manager, the Adviser or any trustee, officer, employee or agent of the
Registrant shall be liable for any action or failure to act, except in the case
of bad faith, willful misfeasance, gross negligence or reckless disregard of
duties to the Registrant.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the shares
2
<PAGE>
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act, and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Manager, Registrant's Trustees, and
other registered investment management companies managed by the Manager,
maintains insurance on behalf of any person who is or was a Trustee, officer,
employee, or agent of Registrant, or who is or was serving at the request of
Registrant as a trustee, director, officer, employee or agent of another trust
or corporation, against any liability asserted against him and incurred by him
or arising out of his position. However, in no event will Registrant maintain
insurance to indemnify any such person for any act for which Registrant itself
is not permitted to indemnify him.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The TCW Funds Management, Inc. (the "Adviser") is a 100% owned subsidiary
of The TCW Group, Inc., a Nevada corporation. The Adviser presently serves as
investment adviser to: (1) TCW Funds, Inc., a diversified open-end management
investment company, (2) TCW Convertible Securities Fund, Inc., a diversified
closed-end management investment company; (3) TCW/DW Core Equity Trust, an open-
end, non-diversified management company, (4) TCW/DW North American Government
Income Trust, an open-end, non-diversified management company, (5) TCW/DW Income
and Growth Fund, an open-end, non-diversified management company, (6) TCW/DW
Latin American Growth Fund, an open-end non-diversified management company, (7)
TCW/DW Small Cap Growth Fund, an open-end non-diversified management company,
(8) TCW/DW Term Trust 2000, a closed-end, diversified management company, (9)
TCW/DW Term Trust 2002, a closed-end diversified management company, (10) TCW/DW
Term Trust 2003, a closed-end diversified management company, (11) TCW/DW
Balanced Fund, an open-end, diversified management company, (12) TCW/DW Emerging
Markets Opportunities Trust, a closed-end, non-diversified management company,
(13) TCW/DW Total Return Trust, an open-end non-diversified management
investment company, (14) TCW/DW Mid-Cap Equity Trust, an open-end, diversified
management investment company, (15) TCW/DW Global Telecom Trust, an open-end
diversified management investment company and (16) TCW/DW Strategic Income
Trust, an open-end diversified management investment company. The Adviser also
serves as investment adviser or sub-adviser to other investment companies,
including foreign investment companies. The list required by this Item 28 of the
officers and directors of the Adviser together with information as to any other
business, profession, vocation or employment of a substantive nature engaged in
by the Adviser and such officers and directors during the past two years, is
incorporated by reference to Form ADV (File No. 801-29075) filed by the Adviser
pursuant to the Investment Advisers Act.
3
<PAGE>
Item 29. PRINCIPAL UNDERWRITERS.
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant. Distributors is
also the principal underwriter of the following investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Natural Resource Development Securities Inc.
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Global Utilities Fund
(15) Dean Witter Federal Securities Trust
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Limited Term Municipal Trust
(22) Dean Witter World Wide Income Trust
(23) Dean Witter Utilities Fund
(24) Dean Witter Strategist Fund
(25) Dean Witter New York Municipal Money Market Trust
(26) Dean Witter Intermediate Income Securities
(27) Prime Income Trust
(28) Dean Witter European Growth Fund Inc.
(29) Dean Witter Developing Growth Securities Trust
(30) Dean Witter Precious Metals and Minerals Trust
(31) Dean Witter Pacific Growth Fund Inc.
(32) Dean Witter Multi-State Municipal Series Trust
(33) Dean Witter Premier Income Trust
(34) Dean Witter Short-Term U.S. Treasury Trust
(35) Dean Witter Diversified Income Trust
(36) Dean Witter Health Sciences Trust
(37) Dean Witter Global Dividend Growth Securities
(38) Dean Witter American Value Fund
(39) Dean Witter U.S. Government Money Market Trust
(40) Dean Witter Global Short-Term Income Fund Inc.
