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PROSPECTUS
JULY 28, 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 only invest in convertible and fixed-income securities
rated at least B by either Moody's Investor's Service, Inc. or Standard & Poor's
Corporation or, if not rated, determined to be of comparable quality.
INVESTMENTS OF THIS TYPE ARE SUBJECT TO GREATER RISK, INCLUDING THE RISK OF
DEFAULT, THAN HIGHER RATED SECURITIES, AND ARE CONSIDERED TO BE SPECULATIVE WITH
REGARD TO THE PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. INVESTORS SHOULD
CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND. (SEE
"INVESTMENT OBJECTIVE AND POLICIES.")
The Fund offers four classes of shares (each, a "Class"), each with a different
combination of sales charges, ongoing fees and other features. The different
distribution arrangements permit an investor to choose the method of purchasing
shares that the investor believes is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares and other
relevant circumstances. Except as discussed herein, shares of the Fund held
prior to July 28, 1997 have been designated Class C shares. (See "Purchase of
Fund Shares -- Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated July 28, 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 /5
Financial Highlights /7
The Fund and its Management /8
Investment Objective and Policies /8
Risk Considerations /10
Investment Restrictions /15
Purchase of Fund Shares /16
Shareholder Services /26
Repurchases and Redemptions /28
Dividends, Distributions and Taxes /29
Performance Information /30
Additional Information /31
Appendix /32
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
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PROSPECTUS SUMMARY
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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 31). The Fund
OFFERED offers four Classes of shares, each with a different combination of sales
charges, ongoing fees and other features (see pages 16-25).
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MINIMUM The minimum initial investment for each Class is $1,000 ($100 if the account
PURCHASE is opened through EasyInvest-SM-). Class D shares are only available to
persons investing $5 million or more and to certain other limited categories
of investors. For the purpose of meeting the minimum $5 million investment for
Class D shares, and subject to the $1,000 minimum initial investment for each
Class of the Fund, an investor's existing holdings of Class A shares and
concurrent investments in Class D shares of the Fund and other multiple class
funds for which Dean Witter Services Company Inc. serves as manager and TCW
Funds Management, Inc. serves as investment adviser will be aggregated. The
minimum subsequent investment is $100 (see page 16).
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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 $96.6 billion at June 30, 1997 (see
page 8).
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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 June 30, 1997, the Adviser and its affiliates had
over $50 billion under management or committed to management in various
fiduciary or advisory capacities, primarily from institutional investors (see
page 8).
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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 8).
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DISTRIBUTOR AND Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a
DISTRIBUTION distribution plan pursuant to Rule 12b-1 under the Investment Company Act (the
FEE "12b-1 Plan") with respect to the distribution fees paid by the Class A, Class
B and Class C shares of the Fund to the Distributor. The entire 12b-1 fee
payable by Class A and a portion of the 12b-1 fee payable by each of Class B
and Class C equal to 0.20% of the average daily net assets of Class B and
0.25% of the average daily net assets of Class C are currently each
characterized as a service fee within the meaning of the National Association
of Securities Dealers, Inc. guidelines. The remaining portion of the 12b-1
fee, if any, is characterized as an asset-based sales charge (see pages 16 and
24).
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2
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ALTERNATIVE Four classes of shares are offered:
PURCHASE - Class A shares are offered with a front-end sales charge, starting at 4.25%
ARRANGEMENTS and reduced for larger purchases. Investments of $1 million or more (and
investments by certain other limited categories of investors) are not subject
to any sales charge at the time of purchase but a contingent deferred sales
charge ("CDSC") of 1.0% may be imposed on redemptions within one year of
purchase. The Fund is authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the Fund's Class A shares
and servicing shareholder accounts pursuant to the Fund's 12b-1 Plan.
Reimbursement may in no event exceed an amount equal to payments at an annual
rate of 0.25% of average daily net assets of the Class (see pages 16, 19 and
24).
- Class B shares are offered without a front-end sales charge, but will in
most cases be subject to a CDSC (scaled down from 5.0% to 1.0%) if redeemed
within six years after purchase. The CDSC will be imposed on any redemption of
shares if after such redemption the aggregate current value of a Class B
account with the Fund falls below the aggregate amount of the investor's
purchase payments made during the six years preceding the redemption. A
different CDSC schedule applies to investments by certain qualified plans.
Class B shares are also subject to a 12b-1 fee assessed at the annual rate of
0.75% of the average daily net assets of Class B. Shares of the Fund held
prior to July 28, 1997 which were acquired in exchange for shares of TCW/DW
Funds sold with a CDSC, including shares acquired through reinvestment of
dividends and distributions thereon, have been designated Class B shares.
Shares held before May 1, 1997 that have been designated Class B shares will
convert to Class A shares in May, 2007. In all other instances, Class B shares
convert to Class A shares approximately ten years after the date of the
original purchase (see pages 16, 21 and 24).
- Class C shares are offered without a front-end sales charge, but will in
most cases be subject to a CDSC of 1.0% if redeemed within one year after
purchase. The Fund is authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the Fund's Class C shares
and servicing shareholder accounts pursuant to the Fund's 12b-1 Plan.
Reimbursement may in no event exceed an amount equal to payments at an annual
rate of 0.75% of average daily net assets of the Class. All shares of the Fund
held prior to July 28, 1997 (other than shares which were acquired in exchange
for shares of TCW/DW Funds offered with a CDSC and shares acquired through
reinvestment of dividends and distributions thereon) have been designated
Class C shares. Shares held before July 28, 1997 that have been designated
Class C shares are not subject to the 1.0% CDSC (see pages 23 and 24).
- Class D shares are offered only to investors meeting an initial investment
minimum of $5 million and to certain other limited categories of investors.
Class D shares are offered without a front-end sales charge or CDSC and are
not subject to any 12b-1 fee (see pages 23 and 24).
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3
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DIVIDENDS Income dividends are paid quarterly. Capital gains, if any, will be
AND CAPITAL distributed at least annually. The Fund may, however, determine to retain all
GAINS or part of any net long-term capital gains in any year for reinvestment.
DISTRIBUTIONS Dividends and capital gains distributions are automatically reinvested in
additional shares of the same Class at net asset value unless the shareholder
elects to receive cash (see page 29). Shares acquired by dividend and
distribution reinvestment will not be subject to any sales charge or CDSC (see
pages 26 and 29).
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REDEMPTION Shares are redeemable by the shareholder at net asset value less any
applicable CDSC on Class A, Class B or Class C shares. An account may be
redeemed involuntarily if the total value of the account is less than $100 or,
if the account was opened through EasyInvest-SM-, if after twelve months the
shareholder has invested less than $1,000 in the account (see page 28).
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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 9).
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).
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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.
4
<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 based on the
expenses and fees for the fiscal year ended January 31, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price)............................................ 4.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments............... None None None None
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds)............ None(2) 5.00%(3) 1.00%(4) None
Redemption Fees.............................................. None None None None
Exchange Fee................................................. None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------------------------------
Management and Advisory Fees................................. 0.75% 0.75% 0.75% 0.75%
12b-1 Fees (5) (6)........................................... 0.25% 0.75% 0.74% None
Other Expenses............................................... 0.53% 0.53% 0.53% 0.53%
Total Fund Operating Expenses (7)............................ 1.53% 2.03% 2.02% 1.28%
<FN>
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(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund Shares --
Initial Sales Charge Alternative -- Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on redemptions
made within one year after purchase, except for certain specific
circumstances (see "Purchase of Fund Shares -- Initial Sales Charge
Alternative -- Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares -- Level Load Alternative -- Class C Shares").
Shares of the Fund held prior to July 28, 1997 that have been designated
Class C shares are not subject to the 1.00% CDSC.
(5) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1 fee
payable by Class A and a portion of the 12b-1 fee payable by each of Class
B and Class C equal to 0.20% of the average daily net assets of Class B and
0.25% of the average daily net assets of Class C are currently each
characterized as a service fee within the meaning of National Association
of Securities Dealers, Inc. ("NASD") guidelines and are payments made for
personal service and/or maintenance of shareholder accounts. The remainder
of the 12b-1 fee, if any, is an asset-based sales charge, and is a
distribution fee paid to the Distributor to compensate it for the services
provided and the expenses borne by the Distributor and others in the
distribution of the Fund's shares (see "Purchase of Fund Shares -- Plan of
Distribution").
(6) Upon conversion of Class B shares to Class A shares, such shares will be
subject to the lower 12b-1 fee applicable to Class A shares. No sales
charge is imposed at the time of conversion of Class B shares to Class A
shares. Class C shares do not have a conversion feature and, therefore, are
subject to an ongoing 0.75% distribution fee (see "Purchase of Fund Shares
-- Alternative Purchase Arrangements").
(7) There were no outstanding shares of Class A, Class B or Class D prior to
the date of this Prospectus. Accordingly, "Total Fund Operating Expenses,"
as shown above with respect to those Classes, are based upon the sum of
12b-1 Fees, Management Fees and estimated "Other Expenses."
</TABLE>
5
<PAGE>
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<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the
end of each time period:
Class A................................................... $ 57 $ 89 $ 122 $ 217
Class B................................................... $ 71 $ 94 $ 129 $ 236
Class C................................................... $ 31 $ 63 $ 109 $ 235
Class D................................................... $ 13 $ 41 $ 70 $ 155
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A................................................... $ 57 $ 89 $ 122 $ 217
Class B................................................... $ 21 $ 64 $ 109 $ 236
Class C................................................... $ 21 $ 63 $ 109 $ 235
Class D................................................... $ 13 $ 41 $ 70 $ 155
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares -- Plan of Distribution"
and "Repurchases and Redemptions" in this Prospectus.
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
6
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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. All shares of the Fund held prior to July 28,
1997 (other than shares which were acquired in exchange for shares of TCW/DW
Funds offered with a CDSC and shares acquired through reinvestment of dividends
and distributions thereon) have been designated Class C shares. Shares of the
Fund held prior to July 28, 1997 which were acquired in exchange for shares of
TCW/DW Funds sold with a CDSC, including shares acquired through reinvestment of
dividends and distributions thereon, have been designated Class B shares.
<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>
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* 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.
7
<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 Morgan Stanley, Dean Witter,
Discover & Co., a preeminent global financial services firm that maintains
leading market positions in each of its three primary businesses--securities,
asset management and credit services.
The Manager acts as manager to thirteen other TCW/DW Funds. The Manager and
InterCapital act in various investment management, advisory, management and
administrative capacities to a total of 100 investment companies, thirty of
which are listed on the New York Stock Exchange, with combined assets of
approximately $93.1 billion as of June 30, 1997. InterCapital also manages and
advises portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.5 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 June 30, 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 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
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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
with-
8
<PAGE>
out shareholder approval. There is no assurance that the objective will be
achieved.
The Fund seeks to achieve its investment objective by investing, in
descending order of preference under current market conditions, at least 65% of
its total assets in any or all of the following types of securities: (1) bonds
or preferred stock convertible into common stock ("convertible securities"); (2)
other fixed-income securities, including bonds, notes, debentures and preferred
stocks; (3) common stocks; and (4) U.S. Government securities (securities issued
or guaranteed by the United States or its agencies or instrumentalities).
The Fund will invest at least 50% of its total assets in a combination of
equity securities and fixed-income securities with equity components such as
convertible securities and warrants. In addition, all fixed-income securities
without an equity component in which the Fund invests will have a weighted
average life or a maturity date of ten years or less.
The Fund may invest in convertible securities and other fixed-income
securities rated below investment grade. Securities below investment grade are
the equivalent of high yield, high risk bonds. Investment grade is generally
considered to be debt securities rated BBB or higher by Standard & Poor's
Corporation ("S&P") or Baa or higher by Moody's Investors Service, Inc.
("Moody's"). (Convertible and other fixed-income securities rated BBB by S&P or
Baa by Moody's, which generally are regarded as having an adequate capacity to
pay interest and repay principal, have speculative characteristics.) However,
the Fund will only invest in convertible and other fixed-income securities that
are rated at least B by either S&P or Moody's or, if not rated, determined to be
of comparable quality by the Adviser. The Fund will not invest in fixed-income
securities that are in default in payment of principal or interest. A
description of fixed-income securities ratings is contained in the Appendix to
this Prospectus.
PORTFOLIO CHARACTERISTICS
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or based on a specified formula.
Convertible securities rank senior to common stocks in a corporation's capital
structure and, therefore, entail less risk than the corporation's common stock.
The value of a convertible security is a function of its "investment value" (its
value as if it did not have a conversion privilege), and its "conversion value"
(the security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, may sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
FOREIGN SECURITIES. The Fund may invest in securities of foreign companies.
The Fund may invest in Eurodollar convertible securities, which are fixed-income
securities of a U.S. or foreign issuer that are issued in U.S. dollars outside
the United States and are convertible into or exchangeable for equity securities
of the same or a different issuer. Interest and dividends on Eurodollar
securities are payable in U.S. dollars outside of the United States. The Fund
may invest without limitation in Eurodollar convertible securities that are
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.