(41) Dean Witter Variable Investment Series
(42) Dean Witter Value-Added Market Series
(43) Dean Witter Short-Term Bond Fund
(44) Dean Witter National Municipal Trust
(45) Dean Witter High Income Securities
(46) Dean Witter International SmallCap Fund
(47) Dean Witter Hawaii Municipal Trust
(48) Dean Witter Balanced Growth Fund
(49) Dean Witter Balanced Income Fund
(50) Dean Witter Intermediate Term U.S. Treasury Trust
4
<PAGE>
(51) Dean Witter Global Asset Allocation Fund
(52) Dean Witter Mid-Cap Growth Fund
(53) Dean Witter Capital Appreciation Fund
(54) Dean Witter Intermediate Term U.S. Treasury Trust
(55) Dean Witter Information Fund
(56) Dean Witter Japan Fund
(57) Dean Witter Income Builder Fund
(58) Dean Witter Special Value Fund
(59) Dean Witter Financial Services Trust
(60) Dean Witter Market Leader Trust
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income Trust
(b) The following information is given regarding directors and officers of Dean
Witter Distributors Inc. ("Distributors"). The principal address of
Distributors is Two World Trade Center, New York, New York 10048.
Positions and
Office with Distributors
Name and the Registrant
- ---- ------------------
Charles A. Fiumefreddo Chairman, Chief Executive
Officer and Director of
Distributors and Chairman,
Chief Executive Officer
and Trustee of the
Registrant.
Philip J. Purcell Director of Distributors.
Richard M. DeMartini Director of Distributors and
Trustee of the Registrant.
James F. Higgins Director of Distributors.
Thomas C. Schneider Executive Vice President, Chief
Financial Officer and Director
of Distributors.
Christine A. Edwards Executive Vice President,
Secretary, Chief Legal Officer
and Director of Distributors.
Robert Scanlan Executive Vice President of
Distributors and Vice President
of the Registrant.
5
<PAGE>
Positions and
Office with Distributors
Name and the Registrant
- ---- ------------------
Barry Fink Senior Vice President, Assistant
General Counsel and Assistant
Secretary of Distributors and Vice
President, Secretary and General
Counsel of the Registrant.
Robert S. Giambrone Senior Vice President of
Distributors and Vice President
of the Registrant.
Frederick K. Kubler Senior Vice President,
Assistant Secretary and Chief
Compliance Officer of Distributors.
Michael T. Gregg Vice President and Assistant
Secretary of Distributors.
Edward C. Oelsner III Vice President of Distributors.
Samuel Wolcott III Vice President of Distributors.
Thomas F. Caloia Assistant Treasurer of
Distributors and Treasurer of
the Registrant.
Michael Interrante Assistant Treasurer of Distributors.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Manager at its offices, except records relating to holders of
shares issued by the Registrant, which are maintained by the Registrant's
Transfer Agent, at its place of business as shown in the prospectus.
Item 31. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service
contract.
Item 32. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York on the 2nd day of April, 1997.
TCW/DW INCOME AND GROWTH FUND
By /s/Barry Fink
----------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 5 has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/Charles A. Fiumefreddo 04/02/97
-------------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/Thomas F. Caloia
-------------------------------
Thomas F. Caloia 04/02/97
(3) Majority of the Trustees Trustee
Charles A. Fiumefreddo (Chairman) Thomas E. Larkin, Jr.
Richard M. DeMartini Marc I. Stern
By /s/Barry Fink 04/02/97
-------------------------------
Barry Fink
Attorney-in-Fact
John C. Argue
John R. Haire
Manuel H. Johnson
Michael E. Nugent
John L. Schroeder
By /s/David M. Butowsky 04/02/97
-------------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
TCW/DW INCOME AND GROWTH FUND
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2. -- Amended and Restated By-Laws of the Registrant dated as of
October 25, 1996
8. -- Amendment to the Custodian Agreement between the Registrant
and The Bank of New York
11. -- Consent of Independent Accountants
16. -- Schedules for Computation of Performance Quotations
27. -- Financial Data Schedule
<PAGE>
BY-LAWS
OF
TCW/DW INCOME AND GROWTH FUND
AMENDED AND RESTATED AS OF OCTOBER 25, 1996
ARTICLE I
DEFINITIONS
The terms "COMMISSION", "DECLARATION", "DISTRIBUTOR", "INVESTMENT ADVISER",
"MAJORITY SHAREHOLDER VOTE", "1940 ACT", "SHAREHOLDER", "SHARES", "TRANSFER
AGENT", "TRUST", "TRUST PROPERTY", and "TRUSTEES" have the respective meanings
given them in the Declaration of Trust of TCW/DW Income and Growth Fund dated
November 20, 1992.
ARTICLE II
OFFICES
SECTION 2.1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
SECTION 2.2. OTHER OFFICES. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and without
the Commonwealth as the Trustees may from time to time designate or the business
of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. PLACE OF MEETINGS. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. MEETINGS. Meetings of Shareholders of the Trust shall be
held whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the provisions
of Section 16(a) of the 1940 Act, for that purpose. Meetings of Shareholders
shall also be called by the Secretary upon the written request of the holders of
Shares entitled to vote as otherwise required by Section 16(c) of the 1940 Act
and to the extent required by the corporate or business statute of any state in
which the Shares of the Trust are sold, as made applicable to the Trust by the
provisions of Section 2.3 of the Declaration. Such request shall state the
purpose or purposes of such meeting and the matters proposed to be acted on
thereat. Except to the extent otherwise required by Section 16(c) of the 1940
Act, as made applicable to the Trust by the provisions of Section 2.3 of the
Declaration, the Secretary shall inform such Shareholders of the reasonable
estimated cost of preparing and mailing such notice of the meeting, and upon
payment to the Trust of such costs, the Secretary shall give notice stating the
purpose or purposes of the meeting to all entitled to vote at such meeting. No
meeting need be called upon the request of the holders of Shares entitled to
cast less than a majority of all votes entitled to be cast at such meeting, to
consider any matter which is substantially the same as a matter voted upon at
any meeting of Shareholders held during the preceding twelve months.
SECTION 3.3. NOTICE OF MEETINGS. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes thereof,
shall be given by the Secretary not less than ten (10) nor more than ninety (90)
days before such meeting to each Shareholder entitled to vote at such meeting.
Such notice shall be deemed to be given when deposited in the United States
mail, postage prepaid, directed to the Shareholder at his address as it appears
on the records of the Trust.
SECTION 3.4. QUORUM AND ADJOURNMENT OF MEETINGS. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders the holders of a majority of the Shares
1
<PAGE>
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a quorum for the
transaction of business. In the absence of a quorum, the Shareholders present or
represented by proxy and entitled to vote thereat shall have power to adjourn
the meeting from time to time. Any adjourned meeting may be held as adjourned
without further notice. At any adjourned meeting at which a quorum shall be
present, any business may be transacted as if the meeting had been held as
originally called.
SECTION 3.5. VOTING RIGHTS, PROXIES. At each meeting of Shareholders,
each holder of record of Shares entitled to vote thereat shall be entitled to
one vote in person or by proxy, executed in writing by the Shareholder or his
duly authorized attorney-in-fact, for each Share of beneficial interest of the
Trust and for the fractional portion of one vote for each fractional Share
entitled to vote so registered in his name on the records of the Trust on the
date fixed as the record date for the determination of Shareholders entitled to
vote at such meeting. No proxy shall be valid after eleven months from its date,
unless otherwise provided in the proxy. At all meetings of Shareholders, unless
the voting is conducted by inspectors, all questions relating to the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided by the chairman of the meeting. Pursuant to
a resolution of a majority of the Trustees, proxies may be solicited in the name
of one or more Trustees or Officers of the Trust.
SECTION 3.6. VOTE REQUIRED. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority Shareholder
Vote.
SECTION 3.7. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the request
of any Shareholder or his proxy shall, appoint Inspectors of Election of the
meeting. In case any person appointed as Inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Trustees in
advance of the convening of the meeting or at the meeting by the person acting
as chairman. The Inspectors of Election shall determine the number of Shares
outstanding, the Shares represented at the meeting, the existence of a quorum,
the authenticity, validity and effect of proxies, shall receive votes, ballots
or consents, shall hear and determine all challenges and questions in any way
arising in connection with the right to vote, shall count and tabulate all votes
or consents, determine the results, and do such other acts as may be proper to
conduct the election or vote with fairness to all Shareholders. On request of
the chairman of the meeting, or of any Shareholder or his proxy, the Inspectors
of Election shall make a report in writing of any challenge or question or
matter determined by them and shall execute a certificate of any facts found by
them.
SECTION 3.8. INSPECTION OF BOOKS AND RECORDS. Shareholders shall have
such rights and procedures of inspection of the books and records of the Trust
as are granted to Shareholders under Section 32 of the Corporations Law of the
State of Massachusetts.
SECTION 3.9. ACTION BY SHAREHOLDERS WITHOUT MEETING. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to be
taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
SECTION 3.10. PRESENCE AT MEETINGS. Presence at meetings of shareholders
requires physical attendance by the shareholder or his or her proxy at the
meeting site and does not encompass attendance by telephonic or other electronic
means.