9
<PAGE>
The Fund will not invest more than 25% of the value of its total assets, at
the time of purchase, in non-dollar denominated foreign securities (other than
securities of Canadian issuers registered under the Securities Exchange Act of
1934 or American Depository Receipts, on which there is no such limit). The
Fund's investments in unlisted foreign securities are subject to the Fund's
overall policy limiting its investment in illiquid securities to 15% or less of
its net assets. Foreign securities investments may be affected by changes in
currency rates or exchange control regulations, changes in governmental
administration or economic or monetary policy (in the United States and abroad)
or changed circumstances in dealings between nations. Costs may be incurred in
connection with conversions between various currencies held by the Fund. The
Fund currently does not intend to invest more than 25% of its total assets in
the securities of issuers in any one country outside the United States. For a
discussion of the risks of foreign securities, see "Risk Considerations," below.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in the
market value of the Fund's portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market and political factors affecting the creditworthiness of the underlying
issuers, as well as changes in prevailing interest rates, none of which can be
predicted. A decline in prevailing interest rates will generally increase the
value of fixed-income securities, while an increase in rates usually reduces the
value of those securities. The Fund's yield also will vary based on the yield of
the Fund's portfolio securities.
HIGH YIELD, HIGH RISK SECURITIES. Because of the ability of the Fund to
invest in certain high yield, high risk convertible and fixed-income securities,
the Adviser must take into account the special nature of such securities and
certain special considerations in assessing the risks associated with such
investments. Although the growth of the high yield securities market in the
1980s had paralleled a long economic expansion, recently many issuers have been
affected by adverse economic and market conditions. It should be recognized that
an economic downturn or increase in interest rates is likely to have a negative
effect on the high yield bond market and on the value of the high yield
securities held by the Fund, as well as on the ability of the securities'
issuers to repay principal and interest on their borrowings.
The prices of high yield securities have been found to be less sensitive to
changes in prevailing interest rates than higher-rated investments, but are
likely to be more sensitive to adverse economic changes or individual corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. If the issuer of a fixed-income security owned by the Fund
defaults, the Fund may incur additional expenses to seek recovery. In addition,
periods of economic uncertainty and change can be expected to result in an
increased volatility of market prices of high yield securities and a concomitant
volatility in the net asset value of a share of the Fund.
The secondary market for high yield securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse effect
on the market prices of certain securities. The limited liquidity of the market
may also adversely affect the ability of the Fund's Trustees to arrive at a fair
value for certain high yield securities at certain times and could make it
difficult for the Fund to sell certain securities. In addition, new laws and
potential new laws may have an adverse effect upon the value of high yield
securities and a concomitant negative impact upon the net asset value of a share
of the Fund.
For a discussion of the risks of the Fund's status as a non-diversified
investment company, see "Other 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
10
<PAGE>
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.
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
11
<PAGE>
them. The Fund may acquire warrants and stock rights attached to other
securities without reference to the foregoing limitations.
OTHER INVESTMENT POLICIES
While the Fund invests primarily in the types of securities described above,
under ordinary circumstances it may invest up to 35% of its total assets in
money market instruments, which are short-term (maturities of up to thirteen
months) fixed-income securities issued by private and governmental institutions.
Money market instruments in which the Fund may invest are securities issued or
guaranteed by the U.S. Government or its agencies; obligations of banks subject
to regulation by the U.S. Government and having total assets of $1 billion or
more; Eurodollar certificates of deposit; obligations of savings banks and
savings and loan associations having total assets of $1 billion or more; fully
insured certificates of deposit; and commercial paper rated within the two
highest grades by Moody's or S&P or, if not rated, issued by a company having an
outstanding debt issue rated AAA by S&P or Aaa by Moody's.
There may be periods during which, in the opinion of the Adviser, market
conditions warrant reduction of some or all of the Fund's securities holdings.
During such periods, the Fund may adopt a temporary "defensive" posture in which
greater than 35% of its total assets is invested in money market instruments or
cash.
The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940, as amended (the "Act"), and, as such, is not
limited by the Act in the proportion of its assets that it may invest in the
obligations of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" under Subchapter
M of the Internal Revenue Code. See "Dividends, Distributions and Taxes." In
order to qualify, among other requirements, the Fund will limit its investments
so that at the close of each quarter of the taxable year, (i) not more than 25%
of the market value of the Fund's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of the market value
of its total assets not more than 5% will be invested in the securities of a
single issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. To the extent that a relatively high percentage
of the Fund's assets may be invested in the obligations of a limited number of
issuers, the Fund's portfolio securities may be more susceptible to any single
economic, political or regulatory occurrence than the portfolio securities of a
diversified investment company. The limitations described in this paragraph are
not fundamental policies and may be revised to the extent applicable Federal
income tax requirements are revised.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, including the risks of default or
bankruptcy of the selling financial institution, the Fund follows procedures
designed to minimize those risks. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions and maintaining adequate collateralization.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. 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.
12
<PAGE>
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have lost an investment opportunity. There is no overall limit on the
percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage of
the Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value. The Fund may
also sell securities on a "when, as and if issued" basis provided that the
issuance of the security will result automatically from the exchange or
conversion of a security owned by the Fund at the time of the sale.
PRIVATE PLACEMENTS. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
such securities may have an adverse effect on their marketability, and may
prevent the Fund from disposing of them promptly at reasonable prices. The Fund
may have to bear the expense of registering such securities for resale and the
risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Adviser, pursuant to
procedures adopted by the Trustees of the Fund, will make a determination as to
the liquidity of each restricted security purchased by the Fund. If a restricted
security is determined to be "liquid," such security will not be included within
the category "illiquid securities," which under current policy may not exceed
15% of the Fund's net assets. However, investing in Rule 144A securities could
have the effect of increasing the level of Fund illiquidity to the extent the
Fund, at a particular period in time, may be unable to find qualified
institutional buyers in purchasing such securities.
INVESTMENT IN OTHER INVESTMENT VEHICLES. Under the Investment Company Act
of 1940, as amended, the Fund generally may invest up to 10% of its total assets
in the aggregate in shares of other investment companies and up to 5% of its
total assets in any one investment company. The Fund may not own more than 3% of
the voting stock of any investment company. In addition, the Fund may invest in
real estate investment trusts, which pool investors' funds for investments
primarily in commercial real estate properties. Investment in other investment
companies may be the sole or most practical means by which the Fund may
participate in certain securities markets, and investment in real estate
investment trusts may be the most practical available means for the Fund to
invest in the real estate industry (the Fund is prohibited from investing in
real estate directly). As a shareholder in an investment company or real estate
investment trust, the Fund would bear its ratable share of that entity's
expenses, including its advisory and administration fees. At the same time the
Fund would continue to pay its own investment management fees and other
expenses, as a result of which the Fund and its shareholders in effect will be
absorbing duplicate levels of fees with respect to investments in other
investment companies and in real estate investment trusts.
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.
13
<PAGE>
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payments in cash on the security
during the year.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on portfolio
securities and on the U.S. dollar which are or may in the future be listed on
securities exchanges or are written in over-the-counter transactions ("OTC
Options"). Listed options are issued or guaranteed by the exchange on which they
trade or by a clearing corporation such as the Options Clearing Corporation. OTC
options are purchased from or sold (written) to dealers or financial
institutions which have entered into direct agreements with the Fund. The Fund
is permitted to write covered call options on portfolio securities and the U.S.
dollar, without limit, in order to aid it in achieving its investment objective.
The Fund may also write covered put options; however, the aggregate value of the
obligations underlying the puts determined as of the date the options are sold
will not exceed 50% of the Fund's net assets.
The Fund may purchase listed and OTC call and put options on securities and
stock indexes in amounts equalling up to 5% of its total assets. The Fund may
purchase call options to close out a covered call position or to protect against
an increase in the price of a security it anticipates purchasing. The Fund may
purchase put options on securities which it holds in its portfolio only to
protect itself against a decline in the value of the security. The Fund may also
purchase put options to close out written put positions in a manner similar to
call option closing purchase transactions. There are no other limits on the
Fund's ability to purchase call and put options.
The Fund may also purchase and sell interest rate and stock index futures
contracts ("futures contracts") that are traded on U.S. commodity exchanges on
such underlying securities as U.S. Treasury bonds, notes, and bills and GNMA
Certificates ("interest rate" futures) and such indexes as the S&P 500 Index and
the New York Stock Exchange Composite Index ("stock index" futures) and the
Moody's Investment-Grade Corporation Bond Index ("bond index" futures). The Fund
will purchase or sell interest rate futures contracts and bond index futures
contracts for the purpose of hedging its fixed-income portfolio (or anticipated
portfolio) against changes in prevailing interest rates and to alter the Fund's
asset allocation in fixed-income securities. The Fund will purchase or sell
stock index futures contracts for the purpose of hedging its equity portfolio
(or anticipated portfolio) against changes in their prices.
The Fund also may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid 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
14
<PAGE>
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. for over five years. Mr. Attanasio has been a portfolio manager
with the TCW Group Inc. and affiliates thereof since April, 1995. Prior thereto
he was Co-Chief Executive Officer and Chief Portfolio Strategist of Crescent
Corporation (April, 1991-April 1995). Ms. Weiler has been a portfolio manager
with affiliates of The TCW Group, Inc. since April, 1995, and prior thereto was
a Vice President and Portfolio Manager of Crescent Capital Corporation, an
Investment Adviser, with which she had been affiliated since February 1992.
In determining which securities to purchase for the Fund or hold in the
Fund's portfolio, the Adviser will rely on information from various sources,
including research, analysis and appraisals of brokers and dealers, including
Dean Witter Reynolds Inc. ("DWR") and other broker-dealer affiliates of the
Manager, and others regarding economic developments and interest rate trends,
and the Adviser's own analysis of factors it deems relevant.
Orders for transactions in portfolio securities and commodities are placed
for the Fund with a number of brokers and dealers, including DWR and other
brokers and dealers that are affiliates of the Manager or Adviser. The Fund may
incur brokerage commissions on transactions conducted through such affiliates.
Under normal circumstances it is not anticipated that the portfolio trading will
result in the Fund's portfolio turnover rate exceeding 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.
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.
15
<PAGE>
This restriction does not apply to obligations issued or guaranteed by the
United States Government, its agencies or instrumentalities.
2. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction does not apply to
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities.
In addition, as a non-fundamental policy, the Fund may not, as to 75% of its
total assets, purchase more than 10% of the voting securities of any issuer.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and Dean
Witter Distributors Inc. (the "Distributor"), an affiliate of the Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
others (which may include TCW Brokerage Services, an affiliate of the Adviser)
who have entered into agreements with the Distributor ("Selected
Broker-Dealers"). The principal executive office of the Distributor is located
at Two World Trade Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares are
sold to investors with an initial sales charge that declines to zero for larger
purchases; however, Class A shares sold without an initial sales charge are
subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a CDSC scaled down from 2.0% to
1.0% if redeemed within three years after purchase.) Class C shares are sold
without an initial sales charge but are subject to a CDSC of 1.0% on most
redemptions made within one year after purchase. Class D shares are sold without
an initial sales charge or CDSC and are available only to investors meeting an
initial investment minimum of $5 million, and to certain other limited
categories of investors. At the discretion of the Board of Trustees of the Fund,
Class A shares may be sold to categories of investors in addition to those set
forth in this prospectus at net asset value without a front-end sales charge,
and Class D shares may be sold to certain other categories of investors, in each
case as may be described in the then current prospectus of the Fund. See
"Alternative Purchase Arrangements -- Selecting a Particular Class" for a
discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million or more and to
certain other limited categories of investors. For the purpose of meeting the
minimum $5 million initial investment for Class D shares, and subject to the
$1,000 minimum initial investment for each Class of the Fund, an investor's
existing holdings of Class A shares and concurrent investments in Class D shares
of the Fund and other TCW/DW Funds which are multiple class funds ("TCW/DW
Multi-Class Funds") will be aggregated. Subsequent purchases of $100 or more may
be made by sending a check, payable to TCW/DW Income and Growth Fund, directly
to 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. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A, Class B, Class C or Class D shares. If no
Class is specified, the Transfer Agent will not process the transaction until
the proper Class is identified. The minimum initial purchase in the case of
investments through EasyInvest-SM-, an automatic purchase plan (see "Shareholder
Services"), is $100, provided that the schedule of automatic investments will
result in investments totalling at least $1,000 within the first twelve months.
In the case of investments pursuant to Systematic Payroll
16
<PAGE>
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.
Sales personnel of a Selected Broker-Dealer are compensated for selling
shares of the Fund by the Distributor or any of its affiliates and/or the
Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive various types of non-cash compensation as special
sales incentives, including trips, educational and/or business seminars and
merchandise. The Fund and the Distributor reserve the right to reject any
purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their needs.