2
<PAGE>
ARTICLE IV
TRUSTEES
SECTION 4.1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the Chairman and shall be
called by the Chairman or the Secretary upon the written request of any two (2)
Trustees.
SECTION 4.2. NOTICE OF SPECIAL MEETINGS. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed to
be given when deposited in the United States mail, postage prepaid, directed to
the Trustee at his address as it appears on the records of the Trust. Subject to
the provisions of the 1940 Act, notice or waiver of notice need not specify the
purpose of any special meeting.
SECTION 4.3. TELEPHONE MEETINGS. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such committee,
as the case may be, by means of a conference telephone or similar communications
equipment if all persons participating in the meeting can hear each other at the
same time. Participation in a meeting by these means constitutes presence in
person at the meeting.
SECTION 4.4. QUORUM, VOTING AND ADJOURNMENT OF MEETINGS. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present, the
affirmative vote of a majority of the Trustees present shall be the act of the
Trustees, unless the concurrence of a greater proportion is expressly required
for such action by law, the Declaration or these By-Laws. If at any meeting of
the Trustees there be less than a quorum present, the Trustees present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall have been obtained.
SECTION 4.5. ACTION BY TRUSTEES WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of the Trustees may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all of the Trustees entitled to vote
upon the action and such written consent is filed with the minutes of
proceedings of the Trustees.
SECTION 4.6. EXPENSES AND FEES. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and each
Trustee who is not an officer or employee of the Trust or of its investment
manager or underwriter or of any corporate affiliate of any of said persons
shall receive for services rendered as a Trustee of the Trust such compensation
as may be fixed by the Trustees. Nothing herein contained shall be construed to
preclude any Trustee from serving the Trust in any other capacity and receiving
compensation therefor.
SECTION 4.7. EXECUTION OF INSTRUMENTS AND DOCUMENTS AND SIGNING OF CHECKS
AND OTHER OBLIGATIONS AND TRANSFERS. All instruments, documents and other papers
shall be executed in the name and on behalf of the Trust and all checks, notes,
drafts and other obligations for the payment of money by the Trust shall be
signed, and all transfer of securities standing in the name of the Trust shall
be executed, by the Chairman, the President, any Vice President or the Treasurer
or by any one or more officers or agents of the Trust as shall be designated for
that purpose by vote of the Trustees; notwithstanding the above, nothing in this
Section 4.7 shall be deemed to preclude the electronic authorization, by
designated persons, of the Trust's Custodian (as described herein in Section
9.1) to transfer assets of the Trust, as provided for herein in Section 9.1.
SECTION 4.8. INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND AGENTS.
(a) The Trust shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
3
<PAGE>
(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Trustee, officer, employee, or agent of the Trust. The
indemnification shall be against expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement, actually and reasonably incurred by him
in connection with the action, suit, or proceeding, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the Trust,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or on behalf of the Trust to obtain a judgment or decree in its favor by
reason of the fact that he is or was a Trustee, officer, employee, or agent of
the Trust. The indemnification shall be against expenses, including attorneys'
fees actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Trust;
except that no indemnification shall be made in respect of any claim, issue, or
matter as to which the person has been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Trust, except to the extent
that the court in which the action or suit was brought, or a court of equity in
the county in which the Trust has its principal office, determines upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for those expenses which the court shall deem proper, provided such
Trustee, officer, employee or agent is not adjudged to be liable by reason of
his willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
(c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsection (a) or (b) or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in subsections (a) or
(b).
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which
consists of Trustees who were not parties to the action, suit or
proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum
of disinterested Trustees so directs, by independent legal counsel
in a written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person
shall be entitled to indemnification for any liability, whether or not
there is an adjudication of liability, arising by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of duties
as described in Section 17(h) and (i) of the Investment Company Act of 1940
("disabling conduct"). A person shall be deemed not liable by reason of
disabling conduct if, either:
(i) a final decision on the merits is made by a court or other
body before whom the proceeding was brought that the person to be
indemnified ("indemnitee") was not liable by reason of disabling
conduct; or
(ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the indemnitee
was not liable by reason of disabling conduct, is made by either--
4
<PAGE>
(A) a majority of a quorum of Trustees who are neither
"interested persons" of the Trust, as defined in Section 2(a)(19)
of the Investment Company Act of 1940, nor parties to the action,
suit or proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition thereof
if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the Trustee,
officer, employee or agent of the Trust to repay the advance if it is not
ultimately determined that such person is entitled to be indemnified by the
Trust; and
(3) either, (i) such person provides a security for his undertaking,
or
(ii) the Trust is insured against losses by reason of any
lawful advances, or
(iii) a determination, based on a review of readily available
facts, that there is reason to believe that such person ultimately
will be found entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of Trustees
who are neither "interested persons" of the Trust, as defined in
Section 2(a)(19) of the 1940 Act, nor parties to the action, suit
or proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding the office, and shall continue as to a person who has ceased to be
a Trustee, officer, employee, or agent and inure to the benefit of the heirs,
executors and administrators of such person; provided that no person may satisfy
any right of indemnity or reimbursement granted herein or to which he may be
otherwise entitled except out of the property of the Trust, and no Shareholder
shall be personally liable with respect to any claim for indemnity or
reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such. However, in no event will the Trust purchase
insurance to indemnify any officer or Trustee against liability for any act for
which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE V
COMMITTEES
SECTION 5.1. EXECUTIVE AND OTHER COMMITTEES. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the Trustees
of the Trust and may delegate to such committees, in the intervals between
meetings of the Trustees, any or all of the powers of the Trustees in the
management of the business and affairs of the Trust. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in place
of such absent member. Each such committee shall keep a record of its
proceedings.
5
<PAGE>
The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees at
the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. ADVISORY COMMITTEE. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in any
other capacity and which shall have advisory functions with respect to the
investments of the Trust but which shall have no power to determine that any
security or other investment shall be purchased, sold or otherwise disposed of
by the Trust. The number of persons constituting any such advisory committee
shall be determined from time to time by the Trustees. The members of any such
advisory committee may receive compensation for their services and may be
allowed such fees and expenses for the attendance at meetings as the Trustees
may from time to time determine to be appropriate.
SECTION 5.3. COMMITTEE ACTION WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of any Committee of the Trustees appointed pursuant to Section 5.1 of
these By-Laws may be taken without a meeting if a consent in writing setting
forth the action shall be signed by all members of the Committee entitled to
vote upon the action and such written consent is filed with the records of the
proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. EXECUTIVE OFFICERS. The executive officers of the Trust
shall be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. The executive officers of the Trust shall be elected annually by the
Trustees and each executive officer so elected shall hold office until his
successor is elected and has qualified.
SECTION 6.2. OTHER OFFICERS AND AGENTS. The Trustees may also elect one
or more Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers and may elect, or may delegate to the Chairman the power to appoint,
such other officers and agents as the Trustees shall at any time or from time to
time deem advisable.
SECTION 6.3. TERM AND REMOVAL AND VACANCIES. Each officer of the Trust
shall hold office until his successor is elected and has qualified. Any officer
or agent of the Trust may be removed by the Trustees whenever, in their
judgment, the best interests of the Trust will be served thereby, but such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed.
SECTION 6.4. COMPENSATION OF OFFICERS. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the Chairman to the
extent provided by the Trustees with respect to officers appointed by the
Chairman.
SECTION 6.5. POWER AND DUTIES. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to these
By-Laws, or to the extent not so provided, as may be prescribed by the Trustees;
provided, that no rights of any third party shall be affected or impaired by any
such By-Law or resolution of the Trustees unless he has knowledge thereof.
SECTION 6.6. THE CHAIRMAN. (a) The Chairman shall be the chief executive
officer of the Trust; he shall preside at all meetings of the Shareholders and
of the Trustees; he shall have general and active management of the business of
the Trust, shall see that all orders and resolutions of the Trustees are
6
<PAGE>
carried into effect, and, in connection therewith, shall be authorized to
delegate to the President or to one or more Vice Presidents such of his powers
and duties at such times and in such manner as he may deem advisable; he shall
be a signatory on all Annual and Semi-Annual Reports as may be sent to
shareholders, and he shall perform such other duties as the Trustees may from
time to time prescribe.
(b) In the absence of the Chairman, the Board shall determine who shall
preside at all meetings of the shareholders and the Board of Trustees.
SECTION 6.7. THE PRESIDENT. The President shall perform such duties as
the Board of Trustees and the Chairman may from time to time prescribe.
SECTION 6.8. THE VICE PRESIDENTS. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by the
Trustees. The Vice President, or, if there be more than one, the Vice Presidents
in the order of their seniority as may be determined from time to time by the
Trustees or the Chairman, shall, in the absence or disability of the President,
exercise the powers and perform the duties of the President, and he or they
shall perform such other duties as the Trustees or the Chairman may from time to
time prescribe.