The general public is offered three Classes of shares: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales charges
and rate of expenses to which they are subject. A fourth Class of shares, Class
D shares, is offered only to limited categories of investors (see "No Load
Alternative -- Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class A,
Class B and Class C shares bear the expenses of the ongoing shareholder service
fees, Class B and Class C shares bear the expenses of the ongoing distribution
fees and Class A, Class B and Class C shares which are redeemed subject to a
CDSC bear the expense of the additional incremental distribution costs resulting
from the CDSC applicable to shares of those Classes. The ongoing distribution
fees that are imposed on Class A, Class B and Class C shares will be imposed
directly against those Classes and not against all assets of the Fund and,
accordingly, such charges against one Class will not affect the net asset value
of any other Class or have any impact on investors choosing another sales charge
option. See "Plan of Distribution" and "Repurchases and Redemptions."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances. Class A
shares are also subject to a 12b-1 fee of up to 0.25% of the average daily net
assets of the Class. See "Initial Sales Charge Alternative -- Class A Shares."
CLASS B SHARES. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified employer-sponsored benefit plans are subject to a CDSC scaled down
from 2.0% to 1.0% if redeemed within three years after purchase.) This CDSC may
be waived for certain redemptions. Class B shares are also subject to an annual
12b-1 fee of 0.75% of the average daily net assets of Class B. The Class B
17
<PAGE>
shares' distribution fee will cause that Class to have higher expenses and pay
lower dividends than Class A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative -- Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 0.75% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D shares. See
"Level Load Alternative -- Class C Shares."
CLASS D SHARES. Class D shares are available only to limited categories of
investors (see "No Load Alternative -- Class D Shares" below). Class D shares
are sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative -- Class D Shares."
SELECTING A PARTICULAR CLASS. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 0.75% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example, they
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.
For the purpose of meeting the $5 million minimum investment amount for
Class D shares, holdings of Class A shares in all TCW/DW Multi-Class Funds, and
holdings of shares of "Exchange Funds" (see "Shareholder Services -- Exchange
Privilege") for which Class A shares have been exchanged, will be included
together with the current investment amount.
Sales personnel may receive different compensation for selling each Class of
shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.
18
<PAGE>
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
<C> <S> <C> <C>
A Maximum 4.25% 0.25% No
initial sales
charge reduced
for purchases of
$25,000 and over;
shares sold
without an
initial sales
charge generally
subject to a 1.0%
CDSC during first
year.
B Maximum 5.0% CDSC 0.75% B shares
during the first convert to A
year decreasing shares
to 0 after six automatically
years after
approximately
ten years
C 1.0% CDSC during 0.75% No
first year
D None None No
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services -- Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative -- Class B Shares -- CDSC Waivers," except that the references to
six years in the first paragraph of that section shall mean one year in the case
of Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets of
the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
-----------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
- ------------------------- ---------------- -----------------
<S> <C> <C>
Less than $25,000........ 4.25% 4.44%
$25,000 but less
than $50,000............ 4.00% 4.17%
$50,000 but less
than $100,000........... 3.50% 3.63%
$100,000 but less
than $250,000........... 2.75% 2.83%
$250,000 but less
than $1 million......... 1.75% 1.78%
$1 million and over...... 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his, her or
their own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in
19
<PAGE>
Section 501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit
plans qualified under Section 401 of the Internal Revenue Code of a single
employer or of employers who are "affiliated persons" of each other within the
meaning of Section 2(a)(3)(c) of the Act; and for investments in Individual
Retirement Accounts of employees of a single employer through Systematic Payroll
Deduction plans; or (g) any other organized group of persons, whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other TCW/DW Multi-Class Funds. The sales charge payable on the
purchase of the Class A shares of the Fund and the Class A shares of the other
TCW/DW Multi-Class Funds will be at their respective rates applicable to the
total amount of the combined concurrent purchases of such shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other TCW/DW Multi-Class Funds previously
purchased at a price including a front-end sales charge (including shares of the
Fund, other TCW/DW Multi-Class Funds or "Exchange Funds" (see "Shareholder
Services -- Exchange Privilege") acquired in exchange for those shares, and
including in each case shares acquired through reinvestment of dividends and
distributions), which are held at the time of such transaction, amounts to
$25,000 or more. If such investor has a cumulative net asset value of Class A
and Class D shares equal to at least $5 million, such investor is eligible to
purchase Class D shares subject to the $1,000 minimum initial investment
requirement of that Class of the Fund. See "No Load Alternative -- Class D
Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm the
investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from DWR or other Selected Broker-Dealers. The cost of Class A shares of the
Fund or Class A shares of other TCW/DW Multi-Class Funds which were previously
purchased at a price including a front-end sales charge during the 90-day period
prior to the date of receipt by the Distributor of the Letter of Intent, or of
Class A shares of the Fund or other TCW/DW Multi-Class Funds or shares of
"Exchange Funds" (see "Shareholder Services -- Exchange Privilege") acquired in
exchange for Class A shares of such funds purchased during such period at a
price including a front-end sales charge, which are still owned by the
shareholder, may also be included in determining the applicable reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value by
the following:
(1)trusts for which Dean Witter Trust Company
("DWTC") or Dean Witter Trust FSB ("DWTFSB") (each of which is an affiliate of
the Investment Manager) provides discretionary trustee services;
(2)persons participating in a fee-based program
approved by the Distributor, pursuant to which such persons pay an asset based
fee for services in the nature of investment advisory or administrative services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees and restrictions on transferability
of Fund shares);
(3)retirement plans qualified under
Section 401(k) of the Internal Revenue Code
20
<PAGE>
("401(k) plans") and other employer-sponsored plans qualified under Section
401(a) of the Internal Revenue Code with at least 200 eligible employees and for
which DWTC or DWTFSB serves as Trustee or the 401(k) Support Services Group of
DWR serves as recordkeeper;
(4)401(k) plans and other employer-sponsored
plans qualified under Section 401(a) of the Internal Revenue Code for which DWTC
or DWTFSB serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper whose Class B shares have converted to Class A shares,
regardless of the plan's asset size or number of eligible employees;
(5)investors who are clients of a Dean Witter
account executive who joined Dean Witter from another investment firm within six
months prior to the date of purchase of Fund shares by such investors, if the
shares are being purchased with the proceeds from a redemption of shares of an
open-end proprietary mutual fund of the account executive's previous firm which
imposed either a front-end or deferred sales charge, provided such purchase was
made within sixty days after the redemption and the proceeds of the redemption
had been maintained in the interim in cash or a money market fund; and
(6)other categories of investors, at the discretion
of the Board, as disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain employer-sponsored benefit
plans, three years) preceding the redemption. In addition, Class B shares are
subject to an annual 12b-1 fee of 0.75% of the average daily net assets of Class
B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any CDSC upon redemption.
Shares redeemed earlier than six years after purchase may, however, be subject
to a CDSC which will be a percentage of the dollar amount of shares redeemed and
will be assessed on an amount equal to the lesser of the current market value or
the cost of the shares being redeemed. The size of this percentage will depend
upon how long the shares have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ------------------------------- ---------------------
<S> <C>
First.......................... 5.0%
Second......................... 4.0%
Third.......................... 3.0%
Fourth......................... 2.0%
Fifth.......................... 2.0%
Sixth.......................... 1.0%
Seventh and thereafter......... None
</TABLE>
In the case of Class B shares of the Fund held by 401 (k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal Revenue
Code for which DWTC or DWTFSB serves as Trustee or the 401(k) Support Services
Group of DWR serves as recordkeeper and whose accounts are opened on or after
July 28, 1997, shares held for three years or more after purchase (calculated as
described in the paragraph above) will not be subject to any CDSC upon
redemption. However, shares redeemed earlier than three years after purchase may
be subject to a CDSC (calculated as described in the paragraph above), the
percentage of
21
<PAGE>
which will depend on how long the shares have been held, as set forth in the
following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ------------------------------- ---------------------
<S> <C>
First.......................... 2.0%
Second......................... 2.0%
Third.......................... 1.0%
Fourth and thereafter.......... None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or, in
the case of shares held by certain employer-sponsored benefit plans, three
years) preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption; and
(iii) the current net asset value of shares purchased through reinvestment of
dividends or distributions. Moreover, in determining whether a CDSC is
applicable it will be assumed that amounts described in (i), (ii) and (iii)
above (in that order) are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1)redemptions of shares held at the time a
shareholder dies or becomes disabled, only if the shares are: (a) registered
either in the name of an individual shareholder (not a trust), or in the names
of such shareholder and his or her spouse as joint tenants with right of
survivorship; or (b) held in a qualified corporate or self-employed retirement
plan, Individual Retirement Account ("IRA") or Custodial Account under Section
403(b)(7) of the Internal Revenue Code ("403(b) Custodial Account"), provided in
either case that the redemption is requested within one year of the death or
initial determination of disability;
(2)redemptions in connection with the following
retirement plan distributions: (a) lump-sum or other distributions from a
qualified corporate or self-employed retirement plan following retirement (or,
in the case of a "key employee" of a "top heavy" plan, following attainment of
age 59 1/2); (b) distributions from an IRA or 403(b) Custodial Account
following attainment of age 59 1/2; or (c) a tax-free return of an excess
contribution to an IRA; and
(3)all redemptions of shares held for the benefit of
a participant in a 401(k) plan or other employer-sponsored plan qualified under
Section 401(a) of the Internal Revenue Code which offers investment companies
managed by the Manager or its parent, Dean Witter InterCapital Inc., as
self-directed investment alternatives and for which DWTC or DWTFSB serves as
Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper
("Eligible Plan"), provided that either: (a) the plan continues to be an
Eligible Plan after the redemption; or (b) the redemption is in connection with
the complete termination of the plan involving the distribution of all plan
assets to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
CONVERSION TO CLASS A SHARES. Shares of the Fund held prior to July 28,
1997 which were acquired in exchange for shares of TCW/DW Funds sold with a
CDSC, including shares acquired through reinvestment of dividends and
distributions thereon, have been designated Class B shares. Shares held before
May 1, 1997 that have been designated Class B shares will convert to Class A
shares in May, 2007. In all other instances Class B shares will convert
automatically to Class A shares, based on the relative net asset values of the
shares of the two Classes on the conversion date, which will be approximately
ten (10) years after the date of the original purchase. The ten year period is
calculated from the last day of the month in which the shares were purchased or,
in the case of Class B shares acquired through an exchange or a series of
exchanges, from the last day of the month in which the original Class B shares
were purchased, provided that shares
22
<PAGE>
originally purchased before May 1, 1997 will convert to Class A shares in May,
2007. The conversion of shares purchased on or after May 1, 1997 will take place
in the month following the tenth anniversary of the purchase. There will also be
converted at that time such proportion of Class B shares acquired through
automatic reinvestment of dividends and distributions owned by the shareholder
as the total number of his or her Class B shares converting at the time bears to
the total number of outstanding Class B shares purchased and owned by the
shareholder. In the case of Class B shares held by a 401(k) plan or other
employer-sponsored plan qualified under Section 401(a) of the Internal Revenue
Code and for which DWTC or DWTFSB serves as Trustee or the 401(k) Support
Services Group of DWR serves as recordkeeper, the plan is treated as a single
investor and all Class B shares will convert to Class A shares on the conversion
date of the first shares of a TCW/DW Multi-Class Fund purchased by that plan. In
the case of Class B shares previously exchanged for shares of an "Exchange Fund"
(see "Shareholder Services -- Exchange Privilege"), the period of time the
shares were held in the Exchange Fund (calculated from the last day of the month
in which the Exchange Fund shares were acquired) is excluded from the holding
period for conversion. If those shares are subsequently re-exchanged for Class B
shares of a TCW/DW Multi-Class Fund, the holding period resumes on the last day
of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date for conversion. Class B shares evidenced by share certificates that are
not received by the Transfer Agent at least one week prior to any conversion
date will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion, and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The conversion feature may be suspended if the ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B 12b-1 fees.
Class B shares purchased before July 28, 1997 by trusts for which DWTC or
DWTFSB provides discretionary trustee services will convert to Class A shares on
or about August 29, 1997. The CDSC will not be applicable to such shares.
LEVEL LOAD ALTERNATIVE -- CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative -- Class B Shares --
CDSC Waivers," except that the references to six years in the first paragraph of
that section shall mean one year in the case of Class C shares. Class C shares
are subject to an annual 12b-1 fee of up to 0.75% of the average daily net
assets of the Class. Unlike Class B shares, Class C shares have no conversion
feature and, accordingly, an investor that purchases Class C shares will be
subject to 12b-1 fees applicable to Class C shares for an indefinite period
subject to annual approval by the Fund's Board of Trustees and regulatory
limitations. All shares of the Fund held prior to July 28, 1997 (other than
shares which were acquired in exchange for shares of TCW/DW Funds sold with a
CDSC and shares acquired through reinvestment of dividends and distributions
thereon) have been designated Class C shares. Shares held before July 28, 1997
that have been designated Class C shares are not subject to the 1.0% CDSC.
NO LOAD ALTERNATIVE -- CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an
23
<PAGE>
initial investment minimum of $5 million and the following categories of
investors: (i) investors participating in the InterCapital mutual fund asset
allocation program pursuant to which such persons pay an asset based fee; (ii)
persons participating in a fee-based program approved by the Distributor,
pursuant to which such persons pay an asset based fee for services in the nature
of investment advisory or administrative services (subject to all of the terms
and conditions of such programs, which may include termination fees and
restrictions on transferability of Fund shares); (iii) certain Unit Investment
Trusts sponsored by DWR; (iv) certain other open-end investment companies whose
shares are distributed by the Distributor; and (v) other categories of
investors, at the discretion of the Board, as disclosed in the then current
prospectus of the Fund. Investors who require a $5 million minimum initial
investment to qualify to purchase Class D shares may satisfy that requirement by
investing that amount in a single transaction in Class D shares of the Fund and
other TCW/DW Multi-Class Funds, subject to the $1,000 minimum initial investment
required for that Class of the Fund. In addition, for the purpose of meeting the
$5 million minimum investment amount, holdings of Class A shares in all TCW/DW
Multi-Class Funds, and holdings of shares of "Exchange Funds" (see "Shareholder
Services -- Exchange Privilege") for which Class A shares have been exchanged,
will be included together with the current investment amount. If a shareholder
redeems Class A shares and purchases Class D shares, such redemption may be a
taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act with respect to the distribution of Class A, Class B and Class C shares of
the Fund. In the case of Class A and Class C shares, the Plan provides that the
Fund will reimburse the Distributor and others for the expenses of certain
activities and services incurred by them specifically on behalf of those shares.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed amounts equal to payments at
the annual rates of 0.25% and 0.75% of the average daily net assets of Class A
and Class C, respectively. In the case of Class B shares, the Plan provides that
the Fund will pay the Distributor a fee, which is accrued daily and paid
monthly, at the annual rate of 0.75% of the average daily net assets of Class B.
The fee is treated by the Fund as an expense in the year it is accrued. In the
case of Class A shares, the entire amount of the fee currently represents a
service fee within the meaning of the NASD guidelines. In the case of Class B
and Class C shares, a portion of the fee payable pursuant to the Plan, equal to
0.20% and 0.25% of the average daily net assets of each of these Classes,
respectively, is currently characterized as a service fee. A service fee is a
payment made for personal service and/or the maintenance of shareholder
accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses borne
by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of DWR's account executives
and others who engage in or support distribution of shares or who service
shareholder accounts, including overhead and telephone expenses; printing and
distribution of prospectuses and reports used in connection with the offering of
the Fund's shares to other than current shareholders; and preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan in the case of Class B
shares to compensate DWR and other Selected Broker-Dealers for their opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses.
For the fiscal year ended January 31, 1997, Class C shares of the Fund
accrued payments under the Plan amounting to $425,303, which amount is equal to
0.74% of the Fund's average daily net assets for the fiscal year.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i) the
payments made by the Fund pursuant to the Plan, and (ii) the proceeds of CDSCs
paid by investors upon the redemption of Class B shares. For example, if $1
million in expenses in distributing Class B shares of the Fund had been incurred
and $750,000 had been received as described
24
<PAGE>
in (i) and (ii) above, the excess expense would amount to $250,000. Because
there is no requirement under the Plan that the Distributor be reimbursed for
all distribution expenses or any requirement that the Plan be continued from
year to year, such excess amount does not constitute a liability of the Fund.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan, and the proceeds of
CDSCs paid by investors upon redemption of shares, if for any reason the Plan is
terminated the Trustees will consider at that time the manner in which to treat
such expenses. Any cumulative expenses incurred, but not yet recovered through
distribution fees or CDSCs, may or may not be recovered through future
distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 0.75% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the Fund
through payments in any subsequent year, except that expenses representing a
gross sales commission credited to account executives at the time of sale may be
reimbursed in the subsequent calendar year. No interest or other financing
charges will be incurred on any Class A or Class C distribution expenses
incurred by the Distributor under the Plan or on any unreimbursed expenses due
to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), on each day that the New York Stock Exchange is
open by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the Class
A, Class B, Class C and Class D shares will be invested together in a single
portfolio. The net asset value of each Class, however, will be determined
separately by subtracting each Class's accrued expenses and liabilities. The net
asset value per share will not be determined on Good Friday and on such other
federal and non-federal holidays as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
stock exchange is valued at its latest sale price on that exchange prior to the
time when assets are valued; if there were no sales that day, the security is
valued at the latest bid price (in cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market pursuant to procedures adopted by the Trustees); and (2) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest available bid price prior to the time
of valuation. When market quotations are not readily available, including
circumstances under which it is determined by the Adviser that sale or bid
prices are not reflective of a security's market value, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Fund's Trustees. For
valuation purposes, quotations of foreign portfolio securities are translated
into U.S. dollar equivalents at the prevailing market rates prior to the close
of the New York Stock Exchange. Dividends receivable are accrued as of the
ex-dividend date or as of the time that the relevant ex-dividend date and
amounts become known.
Short-term debt securities with remaining maturities of 60 days or less at
the time of purchase are valued at amortized cost, unless the Trustees determine
such does not reflect the securities' market value, in which case these
securities will be valued at their fair value as determined by the Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, in determining what
it believes is the fair valuation of the portfolio securities valued by such
pricing service.
25
<PAGE>
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the shareholder,
in shares of any other open-end TCW/DW Fund), unless the shareholder requests
that they be paid in cash. Shares so acquired are acquired at net asset value
and are not subject to the imposition of a front-end sales charge or a CDSC (see
"Repurchases and Redemptions").
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share next determined after receipt
by the Transfer Agent, by returning the check or the proceeds to the Transfer
Agent within 30 days after the payment date. Shares so acquired are acquired at
net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Repurchases and Redemptions").
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund (see "Purchase of Fund Shares" and "Repurchases and Redemptions --
Involuntary Redemption").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Only shareholders
having accounts in which no share certificates have been issued will be
permitted to enroll in the Withdrawal Plan. Any applicable CDSC will be imposed
on shares redeemed under the Withdrawal Plan (see "Purchase of Fund Shares").
Therefore, any shareholder participating in the Withdrawal Plan will have
sufficient shares redeemed from his or her account so that the proceeds (net of
any applicable CDSC) to the shareholder will be the designated monthly or
quarterly amount. Withdrawal plan payments should not be considered as
dividends, yields or income. If periodic withdrawal plan payments continuously
exceed net investment income and net capital gains, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted. Each
withdrawal constitutes a redemption of shares and any gain or loss realized must
be recognized for federal income tax purposes.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the Transfer
Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other TCW/DW Multi-Class Fund without the imposition of any exchange fee. Shares
may also be exchanged for shares of TCW/DW North American Government Income
Trust and for shares of five money market funds for which InterCapital serves as
investment manager: Dean Witter Liquid Asset Fund Inc., Dean Witter U.S.
Government Money Market Trust, Dean Witter Tax-Free Daily Income Trust, Dean
Witter California Tax-Free Daily Income Trust and Dean Witter New York Municipal
Money Market Trust (the foregoing six funds are hereinafter collectively
referred to as "Exchange Funds"). Exchanges may be made after the shares of the
Fund
26
<PAGE>
acquired by purchase (not by exchange or dividend reinvestment) have been held
for thirty days. There is no waiting period for exchanges of shares acquired by
exchange or dividend reinvestment.
An exchange to another TCW/DW Multi-Class Fund or any Exchange Fund that is
not a money market fund is on the basis of the next calculated net asset value
per share of each fund after the exchange order is received. When exchanging
into a money market fund from the Fund, shares of the Fund are redeemed out of
the Fund at their next calculated net asset value and the proceeds of the
redemption are used to purchase shares of the money market fund at their net
asset value determined the following business day. Subsequent exchanges between
any of the money market funds and any of the TCW/DW Multi-Class Funds or any
Exchange Fund that is not a money market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If those
shares are subsequently re-exchanged for shares of a TCW/DW Multi-Class Fund,
the holding period previously frozen when the first exchange was made resumes on
the last day of the month in which shares of a TCW/DW Multi-Class Fund are
reacquired. Thus, the CDSC is based upon the time (calculated as described
above) the shareholder was invested in shares of a TCW/DW Multi-Class Fund (see
"Purchase of Fund Shares"). 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. (Exchange Fund 12b-1 distribution fees are described in the
prospectuses for those funds.)
ADDITIONAL INFORMATION REGARDING EXCHANGES. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Manager to be abusive and contrary to the best interests of the
Fund's other shareholders and, at the Manager's discretion, may be limited by
the Fund's refusal to accept additional purchases and/or exchanges from the
investor. Although the Fund does not have any specific definition of what
constitutes a pattern of frequent exchanges, and will consider all relevant
factors in determining whether a particular situation is abusive and contrary to
the best interests of the Fund and its other shareholders, investors should be
aware that the Fund, each of the other TCW/DW Funds and each of the money market
funds may in their discretion limit or otherwise restrict the number of times
this Exchange Privilege may be exercised by any investor. Any such restriction
will be made by the Fund on a prospective basis only, upon notice to the
shareholder not later than ten days following such shareholder's most recent
exchange. Also, the Exchange Privilege may be terminated or revised at any time
by the Fund and/or any of such TCW/DW Funds or money market funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies. Shareholders maintaining margin accounts with
DWR or another Selected Broker-Dealer are referred to their account executive
regarding restrictions on exchange of shares pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement of
each Class of shares and any other conditions imposed by each fund. In the case
of a shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the shareholder's account. An 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.
27
<PAGE>
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the funds for
which the Exchange Privilege is available pursuant to this Exchange Privilege by
contacting their DWR or other Selected Broker-Dealer account executive (no
Exchange Privilege Authorization Form is required). Other shareholders (and
those shareholders who are clients of DWR or other Selected Broker-Dealers but
who wish to make exchanges directly by writing or telephoning the Transfer
Agent) must complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Transfer Agent, to
initiate an exchange. If the Authorization Form is used, exchanges may be made
in writing or by contacting the Transfer Agent at (800) 869-NEWS (toll free).
The Fund will employ reasonable procedures to confirm that exchange instructions
communicated over the telephone are genuine. The procedures include requiring
various forms of personal identification such as name, mailing address, social
security or other tax identification number and DWR or other Selected Broker-
Dealer account number (if any). Telephone instructions will also be recorded. If
such procedures are not employed, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case in the past with
other funds managed by the Manager.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Broker-Dealer account executive or
the Transfer Agent.
REPURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------
REPURCHASES. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value next determined (see "Purchase of Fund Shares") after such
repurchase order is received by DWR or other Selected Broker-Dealer reduced by
any applicable CDSC. The CDSC, if any, will be the only fee imposed by the Fund
or the Distributor. The offer by DWR and other Selected Broker-Dealers to
repurchase shares from shareholders may be suspended by them at any time. In
that event, shareholders may redeem their shares through the Fund's Transfer
Agent as set forth below under "Redemptions."
REDEMPTIONS. Shares of each Class of the Fund can be redeemed for cash at
any time at net asset value per share next determined, less the amount of any
applicable CDSC in the case of Class A, Class B or Class C shares (see "Purchase
of Fund Shares"). If shares are held in a shareholder's account at the Transfer
Agent without a share certificate, a written request for redemption must be sent
to the Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ 07303. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption, along with
any additional information required by the Transfer Agent.
PAYMENT FOR SHARES REPURCHASED OR REDEEMED. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances. If the shares to be redeemed
28
<PAGE>
have recently been purchased by check, payment of the redemption proceeds may be
delayed for the minimum time needed to verify that the check used for investment
has been honored (not more than fifteen days from the time of receipt of the
check by the Transfer Agent). Shareholders maintaining margin accounts with DWR
or another Selected Broker-Dealer are referred to their account executive
regarding restrictions on redemption of shares of the Fund pledged in the margin
account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund in the same Class from which such shares were redeemed or
repurchased, at their net asset value next determined after a reinstatement
request, together with the proceeds, is received by the Transfer Agent and
receive a pro rata credit for any CDSC paid in connection with such redemption
or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right, on 60 days' notice, to
redeem, at their net asset value, the shares of any shareholder (other than
shares held in an individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares due to redemptions
by the shareholder have a value of less than $100 or such lesser amount as may
be fixed by the Trustees or, in the case of an account offered through
EasyInvest, if after twelve months the shareholder has invested less than $1,000
in the account. However, before the Fund redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder that the value of
the shares is less than the applicable amount and allow the shareholder 60 days
to make an additional investment in an amount which will increase the value of
the account to at least the applicable amount before the redemption is
processed. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends separately for
each Class of shares and intends to pay quarterly income dividends and to
distribute net short-term and net long-term capital gains, if any, at least once
each year. The Fund may, however, determine either to distribute or to retain
all or part of any net long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
shares of the same Class and automatically credited to the shareholder's account
without issuance of a share certificate unless the shareholder requests in
writing that all dividends and/or distributions be paid in cash. Shares acquired
by dividend and distribution reinvestments will not be subject to any front-end
sales charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. Distributions paid on Class A and Class D shares will be higher than
for Class B and Class C shares because distribution fees paid by Class B and
Class C shares are higher. (See "Shareholder Services -- Automatic Investment of
Dividends and Distributions.")