SECTION 6.9. THE ASSISTANT VICE PRESIDENTS. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform such
duties and have such powers as may be assigned them from time to time by the
Trustees or the Chairman.
SECTION 6.10. THE SECRETARY. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the proceedings
of the meetings of the Shareholders and of the Trustees in a book to be kept for
that purpose, and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
Shareholders and special meetings of the Trustees, and shall perform such other
duties and have such powers as the Trustees, or the Chairman, may from time to
time prescribe. He shall keep in safe custody the seal of the Trust and affix or
cause the same to be affixed to any instrument requiring it, and, when so
affixed, it shall be attested by his signature or by the signature of an
Assistant Secretary.
SECTION 6.11. THE ASSISTANT SECRETARIES. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by the
Trustees or the Chairman, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such duties and have such other powers as the Trustees or the Chairman may from
time to time prescribe.
SECTION 6.12. THE TREASURER. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and he
shall render to the Trustees and the Chairman, whenever any of them require it,
an account of his transactions as Treasurer and of the financial condition of
the Trust; and he shall perform such other duties as the Trustees, or the
Chairman, may from time to time prescribe.
SECTION 6.13. THE ASSISTANT TREASURERS. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order determined
by the Trustees or the Chairman, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Trustees, or the
Chairman, may from time to time prescribe.
SECTION 6.14. DELEGATION OF DUTIES. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in Shares,
from any sources permitted by law, all as the Trustees shall from time to time
determine.
7
<PAGE>
Inasmuch as the computation of net income and net profits from the sales of
securities or other properties for federal income tax purposes may vary from the
computation thereof on the records of the Trust, the Trustees shall have power,
in their discretion, to distribute as income dividends and as capital gain
distributions, respectively, amounts sufficient to enable the Trust to avoid or
reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. CERTIFICATES OF SHARES. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such form
and design at any time or from time to time, and shall be entered in the records
of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number of
full Shares owned by such holder; shall be signed by or in the name of the Trust
by the Chairman, the President, or a Vice President, and countersigned by the
Secretary or an Assistant Secretary or the Treasurer and an Assistant Treasurer
of the Trust; shall be sealed with the seal; and shall contain such recitals as
may be required by law. Where any certificate is signed by a Transfer Agent or
by a Registrar, the signature of such officers and the seal may be facsimile,
printed or engraved. The Trust may, at its option, determine not to issue a
certificate or certificates to evidence Shares owned of record by any
Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Trust, such certificate or certificates shall,
nevertheless, be adopted by the Trust and be issued and delivered as though the
person or persons who signed such certificate or certificates or whose facsimile
signature or signatures shall appear therein had not ceased to be such officer
or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. The
Trustees may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Trust alleged to have
been lost, stolen or destroyed, upon satisfactory proof of such loss, theft, or
destruction; and the Trustees may, in their discretion, require the owner of the
lost, stolen or destroyed certificate, or his legal representative, to give to
the Trust and to such Registrar, Transfer Agent and/or Transfer Clerk as may be
authorized or required to countersign such new certificate or certificates, a
bond in such sum and of such type as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be against
them or any of them on account of or in connection with the alleged loss, theft
or destruction of any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. APPOINTMENT AND DUTIES. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at least
five million dollars ($5,000,000) as custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as may
be contained in these By-Laws and the 1940 Act:
(1) to receive and hold the securities owned by the Trust and deliver
the same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as the Trustees
may direct;
(3) to disburse such funds upon orders or vouchers;
8
<PAGE>
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees.
SECTION 9.2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these By-Laws,
a waiver thereof in writing, signed by the person or persons entitled to such
notice and filed with the records of the meeting, whether before or after the
holding thereof, or actual attendance at the meeting of shareholders, Trustees
or committee, as the case may be, in person, shall be deemed equivalent to the
giving of such notice to such person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. LOCATION OF BOOKS AND RECORDS. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
SECTION 11.2. RECORD DATE. The Trustees may fix in advance a date as the
record date for the purpose of determining Shareholders entitled to notice of,
or to vote at, any meeting of Shareholders, or Shareholders entitled to receive
payment of any dividend or the allotment of any rights, or in order to make a
determination of Shareholders for any other proper purpose. Such date, in any
case, shall be not more than ninety (90) days, and in case of a meeting of
Shareholders not less than ten (10) days, prior to the date on which particular
action requiring such determination of Shareholders is to be taken. In lieu of
fixing a record date the Trustees may provide that the transfer books shall be
closed for a stated period but not to exceed, in any case, twenty (20) days. If
the transfer books are closed for the purpose of determining Shareholders
entitled to notice of a vote at a meeting of Shareholders, such books shall be
closed for at least ten (10) days immediately preceding such meeting.
SECTION 11.3. SEAL. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from time
to time provide. The seal of the Trust may be affixed to any document, and the
seal and its attestation may be lithographed, engraved or otherwise printed on
any document with the same force and effect as if it had been imprinted and
attested manually in the same manner and with the same effect as if done by a
Massachusetts business corporation under Massachusetts law.
SECTION 11.4. FISCAL YEAR. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time to
time.
9
<PAGE>
SECTION 11.5. ORDERS FOR PAYMENT OF MONEY. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer or
officers or such other person or persons as the Trustees may from time to time
designate, or as may be specified in or pursuant to the agreement between the
Trust and the bank or trust company appointed as Custodian of the securities and
funds of the Trust.
ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees; provided,
however, that no By-Law may be amended, adopted or repealed by the Trustees if
such amendment, adoption or repeal requires, pursuant to law, the Declaration,
or these By-Laws, a vote of the Shareholders. The Trustees shall in no event
adopt By-Laws which are in conflict with the Declaration, and any apparent
inconsistency shall be construed in favor of the related provisions in the
Declaration.
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing TCW/DW Income and Growth Fund, dated
November 20, 1992, a copy of which is on file in the office of the Secretary of
the Commonwealth of Massachusetts, provides that the name TCW/DW Income and
Growth Fund refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee, Shareholder,
officer, employee or agent of TCW/DW Income and Growth Fund shall be held to any
personal liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise, in connection with the
affairs of said TCW/DW Income and Growth Fund, but the Trust Estate only shall
be liable.
10
<PAGE>
AMENDMENT TO CUSTODY AGREEMENT
Amendment made as of this 17th day of April, 1996 by and between TCW/DW
Income and Growth Fund (the "Fund") and The Bank of New York (the "Custodian")
to the Custody Agreement between the Fund and the Custodian dated February 5,
1993 (the "Custody Agreement"). The Custody Agreement is hereby amended as
follows:
Article XV Section 8 of the Custody Agreement shall be deleted and be
replaced by Sections 8.(a), 8.(b) and 8.(c) as set forth below:
"8. (a) The Custodian will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of Securities and moneys
owned by the Fund. The Custodian shall indemnify the Fund against and save the
Fund harmless from all liability, claims, losses and demands whatsoever,
including attorneys' fees, howsoever arising or incurred as the result of the
failure of a subcustodian which is a banking institution located in a foreign
country and identified on Schedule A attached hereto and as amended from time to
time upon mutual agreement of the parties (each, a "Subcustodian") to exercise
reasonable care with respect to the safekeeping of such Securities and moneys to
the same extent that the Custodian would be liable to the Fund if the Custodian
were holding such securities and moneys in New York. In the event of any loss
to the Fund by reason of the failure of the Custodian or a Subcustodian to
utilize reasonable care, the Custodian shall be liable to the Fund only to the
extent of the Fund's direct damages, to be determined based on the market value
of the Securities and moneys which are the subject of the loss at the date of
discovery of such loss and without reference to any special conditions or
circumstances.
8. (b) The Custodian shall not be liable for any loss which results from
(i) the general risk of investing, or (ii) investing or holding Securities and
moneys in a particular country including, but not limited to, losses resulting
from nationalization, expropriation or other governmental actions; regulation of
the banking or securities industry; currency restrictions, devaluations or
fluctuations; or market conditions which prevent the orderly execution of
securities transactions or affect the value of Securities or moneys.
8. (c) Neither party shall be liable to the other for any loss due to
forces beyond its control including, but not limited to, strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion,
fission or radiation, or acts of God."
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
TCW/DW INCOME AND GROWTH FUND
[SEAL] By: /s/ David A. Hughey
-------------------------------
David A. Hughey
Attest:
/s/ R.M. Scanlan
- ------------------------------
R.M. Scanlan
THE BANK OF NEW YORK
[SEAL] By: /s/ S. Grunston
-------------------------------
S. Grunston
Attest:
/s/ V. Blazewicz
- ------------------------------
V. Blazewicz
<PAGE>
SCHEDULE A
COUNTRY/MARKET SUBCUSTODIAN
- -------------- ------------
Argentina The Bank of Boston
Australia ANZ Banking Group Limited
Austria Girocredit Bank AG
Bangladesh* Standard Chartered Bank
Belgium Banque Bruxelles Lambert
Botswana* Stanbic Bank Botswana Ltd.