TAXES. Because the Fund intends to distribute all of its net investment
income and capital gains to shareholders and otherwise continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code, it
is not expected that the Fund will be required to pay any federal income tax.
Shareholders who are required to pay taxes on their income will normally have to
pay federal income taxes, and any state income taxes, on the dividends and
distributions they receive from the Fund. Such dividends and distributions, to
the extent that they are derived from net investment income or short-term
capital gains, are taxable to the shareholder as ordinary income regardless of
whether the shareholder receives such payments in additional shares or in cash.
Any dividends declared in the last quarter of any calendar year which are paid
in
29
<PAGE>
the following year prior to February 1 will be deemed, for tax purposes, to have
been received by the shareholder in the prior year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the corporate dividends received deduction.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources would, in effect, represent a return
of a portion of each shareholder's investment.
All, or a portion, of such payments would not be taxable to shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. These figures are computed separately
for Class A, Class B, Class C and Class D shares. Both the yield and the total
return of the Fund are based on historical earnings and are not intended to
indicate future performance. The yield of each Class of the Fund is computed by
dividing the Class's net investment income over a 30-day period by an average
value (using the average number of shares entitled to receive dividends and the
net asset value per share at the end of the period), all in accordance with
applicable regulatory requirements. Such amount is compounded for six months and
then annualized for a twelve-month period to derive the Fund's yield for each
Class.
The "average annual total return" of the Fund refers to a figure reflecting
the average annualized percentage increase (or decrease) in the value of an
initial investment in a Class of the Fund of $1,000 over periods of one, five
and ten years, as well as over the life of the Fund, if less than any of the
foregoing. Average annual total return reflects all income earned by the Fund,
any appreciation or depreciation of the Fund's assets and all expenses incurred
by the applicable Class and all sales charges, which would be incurred by
shareholders, for
the stated periods. It also assumes reinvestment of all dividends and
distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average, and
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each Class of
shares of the Fund. The Fund 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.).
Prior to July 28, 1997, the Fund offered only one Class of shares. Because
all shares of the Fund held prior to such time (other than shares which were
acquired in exchange for shares of TCW/DW Funds offered with a CDSC and shares
acquired through reinvestment of dividends and distributions thereon) have been
designated Class C shares, the Fund's historical performance may be restated to
reflect the current maximum sales charge applicable to Class C.
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<PAGE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges except that
each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other matter
in which the interests of one Class differ from the interests of any other
Class. In addition, Class B shareholders will have the right to vote on any
proposed material increase in Class A's expenses, if such proposal is submitted
separately to Class A shareholders. Also, as discussed herein, Class A, Class B
and Class C bear the expenses related to the distribution of their respective
shares.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. Under
certain circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right under certain circumstances to remove Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for obligations of
the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, in the opinion of Massachusetts
counsel to the Fund, the risk to shareholders of personal liability is remote.
CODE OF ETHICS. The Adviser is subject to a Code of Ethics with respect to
investment transactions in which the Adviser's officers, directors and certain
other persons have a beneficial interest to avoid any actual or potential
conflict or abuse of their fiduciary position. The Code of Ethics, as it
pertains to the TCW/DW Funds, contains several restrictions and procedures
designed to eliminate conflicts of interest including: (a) pre-clearance of
personal investment transactions to ensure that personal transactions by
employees are not being conducted at the same time as the Adviser's clients; (b)
quarterly reporting of personal securities transactions; (c) a prohibition
against personally acquiring securities in an initial public offering, entering
into uncovered short sales and writing uncovered options; (d) a seven day
"black-out period" prior to or subsequent to a TCW/DW Fund transaction during
which portfolio managers are prohibited from making certain transactions in
securities which are being purchased or sold by a TCW/DW Fund; (e) a
prohibition, with respect to certain investment personnel, from profiting in the
purchase and sale, or sale and purchase, of the same (or equivalent) securities
within 60 calendar days; and (f) a prohibition against acquiring any security
which is subject to firm wide or, if applicable, a department restriction of the
Adviser. The Code of Ethics provides that exemptive relief may be given from
certain of its requirements, upon application. The Adviser's Code of Ethics
complies with regulatory requirements and, insofar as it relates to persons
associated with registered investment companies, the 1994 Report of the Advisory
Group on Personal Investing of the Investment Company Institute.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
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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.
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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>
33
<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>
34
<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
JULY 28, 1997
<PAGE>
[LOGO]
INCOME AND
GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
JULY 28, 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 July 28, 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.............................................................. 25
Portfolio Transactions and Brokerage................................................. 27
The Distributor...................................................................... 28
Determination of Net Asset Value..................................................... 32
Purchase of Fund Shares.............................................................. 32
Shareholder Services................................................................. 35
Repurchases and Redemptions.......................................................... 39
Dividends, Distributions and Taxes................................................... 40
Performance Information.............................................................. 41
Description of Shares................................................................ 42
Custodian and Transfer Agent......................................................... 43
Independent Accountants.............................................................. 43
Reports to Shareholders.............................................................. 43
Legal Counsel........................................................................ 43
Experts.............................................................................. 43
Registration Statement............................................................... 43
Report of Independent Accountants.................................................... 44
Financial Statements--January 31, 1997............................................... 45
</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 Morgan Stanley, Dean Witter, Discover & Co.
("MSDWD"), a Delaware corporation. In an internal reorganization which took
place in January, 1993, InterCapital assumed the investment advisory,
administrative and management activities previously performed by the
InterCapital Division of Dean Witter Reynolds Inc. ("DWR"), a broker-dealer
affiliate of the Manager. (As hereinafter used in this Statement of Additional
Information, the term "InterCapital" refers to DWR's InterCapital Division
prior to the internal reorganization and to Dean Witter InterCapital Inc.
thereafter.) The daily management of the Fund is conducted by or under the
direction of officers of the Fund and of the Manager and Adviser (see below),
subject to review by the Fund's Board of Trustees. Information as to these
Trustees and officers is contained under the caption "Trustees and Officers."
Pursuant to a management agreement (the "Management Agreement") with the
Manager, the Fund has retained the Manager to manage the Fund's business
affairs, supervise the overall day-to-day operations of the Fund (other than
rendering investment advice) and provide all administrative services to the
Fund. Under the terms of the Management Agreement, the Manager also maintains
certain of the Fund's books and furnishes, at its own expense, such office
space, facilities, equipment, supplies, clerical help and bookkeeping and legal
services as the Fund may reasonably require in the conduct of its business,
including the preparation of prospectuses, statements of additional
information, proxy statements and reports required to be filed with the federal
and state securities commissions (except insofar as the participation or
assistance of independent accountants and attorneys is, in the opinion of the
Manager, necessary or desirable). In addition, the Manager pays the salaries of
all personnel, including officers of the Fund, who are employees of the
Manager. The Manager also bears the cost of the Fund's telephone service, heat,
light, power and other utilities.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Manager, the Fund pays the Manager
monthly compensation calculated daily by applying the following annual rates to
the net assets of the Fund determined as of the close of each business day:
0.45% of the portion of daily net assets not exceeding $500 million; and 0.42%
of the portion of daily net assets exceeding $500 million. While the total fees
payable under the Management Agreement and the Advisory Agreement (described
below) are higher than that paid by most other investment companies for similar
services, the Board of Trustees determined that the total fees payable under
the Management Agreement and the Advisory Agreement are reasonable in relation
to the scope and quality of services to be provided thereunder. In this regard,
in evaluating the Management Agreement and the Advisory Agreement, the Board of
Trustees recognized that the Manager and the Adviser had, pursuant to an
agreement described under the section entitled "The Adviser," agreed to a
division as between themselves of the total fees necessary for the management
of the business affairs of and the furnishing of investment advice to the Fund.
Accordingly, in reviewing the Management Agreement and Advisory Agreement, the
Board viewed as most significant the question as to whether the total fees
payable under the Management and Advisory Agreements were in the
3
<PAGE>
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, 1998,
was approved by the Trustees, including a majority of the Independent Trustees,
at a meeting called for that purpose on April 24, 1997.
THE ADVISER
TCW Funds Management, Inc. (the "Adviser") is a wholly-owned subsidiary of
The TCW Group, Inc. ("TCW"), whose subsidiaries, including Trust Company of the
West and TCW Asset Management Company, provide a variety of trust, investment
management and investment advisory services. As of June 30, 1997, the Adviser
and its affiliates had over $50 billion under management or committed to
management. The Adviser is headquartered at 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017 and is registered as an investment adviser
under the Investment Advisers Act of 1940. In addition to the Fund, the Adviser
serves as investment adviser to 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 Funds, Inc., an open-end investment company, and
acts as adviser or sub-adviser to other investment companies.
4
<PAGE>
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, 1998 was approved by the Trustees, including a majority of the
Independent Trustees, at a meeting called for that purpose on April 24, 1997.
Expenses not expressly assumed by the Manager under the Management
Agreement, by the Adviser under the Advisory Agreement or by the Distributor of
the Fund's shares, Dean Witter Distributors Inc. ("Distributors" or the
"Distributor") (see "The Distributor"), will be paid by the Fund. These
expenses will be allocated among four classes of shares of the Fund (each, a
"Class") pro rata based on the net assets of the Fund attributable to each
Class, except as described below. The expenses borne by the Fund include, but
are not limited to: expenses of the Plan of Distribution pursuant to Rule 12b-1
(the "12b-1 fee") (see "The Distributor"); charges and expenses of any
registrar; custodian, stock transfer and dividend disbursing agent; brokerage
commissions and securities transaction costs; taxes; engraving and printing of
share certificates; registration costs of the Fund and its shares under federal
and state securities laws; the cost and expense of printing, including
typesetting, and distributing Prospectuses and Statements of Additional
Information of the Fund and supplements thereto to the Fund's shareholders; all
expenses of shareholders' and Trustees' meetings and of preparing, printing and
mailing of proxy statements and reports to shareholders; fees and travel
expenses of Trustees or members of any advisory board or committee who are not
employees of the Manager or Adviser or any corporate affiliate of either; all
expenses incident to any dividend, withdrawal or redemption options; charges
and expenses of any outside service used for pricing of the
5
<PAGE>
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. The 12b-1 fees
relating to a particular Class will be allocated directly to that Class. In
addition, other expenses associated with a particular Class (except advisory or
custodial fees) may be allocated directly to that Class, provided that such
expenses are reasonably identified as specifically attributable to that Class
and the direct allocation to that Class is approved by the Trustees.
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"); Trustee of the TCW/DW Funds;
formerly Vice Chairman of the Board of the
National Association of Securities Dealers,
Inc.; formerly Chairman of the Board of
Directors of the NASDAQ Market, Inc.
Charles A. Fiumefreddo* (64) Chairman, Chief Executive Officer and
Chairman of the Board, Chief Director of the Manager, InterCapital and
Executive Officer and Trustee Distributors; Executive Vice President and
Two World Trade Center Director of DWR; Chairman of the Board,
New York, New York Chief Executive Officer and Trustee of the
TCW/DW Funds; Chairman of the Board,
Director or Trustee, President and Chief
Executive Officer of the Dean Witter Funds;
Chairman and Director of DWTC; Director
and/or officer of various MSDWD subsidiar-
ies; formerly Executive Vice President and
Director of Dean Witter, Discover & Co.
(until February, 1993).
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. TCW/DW Funds; Director or Trustee of the
1133 Connecticut Avenue, N.W. Dean Witter Funds; Trustee of the Financial
Washington, D.C. Accounting Foundation (oversight
organization of the Financial Accounting
Standards Board); Co-Chairman and a founder
of the Group of Seven Council (G7C), an
international economic commission (since
1990); Director of NASDAQ (since June, 1995);
Director of Greenwich Capital Markets, Inc.
(broker-dealer); formerly Vice Chairman of
the Board of Governors of the Federal
Reserve System (1986-1990) and Assistant
Secretary of the U.S. Treasury (1982-1986).
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Thomas E. Larkin, Jr.* (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 (61) General Partner, Triumph Capital, L.P., a
Trustee private investment partnership; formerly
c/o Triumph Capital, L.P. Vice President, Bankers Trust Company and BT
237 Park Avenue Capital Corporation (1984-1988); Director of
New York, New York various business organizations; Trustee of
the TCW/DW Funds; Director or Trustee of the
Dean Witter Funds.
John L. Schroeder (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).
New York, New York
Marc I. Stern* (53) Vice President of the Fund; President and
Trustee Director, The TCW Group, Inc.; President and
865 South Figueroa Street Director of the Adviser; Vice Chairman and
Los Angeles, California Director of TCW Asset Management Company;
Executive Vice President and Director of
Trust Company of the West; Chairman and
Director of TCW Galileo Funds, Inc; Trustee
of the TCW/DW Funds; Chairman of TCW
Americas Development, Inc.; Chairman of TCW
Asia, Limited (since January 1993); Chairman
of TCW London International, Limited (since
March, 1993); formerly President and
Director of SunAmerica, Inc. (financial
services company); Director of Qualcomm,
Incorporated (wireless communications);
Director or Trustee of various not-for-
profit organizations.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Barry Fink (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 (59) Managing Director of the Adviser; Managing
Vice President Director, Director of Research and Chairman
865 South Figueroa Street of the Equity Policy Committee of Trust
Los Angeles, California Company of the West and TCW Asset Management
Company.
Kevin A. Hunter (38) 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).
Melissa Weiler (32) Senior Vice President of the Adviser, Trust
Vice President Company of the West and TCW Asset Management
865 South Figueroa Street Company; Vice President and Portfolio Manager
Los Angeles, California of Crescent Capital Management (an investment
adviser) (since February, 1992).
Thomas F. Caloia (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, Mitchell M. Merin, President and Chief Strategic Officer
of InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Executive Vice President, Chief Administrative Officer and
Director of DWR and Director of SPS Transaction Services, Inc. and various other
MSDWD subsidiaries, 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, Lou Anne D. McInnis, Carsten Otto and Ruth Rossi,
Vice Presidents and Assistant General Counsels of the Manager and
9
<PAGE>
InterCapital and Frank Bruttomesso a Staff Attorney 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 June 30, 1997, the TCW/DW Funds had total net assets of approximately $4.4
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 MSDWD 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 TOTAL CASH
CHAIRMAN OF COMMITTEES OF COMPENSATION
COMMITTEES OF INDEPENDENT FOR SERVICES
FOR SERVICE AS INDEPENDENT DIRECTORS/ TO 82 DEAN
FOR SERVICE AS DIRECTOR OR TRUSTEES AND TRUSTEES AND WITTER FUNDS,
TRUSTEE AND TRUSTEE AND FOR SERVICE AS AUDIT AUDIT 14 TCW/DW
COMMITTEE MEMBER COMMITTEE MEMBER DIRECTOR OF TCW COMMITTEES OF COMMITTEES OF FUNDS AND TCW
NAME OF INDEPENDENT OF 14 TCW/DW OF 82 DEAN GALILEO FUNDS, 14 TCW/DW 82 DEAN WITTER GALILEO
TRUSTEE FUNDS WITTER FUNDS INC. FUNDS FUNDS FUNDS, INC.
- ------------------------ ---------------- ---------------- ---------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
John C. Argue........... $ 66,483 -- $39,000 -- -- $105,483
John R. Haire........... 64,283 $106,400 -- $ 12,187 $195,450 378,320
Dr. Manuel H. Johnson... 66,483 137,100 -- -- -- 203,583
Michael E. Nugent....... 64,283 138,850 -- -- -- 203,133
John L. Schroeder....... 69,083 137,150 -- -- -- 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.
- ------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement.
The amount estimated to be payable under this method, through the
remainder of the later of the lives of such Eligible Trustee and spouse,
will be the actuarial equivalent of the Regular Benefit. In addition, the
Eligible Trustee may elect that the surviving spouse's periodic payment of
benefits will be equal to either 50% or 100% of the previous periodic
amount, an election that, respectively, increases or decreases the
previous periodic amount so that the resulting payments will be the
actuarial equivalent of the Regular Benefit.
12
<PAGE>
The following table illustrates the retirement benefits accrued to 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>
ESTIMATED
ANNUAL
RETIREMENT BENEFITS
ESTIMATED BENEFITS UPON
CREDITED YEARS ESTIMATED ACCRUED AS RETIREMENT
OF SERVICE AT PERCENTAGE OF EXPENSES FROM ALL
RETIREMENT ELIGIBLE BY ALL ADOPTING ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- --------------------------- ------------------ ----------------- ---------------- ----------
<S> <C> <C> <C> <C>
John R. Haire.............. 10 50.0% 4$6,952 $ 129,550
Dr. Manuel H. Johnson...... 10 50.0 10,926 51,325
Michael E. Nugent.......... 10 50.0 19,217 51,325
John L. Schroeder.......... 8 41.7 38,700 42,771
</TABLE>
- ---------------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
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.
(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
13
<PAGE>
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 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.
14
<PAGE>
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 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
15
<PAGE>
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 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
16
<PAGE>
offset a portion of the potential loss incurred by the Fund if the securities
(currencies) underlying the option are ultimately sold (exchanged) by the Fund
at a loss. Furthermore, a premium received on a call written on a foreign
currency will ameliorate any potential loss of value on the portfolio security
due to a decline in the value of the currency. However, during the option
period, the covered call writer has, in return for the premium or the option,
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security (or the exchange rate of the
currency in which it is denominated) increase, but has retained the risk of loss
should the price of the underlying security (or the exchange rate of the
currency in which it is denominated) decline. The premium received will
fluctuate with varying economic market conditions. If the market value of the
portfolio securities (or the currencies in which they are denominated) upon
which call options have been written increases, the Fund may receive a lower
total return from the portion of its portfolio upon which calls have been
written than it would have had such calls not been written.
As regards listed options and certain OTC options, during the option period,
the Fund may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option, to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Fund to write another call option on
the underlying security (currency) with either a different exercise price or
expiration date or both. The Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the amount of the premium received
on the call option is more or less than the cost of effecting the closing
purchase transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of the
underlying security (currency). Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part or exceeded by a
decline in the market value of the underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying security
(currency) during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security (currency)
equal to the difference between the purchase price of the underlying security
(currency) and the proceeds of the sale of the security (currency) plus the
premium received on the option less the commission paid.
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
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receipt of the premium on the option written). In the case of listed options,
during the option period, the Fund may be required, at any time, to make payment
of the exercise price against delivery of the underlying security (currency).
The operation of and limitations on covered put options in other respects are
substantially identical to those of call options.
The Fund will write put options for three purposes: (1) to receive the
income derived from the premiums paid by purchasers; (2) when the Adviser wishes
to purchase the security (or a security denominated in the currency underlying
the option) underlying the option at a price lower than its current market
price, in which case it will write the covered put at an exercise price
reflecting the lower purchase price sought; and (3) to close out a long put
option position. The potential gain on a covered put option is limited to the
premium received on the option (less the commissions paid on the transaction)
while the potential loss equals the differences between the exercise price of
the option and the current market price of the underlying securities
(currencies) when the put is exercised, offset by the premium received (less the
commissions paid on the transaction). The aggregate value of the obligations
underlying the puts, determined as of the date the options are sold, will not
exceed 50% of the Fund's net assets.
PURCHASING CALL AND PUT OPTIONS. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options in amounts equalling up to 5% of
its total assets. The Fund may purchase a call option in order to close out a
covered call position (see "Covered Call Writing" above), to protect against an
increase in price of a security it anticipates purchasing or, in the case of a
call option on foreign currency, to hedge against an adverse exchange rate move
of the currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The purchase
of the call option to effect a closing transaction on a call written
over-the-counter may be a listed or an OTC option. In either case, the call
purchased is likely to be on the same securities (currencies) and have the same
terms as the written option. If purchased over-the-counter, the option would
generally be acquired from the dealer or financial institution which purchased
the call written by the Fund.
The Fund may purchase put options on securities (currencies) which it holds
in its portfolio to protect itself against a decline in the value of the
security and to close out written put option positions. If the value of the
underlying security (currency) were to fall below the exercise price of the put
purchased in an amount greater than the premium paid for the option, the Fund
would incur no additional loss. In addition, the Fund may sell a put option
which it has previously purchased prior to the sale of the securities
(currencies) underlying such option. Such a sale would result in a net gain or
loss depending on whether the amount received on the sale is more or less than
the premium and 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
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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.
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
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dollar value per contract of each point in the difference between the exercise
price of an option and the current level of the underlying index. A multiplier
of 100 means that a one-point difference will yield $100. Options on different
indexes may have different multipliers. The writer of the option is obligated,
in return for the premium received, to make delivery of this amount. Unlike
stock options, all settlements are in cash and a gain or loss depends on price
movements in the stock market generally (or in a particular segment of the
market) rather than the price movements in individual stocks. Currently,
options are traded on the S&P 100 Index and the S&P 500 Index on the Chicago
Board Options Exchange, the Major Market Index and the Computer Technology
Index, Oil Index and Institutional Index on the American Stock Exchange and the
NYSE Index and NYSE Beta Index on the New York Stock Exchange, The Financial
News Composite Index on the Pacific Stock Exchange and the Value Line Index,
National O-T-C Index and Utilities Index on the Philadelphia Stock Exchange,
each of which and any similar index on which options are traded in the future
which include stocks that are not limited to any particular industry or segment
of the market is referred to as a "broadly based stock market index." The Fund
will invest only in broadly based indexes. Options on broad-based stock indexes
provide the Fund with a means of protecting the Fund against the risk of market
wide price movements. If the Adviser anticipates a market decline, the Fund
could purchase a stock index put option. If the expected market decline
materialized, the resulting decrease in the value of the Fund's portfolio would
be offset to the extent of the increase in the value of the put option. If the
Adviser anticipates a market rise, the Fund may purchase a stock index call
option to enable the Fund to participate in such rise until completion of
anticipated common stock purchases by the Fund. Purchases and sales of stock
index options also enable the Adviser to more speedily achieve changes in the
Fund's equity positions.
The Fund will write put options on stock indexes only if such positions are
covered by cash, U.S. Government securities or other liquid portfolio
securities equal to the aggregate exercise price of the puts, or by a put
option on the same stock index with a strike price no lower than the strike
price of the put option sold by the Fund, which cover is held for the Fund in a
segregated account maintained for it by the Fund's Custodian. All call options
on stock indexes written by the Fund will be covered either by a portfolio of
stocks substantially replicating the movement of the index underlying the call
option or by holding a separate call option on the same stock index with a
strike price no higher than the strike price of the call option sold by the
Fund.
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
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date; and by the time it learns that it has been assigned, the index may have
declined, with a corresponding decrease in the value of its stock portfolio.
This "timing risk" is an inherent limitation on the ability of index call
writers to cover their risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is
interrupted, or if trading is interrupted in stocks accounting for a
substantial portion of the value of an index, the trading of options on that
index will ordinarily be halted. If the trading of options on an underlying
index is halted, an exchange may impose restrictions prohibiting the exercise
of such options.
FUTURES CONTRACTS. As stated in the Prospectus, the Fund may purchase and
sell interest rate, currency, and index futures contracts ("futures
contracts"), that are traded on commodity exchanges, on such underlying
securities as U.S. Treasury bonds, notes and bills and/or any foreign government
fixed-income security ("interest rate" futures), on various currencies
("currency futures") and on such indexes of securities as may exist or come
into being ("index" futures).
The Fund will purchase or sell interest rate futures contracts for the
purpose of hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest rates.
If the Adviser anticipates that interest rates may rise and, concomitantly, the
price of certain of its portfolio securities fall, the Fund may sell an
interest rate futures contract. If declining interest rates are anticipated,
the Fund may purchase an interest rate futures contract to protect against a
potential increase in the price of securities the Fund intends to purchase.
Subsequently, appropriate securities may be purchased by the Fund in an orderly
fashion; as securities are purchased, corresponding futures positions would be
terminated by offsetting sales of contracts.
The Fund will purchase or sell index futures contracts for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) securities
against changes in their prices. If the Adviser anticipates that the prices of
securities held by the Fund may fall, the Fund may sell an index futures
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,
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change. In addition, brokers may establish margin deposit requirements in
excess of those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a brokers' client but is, rather, a good faith deposit on the
futures contract which will be returned to the Fund upon the proper termination
of the futures contract. The margin deposits made are marked to market daily
and the Fund may be required to make subsequent deposits called "variation
margin," with the Fund's futures contract clearing broker, which are reflective
of price fluctuations in the futures contract.
INDEX FUTURES CONTRACTS. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future time.
An index futures contract purchase would create an obligation by the Fund, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. In addition, due to
current industry practice, daily variations in gains and losses on open
contracts are required to be reflected in cash in the form of variation margin
payments. The Fund may be required to make additional margin payments during
the term of the contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or gain.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the futures position by the 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
calculat-
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ing the 5%. However, there is no overall limitation on the percentage of the
Fund's assets which may be subject to a hedge position. Except as described
above, there are no other limitations on the use of futures and options thereon
by the Fund.