Brazil The Bank of Boston
Canada Royal Trust/Royal Bank of Canada
Chile The Bank of Boston/Banco de Chile
China Standard Chartered Bank
Colombia Citibank, N.A.
Denmark Den Danske Bank
Euromarket CEDEL
Euroclear
First Chicago Clearing Centre
Finland Union Bank of Finland
France Banque Paribas/Credit Commercial de France
Germany Dresdner Bank A.G.
Ghana* Merchant Bank Ghana Ltd.
Greece Alpha Credit Bank
Hong Kong Hong Kong and Shanghai Banking Corp.
Indonesia Hong Kong and Shanghai Banking Corp.
Ireland Allied Irish Bank
Israel Israel Discount Bank
Italy Banca Commerciale Italiana
Japan Yasuda Trust & Banking Co., Lt.
Korea Bank of Seoul
Luxembourg Kredietbank S.A.
Malaysia Hong Kong Bank Malaysia Berhad
Mexico Banco Nacional de Mexico (Banamex)
Netherlands Mees Pierson
New Zealand ANZ Banking Group Limited
Norway Den Norske Bank
Pakistan Standard Chartered Bank
Peru Citibank, N.A.
Philippines Hong Kong and Shanghai Banking Corp.
Poland Bank Handlowy w Warsawie
Portugal Banco Comercial Portugues
Singapore United Overseas Bank
South Africa Standard Bank of South Africa Limited
Spain Banco Bilbao Vizcaya
Sri Lanka Standard Chartered Bank
<PAGE>
SCHEDULE A
COUNTRY/MARKET SUBCUSTODIAN
- -------------- ------------
Sweden Skandinaviska Enskilda Banken
Switzerland Union Bank of Switerzland
Taiwan Hong Kong and Shanghai Banking Corp.
Thailand Siam Commercial Bank
Turkey Citibank, N.A.
United Kingdom The Bank of New York
United States The Bank of New York
Uruguay The Bank of Boston
Venezuela Citibank, N.A.
Zimbabwe* Stanbic Bank Zimbabwe Ltd.
*Not yet 17(f)5 compliant
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 5 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
March 13, 1997, relating to the financial statements and financial highlights
of TCW/DW Income and Growth Fund, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report
into the Prospectus which constitutes part of this Registration Statement. We
also consent to the references to us under the headings "Independent
Accountants" and "Experts" in such Statement of Additional Information and to
the reference to us under the heading "Financial Highlights" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 1, 1997
<PAGE>
TCW/DW INCOME & GROWTH FUND
SCHEDULE OF COMPUTATION OF YIELD QUOTATION
01/31/97
6
YIELD = 2 {[((a-b)/cd) + 1] - 1}
WHERE: a = Dividends and interest earned during the period
b = Expenses accrued for the period
c = The average daily number of shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the
period
6
YIELD = 2 {[((338,986.77 - 95,778.55)/5,319,369.501 X 11.421450) + 1] - 1}
= 4.85%
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
TCW/DW INCOME and GROWTH FUND
(A) AVERAGE ANNUAL TOTAL RETURNS (NO LOAD FUND)
(B) TOTAL RETURN (NO LOAD FUND)
FORMULA: _ _
| ______________________________|
| | |
| ^ n| EV |
t = | \ | ----------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(B) (A)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Jan-97 RETURN - TR YEARS - n COMPOUND RETURN - t
------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
31-Jan-96 $1,134.60 13.45% 1.0000 13.46%
31-Mar-93 $1,485.40 48.54% 3.8385 10.88%
(C) GROWTH OF $10,000
(D) GROWTH OF $50,000
(E) GROWTH OF $100,000
FORMULA: G=(TR+1)*P
G=GROWTH OF INITIAL INVESTMENT
P=INITIAL INVESTMENT
TR=TOTAL RETURN SINCE INCEPTION
$10,000 TOTAL (C) GROWTH OF (D) GROWTH OF (E) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
------------ ----------- ---------------------- ---------------------- -----------------------
31-Mar-93 48.54 $14,854 $74,270 $148,540
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
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