The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an
option on a futures contract are included in initial margin deposits.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. As stated
in the Prospectus, the Fund may sell a futures contract to protect against the
decline in the value of securities (or the currency in which they are
denominated) held by the Fund. However, it is possible that the futures market
may advance and the value of securities (or the currency in which they are
denominated) held in the portfolio of the Fund may decline. If this occurred,
the Fund would lose money on the futures contract and also experience a decline
in value of its portfolio securities. However, while this could occur for a
very brief period or to a very small degree, over time the value of a
diversified portfolio will tend to move in the same direction as the futures
contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy (or the currency in which they are
denominated), and the value of such securities (currencies) decreases, then the
Fund may determine not to invest in the securities as planned and will realize
a loss on the futures contract that is not offset by a reduction in the price
of the securities.
If the Fund has sold a call option on a futures contract, it will cover
this position by holding in a segregated account maintained at its Custodian,
cash, U.S. Government Securities or other liquid portfolio securities equal in
value (when added to any initial or variation margin on deposit) to the market
value of the securities (currencies) underlying the futures contract or the
exercise price of the option. Such a position may also be covered by owning the
securities (currencies) underlying the futures contract, or by holding a call
option permitting the Fund to purchase the same contract at a price no higher
than the price at which the short position was established.
In addition, if the Fund holds a long position in a futures contract it
will hold cash, U.S. Government securities or other liquid portfolio securities
equal to the purchase price of the contract (less the amount of initial or
variation margin on deposit) in a segregated account maintained for the Fund by
its Custodian. Alternatively, the Fund could cover its long position by
purchasing a put 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.
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In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the
broker and/or incur a loss of all or part of its margin deposits with the
broker. Similarly in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with
brokers or financial institutions deemed creditworthy by the Adviser.
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities (and the currencies in which they
are denominated) is that the prices of securities and indexes subject to
futures contracts (and thereby the futures contract prices) may correlate
imperfectly with the behavior of the cash prices of the Fund's portfolio
securities (and the currencies in which they are denominated). Another such risk
is that prices of interest rate futures contracts may not move in tandem with
the changes in prevailing interest rates against which the Fund seeks a hedge.
A correlation may also be distorted by the fact that the futures market is
dominated by short-term traders seeking to profit from the difference between a
contract or security price objective and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.
As stated in the Prospectus, there may exist an imperfect correlation
between the price movements of futures contracts purchased by the Fund and the
movements in the prices of the securities (currencies) which are the subject of
the hedge. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin deposit
requirements, distortions in the normal relationship between the debt
securities or currency markets and futures markets could result. Price
distortions could also result if investors in futures contracts opt to make or
take delivery of underlying securities rather than engage in closing
transactions due to the resultant reduction in the liquidity of the futures
market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions. Due
to the possibility of price distortions in the futures market 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
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notwithstanding that the purchase or sale of a futures contract would not
result in a loss, as in the instance where there is no movement in the prices
of the futures contract or underlying securities.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund (subject to
notice provisions described below), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account pursuant
to applicable regulations and that are equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is that
the Fund continues to receive the income on the loaned securities while at the
same time earning interest on the cash amounts deposited as collateral, which
will be invested in short-term obligations. The Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which its shares are qualified for sale and will not lend more
than 25% of the value of its total assets. A loan may be terminated by the
borrower on one business day's notice, or by the Fund on two business days'
notice. If the borrower fails to deliver the loaned securities within two days
after receipt of notice, the Fund could use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Fund's management to be
creditworthy and when the income which can be earned from such loans justifies
the attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price during
the loan period would inure to the Fund. The creditworthiness of firms to which
the Fund lends its portfolio securities will be monitored on an ongoing basis
by the Adviser pursuant to procedures adopted and reviewed, on an ongoing
basis, by the Board of Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment
in such loaned securities. The Fund will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.
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.
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2.Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the
Fund may invest in the securities of companies which operate, invest in, or
sponsor such programs.
3.Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at
the lower of cost or current value) of its total assets (not including the
amount borrowed).
4.Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in
restriction (3). For the purpose of this restriction, collateral
arrangements with respect to initial or variation margin for futures are
not deemed to be pledges of assets.
5.Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase agreement; (b) purchasing any securities on a
when-issued or delayed delivery basis; (c) purchasing or selling any
financial futures contracts or options thereon; (d) borrowing money in
accordance with restrictions described above; or (e) lending portfolio
securities.
6.Make loans of money or securities, except: (a) by the purchase of
portfolio securities in which the Fund may invest consistent with its
investment objective and policies; (b) by investment in repurchase
agreements; or (c) by lending its portfolio securities.
7.Make short sales of securities.
8.Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit
or payment by the Fund of initial or variation margin in connection with
futures contracts is not considered the purchase of a security on margin.
9.Purchase or sell commodities or commodities contracts except that the
Fund may purchase or sell futures contracts or options on futures.
10.Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security. (The Fund may invest in restricted
securities subject to the non-fundamental limitations contained in the
Prospectus.)
11.Invest for the purpose of exercising control or management of any
other issuer.
In addition, as a nonfundamental policy, the Fund may not purchase
securities of other investment companies, except in connection with a merger,
consolidation, reorganization or acquisition of assets or by purchase in the
open market of securities of closed-end investment companies where no
underwriter's or dealer's commission or profit, other than customary broker's
commissions, is involved and only if immediately thereafter not more than (a)
5% of the Fund's total assets, taken at market value, would be invested in any
one such company, (b) 10% of the Fund's total assets taken at market value,
would be invested in such securities and (c) 3% of any one such company's voting
securities would be owned by the Fund.
As a non-fundamental policy, the Fund may not invest in other investment
companies in reliance on Sections 12(d)(1)(F), 12(d)(1)(G) or 12(d)(1)(J) of
the Act.
If (except with respect to Restriction 3) a percentage restriction is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from a change in values of portfolio securities or amount
of total or net assets will not be considered a violation of any of the
foregoing restrictions.
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<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to the general supervision of the Trustees, the Adviser is
responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. In the over-the-counter market, securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually
includes a profit to the dealer. In addition, securities may be purchased at
times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
Futures transactions will usually be effected through a broker and a commission
will be charged. On occasion, the Fund may also purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid. During the fiscal years ended January 31, 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 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
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<PAGE>
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 and other affiliated brokers and dealers. In order for
an affiliated broker or dealer to effect any portfolio transactions for the
Fund, the commissions, fees or other remuneration received by the affiliated
broker or dealer must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on an
exchange during a comparable period of time. This standard would allow the
affiliated broker or dealer to receive no more than the remuneration which
would be expected to be received by an unaffiliated broker in a commensurate
arm's-length transaction. Furthermore, the Board of Trustees of the Fund,
including a majority of the Trustees who are not "interested" persons of the
Fund, as defined in the Act, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to an
affiliated broker or dealer are consistent with the foregoing standard. During
the fiscal years ended January 31, 1995, 1996 and 1997, the Fund paid no
brokerage commissions to an affiliated broker or dealer.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
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 MSDWD. The Trustees of the Fund, including a majority of the
Independent Trustees, approved, at their meeting on June 30, 1997, the current
Distribution Agreement appointing the Distributor exclusive distributor of the
Fund's shares and providing for the Distributor to bear distribution expenses
not borne by the Fund. By its terms, the Distribution Agreement has an initial
term ending April 30, 1998, and provides that it will remain in effect from year
to year thereafter if approved by the Board.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal securities laws and pays filing fees in accordance with
state securities laws. The
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<PAGE>
Fund and Distributor have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Under the Distribution Agreement, the Distributor uses its best efforts in
rendering services to the Fund, but in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations, the
Distributor is not liable to the Fund or any of its shareholders for any error
of judgment or mistake of law or for any act or omission or for any losses
sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION. The Fund has adopted a Plan of Distribution pursuant
to Rule 12b-1 under the Act (the "Plan") pursuant to which each Class, other
than Class D, pays the Distributor compensation accrued daily and payable
monthly at the following annual rates: 0.25%, 0.75% and 0.75% of the average
daily net assets of Class A, Class B and Class C, respectively. The Distributor
also receives the proceeds of front-end sales charges and of contingent deferred
sales charges imposed on certain redemptions of shares, which are separate and
apart from payments made pursuant to the Plan (see "Purchase of Fund Shares" in
the Prospectus).
The Distributor has informed the Fund that the entire fee payable by Class A
and a portion of the fees payable by each of Class B and Class C each year under
the Plan equal to 0.20% of the average daily net assets of Class B and 0.25% of
the average daily net assets of Class C are currently each characterized as a
"service fee" under the Rules of the Association of the National Association of
Securities Dealers (of which the Distributor is a member). The service fee is a
payment made for personal service and/or the maintenance of shareholder
accounts. The remaining portion of the Plan fees payable by a Class, if any, is
characterized an "asset-based sales charge" as such is defined by the
aforementioned Rules of the Association.
The Plan was adopted by a majority vote of the Board of Trustees, including
all of the Trustees of the Fund who are not "interested persons" of the Fund (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of the Plan (the "Independent 12b-1 Trustees"), cast in person at a
meeting called for the purpose of voting on the Plan, on January 22, 1993, and
by InterCapital as the then sole shareholder on January 23, 1993. At their
meeting held on April 28, 1993, the Trustees, including a majority of the
Independent 12b-1 Trustees, approved certain technical amendments to the Plan in
connection with amendments adopted by the National Association of Securities
Dealers, Inc. to its Rules of the Association. At their meeting held on June 30,
1997, the Trustees, including a majority of the Independent 12b-1 Trustees,
approved amendments to the Plan to reflect the multiple-class structure for the
Fund, which took effect on July 28, 1997.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each fiscal quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. In the Trustees' quarterly reviews of the
Plan, they will consider its continued appropriateness and the level of
compensation provided therein. The Fund accrued amounts payable to the
Distributor under the Plan, during the fiscal year ended January 31, 1997, of
$425,303. This amount is equal to payments required to be paid monthly by the
Fund which were computed at the annual rate of 0.74% of the Fund's average daily
net assets. This amount is treated by the Fund as an expense in the year it is
accrued. This amount represents amounts paid by Class C only; there were no
Class A or Class B shares outstanding on such date.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a distribution arrangement as set forth in the
Prospectus.
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 4.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.20% of the current value of
the respective accounts for which they are the account executives or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid) or net asset value purchases by 401(k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal Revenue
Code for which Dean Witter Trust Company ("DWTC") or Dean Witter Trust FSB
("DWTFSB") serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper,
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<PAGE>
InterCapital compensates DWR's account executives by paying them, from its own
funds, a gross sales credit of 1.0% of the amount sold.
With respect to Class B shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 4.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission, currently
a residual of up to 0.20% of the current value of the respective accounts for
which they are the account executives of record in all cases. In the case of
retirement plans qualified under Section 401(k) of the Internal Revenue Code and
other employer-sponsored plans qualified under Section 401(a) of the Internal
Revenue Code for which DWTC or DWTFSB serves as Trustee or the 401(k) Support
Services Group of DWR serves as recordkeeper, and which plans are opened on or
after July 28, 1997, DWR compensates its account executives by paying them, from
its own funds, a gross sales credit of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 0.75% of the current value of
the respective accounts for which they are the account executives of record.
With respect to Class D shares other than shares held by participants in the
InterCapital mutual fund asset allocation program, InterCapital compensates
DWR's account executives by paying them, from its own funds, commissions for the
sale of Class D shares, currently a gross sales credit of up to 1.0% of the
amount sold. There is a chargeback of 100% of the amount paid if the Class D
shares are redeemed in the first year and a chargeback of 50% of the amount paid
if the Class D shares are redeemed in the second year after purchase.
InterCapital also compensates DWR's account executives by paying them, from its
own funds, an annual residual commission, currently a residual of up to 0.10% of
the current value of the respective accounts for which they are the account
executives of record (not including accounts of participants in the InterCapital
mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by DWR to
its account executives and DWR's Fund-associated distribution-related expenses,
including sales compensation, and overhead and other branch office
distribution-related expenses including (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) travel expenses of mutual
fund sales coordinators to promote the sale of Fund shares and (d) other
expenses relating to branch promotion of Fund sales. The distribution fee that
the Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred under the Plan on behalf of the Fund and, in the
case of Class B shares, opportunity costs, such as the gross sales credit and an
assumed interest charge thereon ("carrying charge"). In the Distributor's
reporting of the distribution expenses to the Fund, in the case of Class B
shares, such assumed interest (computed at the "broker's call rate") has been
calculated on the gross credit as it is reduced by amounts received by the
Distributor under the Plan and any contingent deferred sales charges received by
the Distributor upon redemption of shares of the Fund. No other interest charge
is included as a distribution expense in the Distributor's calculation of its
distribution costs for this purpose. The broker's call rate is the interest rate
charged to securities brokers on loans secured by exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event exceed
an amount equal to a payment at the annual rate of 0.25%, in the case of Class
A, and 0.75%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C will
be reimbursable under the Plan. With respect to Class A, in the case of all
expenses other than expenses representing the service fee, and, with respect to
Class C, in the case of all expenses other than expenses representing a gross
sales credit or a residual to account executives, such amounts shall be
determined at the beginning of each calendar quarter by the Trustees, including,
a majority of the Independent 12b-1 Trustees. Expenses representing the service
fee (for
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<PAGE>
Class A) or a gross sales credit or a residual to account executives (for Class
C) may be reimbursed without prior determination. In the event that the
Distributor proposes that monies shall be reimbursed for other than such
expenses, then in making quarterly determinations of the amounts that may be
reimbursed by the Fund, the Distributor will provide and the Trustees will
review a quarterly budget of projected distribution expenses to be incurred on
behalf of the Fund, together with a report explaining the purposes and
anticipated benefits of incurring such expenses. The Trustees will determine
which particular expenses, and the portions thereof, that may be borne by the
Fund, and in making such a determination shall consider the scope of the
Distributor's commitment to promoting the distribution of the Fund's Class A and
Class C shares.
The Fund paid 100% of the $425,303 accrued under the Plan for the fiscal
year ended January 31, 1997, to the Distributor. Based upon the total amounts
spent by the Distributor during this period, it is estimated by the Distributor
that this amount was spent in approximately the following ways: (i)
$-0---advertising and promotional expenses; (ii) $-0- --printing of prospectuses
for distribution to other than current shareholders; (iii) $-0---compensation to
underwriters--$-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. These amounts represent amounts paid by Class C
only; there were no Class A or Class B shares outstanding on such date.
At any given time, the expenses of distributing shares of the Fund may be
more or less than the total of (i) the payments made by the Fund pursuant to the
Plan and (ii) the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares. Because there is no requirement under the
Plan that the Distributor be reimbursed for all distribution expenses with
respect to Class B shares or any requirement that the Plan be continued from
year to year, this excess amount does not constitute a liability of the Fund.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares,
if for any reason the Plan is terminated, the Trustees will consider at that
time the manner in which to treat such expenses. Any cumulative expenses
incurred, but not yet recovered through distribution fees or contingent deferred
sales charges, may or may not be recovered through future distribution fees or
contingent deferred sales charges.
No interested person of the Fund, nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or indirect
financial interest in the operation of the Plan except to the extent that DWR,
InterCapital, the Distributor or the Manager or certain of their employees, may
be deemed to have such an interest as a result of benefits derived from the
successful operation of the Plan or as a result of receiving a portion of the
amounts expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending April 30, 1993, and
provides that it will continue from year to year thereafter, provided such
continuance is approved annually by a vote of the Trustees in the manner
described above. Prior to the Board's approval of amendments to the Plan to
reflect the multiple class structure for the Fund, the most recent continuance
of the Plan for one year, until April 30, 1998, was approved by the Board of
Trustees of the Fund, including a majority of the Independent 12b-1 Trustees, at
a Board meeting held on April 24, 1997. Prior to approving the continuation of
the Plan, the Board requested and received from the Distributor and reviewed all
the information which it deemed necessary to arrive at an informed
determination. In making their determination to continue the Plan, the Trustees
considered: (1) the Fund's experience under the Plan and whether such experience
indicates that the Plan is operating as anticipated; (2) the benefits the Fund
had obtained, was obtaining and would be likely to obtain under the Plan; and
(3) what services had been provided and were continuing to be provided under the
Plan by the Distributor, DWR and other selected broker-dealers to the Fund and
its shareholders. Based upon their review, the Trustees of the Fund, including
each of the Independent 12b-1 Trustees, determined that continuation of the Plan
would be in the best interest of the Fund and would have a reasonable likelihood
of continuing to benefit the Fund and its shareholders. This determination was
based upon the conclusion of the Trustees that the Plan provides an effective
means of stimulating sales of shares of the Fund and of reducing or avoiding net
redemptions and the potentially adverse effects that may occur therefrom. In the
Trustees' quarterly review of the Plan, they will consider its continued
appropriateness and the level of compensation provided therein.
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The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
affected Class or Classes of the Fund, and all material amendments of the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Act) on not more
than thirty days written notice to any other party to the Plan. So long as the
Plan is in effect, the election and nomination of Independent Trustees shall be
committed to the discretion of the Independent 12b-1 Trustees.
DETERMINATION OF NET ASSET VALUE
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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 for each Class of shares of the Fund is
determined once daily at 4:00 p.m., New York time (or, on days when the New York
Stock Exchange closes prior to 4:00 p.m., at such earlier time), on each day
that the New York Stock Exchange is open. The New York Stock Exchange currently
observes the following holidays: New Year's Day, Reverend Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
RIGHT OF ACCUMULATION. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other TCW/DW Funds which are multiple class funds
("TCW/DW Multi-Class Funds") purchased at a price including a front-end sales
charge having a current value of $5,000, and purchases $20,000 of additional
shares of the Fund, the sales charge applicable to the $20,000 purchase would be
4.0% of the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when such
an order is placed
32
<PAGE>
by mail. The reduced sales charge will not be granted if: (a) such notification
is not furnished at the time of the order; or (b) a review of the records of the
Distributor or Dean Witter Trust Company (the "Transfer Agent") fails to confirm
the investor's represented holdings.
LETTER OF INTENT. As discussed in the Prospectus, reduced sales charges are
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Class A shares of the Fund from
the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single purchase. A number of shares equal in value to 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent, in the name
of the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in passing that
level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation," but
there will be no retroactive reduction of sales charges on previous purchases.
For the purpose of determining whether the investor is entitled to a further
reduced sales charge applicable to purchases at or above a sales charge level
which exceeds the stated goal of a Letter of Intent, the cumulative current net
asset value of any shares owned by the investor in any other TCW/DW Multi-Class
Funds held by the shareholder which were previously purchased at a price
including a front-end sales charge (including shares of the Fund, other TCW/DW
Multi-Class Funds or "Exchange Funds" (see "Shareholder Services--Exchange
Privilege") acquired in exchange for those shares, and including in each case
shares acquired through reinvestment of dividends and distributions) will be
added to the cost or net asset value of shares of the Fund owned by the
investor. However, shares of "Exchange Funds" and the purchase of shares of
other TCW/DW Funds will not be included in determining whether the stated goal
of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction. The
5% escrow and minimum purchase requirements will be applicable to the new stated
goal. Investors electing to purchase shares of the Fund pursuant to a Letter of
Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to a
CDSC payable upon most redemptions within six years after purchase. As stated in
the Prospectus, a CDSC will be imposed on any redemption by an investor if after
such redemption the current value of the investor's Class B shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Class B shares during the preceding six years (or, in the case of
shares held by certain employer-sponsored benefit plans, three years). However,
no CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption, plus (b)
the current net asset value of shares purchased through reinvestment of
dividends or distributions of the Fund or another TCW/DW Fund (see "Shareholder
Services--Targeted Dividends"), plus (c) increases in the net asset value of the
investor's shares above the total amount of payments for the purchase of Fund
shares made during the preceding six (three) years. The CDSC will be paid to the
Distributor.
33
<PAGE>
In determining the applicability of the CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years (or, in the case of shares held by certain employer-sponsored
benefit plans, three years) will be redeemed first. In the event the redemption
amount exceeds such increase in value, the next portion of the amount redeemed
will be the amount which represents the net asset value of the investor's shares
purchased more than six (three) years prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions. A portion of the
amount redeemed which exceeds an amount which represents both such increase in
value and the value of shares purchased more than six years (or, in the case of
shares held by certain employer-sponsored benefit plans, three years) prior to
the redemption and/or shares purchased through reinvestment of dividends or
distributions will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments made
during a month will be aggregated and deemed to have been made on the last day
of the month. The following table sets forth the rates of the CDSC applicable to
most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ------------------------------------------------------------------------------------------------------- -------------------------
<S> <C>
First.................................................................................................. 5.0%
Second................................................................................................. 4.0%
Third.................................................................................................. 3.0%
Fourth................................................................................................. 2.0%
Fifth.................................................................................................. 2.0%
Sixth.................................................................................................. 1.0%
Seventh and thereafter................................................................................. None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund held by 401(k) plans or other employer-sponsored plans
qualified under Section 401(a) of the Internal Revenue Code for which DWTC or
DWTFSB serves as Trustee or the 401(k) Support Services Group of DWR serves as
recordkeeper and whose accounts are opened on or after July 28, 1997:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ------------------------------------------------------------------------------------------------------- -------------------------
<S> <C>
First.................................................................................................. 2.0%
Second................................................................................................. 2.0%
Third.................................................................................................. 1.0%
Fourth and thereafter.................................................................................. None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain employer-sponsored benefit plans, three
years) of purchase which are in excess of these amounts and which redemptions do
not qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC of
1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
34
<PAGE>
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
SHAREHOLDER INVESTMENT ACCOUNT. Upon purchase of shares of the Fund, a
Shareholder Investment Account is opened for the investor on the books of the
Fund, maintained by the Transfer Agent. This is an open account in which shares
owned by the investor are credited by the Transfer Agent in lieu of issuance of
a share certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares and
may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. No certificates will be issued for
fractional shares or to shareholders who have elected the Systematic Withdrawal
Plan for withdrawing cash from their accounts. Whenever a shareholder-instituted
transaction takes place in the Shareholder Investment Account, the shareholder
will be mailed a confirmation of the transaction from the Fund or from DWR or
another selected broker-dealer.
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All dividends and
capital gains distributions are automatically paid in full and fractional shares
of the applicable Class of the Fund, unless the shareholder requests that they
be paid in cash. Each purchase of shares of the Fund is made upon the condition
that the Transfer Agent is thereby automatically appointed as agent of the
investor to receive all dividends and capital gains distributions on shares
owned by the investor. Such dividends and distributions will be paid in shares
of the applicable Class of the Fund (or in cash if the shareholder so requests)
at the net asset value per share as of the close of business on the record date.
At any time an investor may request the Transfer Agent in writing to have
subsequent dividends and/or capital gains distributions paid in cash rather than
shares. To assume sufficient time to process the change, such request should be
received by the Transfer Agent at least five (5) business days prior to the
record date for which it commences to take effect. In case of recently purchased
shares for which registration instructions have not been received on the record
date, cash payments will be made to DWR or another selected broker-dealer, and
will be forwarded to the shareholder, upon receipt of proper instructions.
EASYINVEST.-SM- Shareholders may subscribe to Easyinvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through Easyinvest will be added to the shareholder's
existing account at the net asset value calculated the same business day the
transfer of funds is effected. For further information or to subscribe to
Easyinvest, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent.
INVESTMENT OF DISTRIBUTIONS RECEIVED IN CASH. As discussed in the
Prospectus, any shareholder who receives a cash payment representing a dividend
or capital gains distribution may invest such dividend or distribution in shares
of the applicable Class at the net asset value per share, without the imposition
of a CDSC upon redemption, by returning the check or the proceeds to the
Transfer Agent within 30 days after the payment date. If the shareholder returns
the proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset value
per share next determined after receipt of the check or the proceeds by the
Transfer Agent.
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
a shareholder may make additional investments in any Class of shares of the Fund
for which they qualify at any time by sending a check in any amount, not less
than $100, payable to TCW/DW Income and Growth Fund, and indicating the selected
Class, directly to the Transfer Agent. In the case of Class A shares, after
deduction of any applicable sales charge, the balance will be applied to the
purchase of Fund shares, and, in the case of shares of the other Classes, the
entire amount will be applied to the purchase of Fund shares, at the net asset
value per share next computed after receipt of the check of purchase payment by
the Transfer Agent. The shares so purchased will be credited to the investor's
account.
TARGETED DIVIDENDS-SM-. In states where it is legally permissible to do so,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an open-end
35
<PAGE>
TCW/DW Fund other than TCW/DW Income and Growth Fund or in another Class of
TCW/DW Income and Growth Fund. Such investment will be made as described above
for automatic investment in shares of the applicable Class of the Fund, at the
net asset value per share of the selected TCW/DW Fund as of the close of
business of the payment date of the dividend or distribution, and will begin to
earn dividends, if any, in the selected TCW/DW Fund on the next business day. To
participate in the Targeted Dividends program, shareholders should contact their
DWR or other selected broker-dealer account executive or the Transfer Agent.
Shareholders of the Fund must be shareholders of the selected Class of the
TCW/DW Fund targeted to receive investments from dividends at the time they
enter the Targeted Dividends program. Investors should review the prospectus of
the targeted TCW/DW Fund before entering the program.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a systematic
withdrawal plan is available for shareholders who own or purchase shares of the
Fund having a minimum value of $10,000 based upon the then current net asset
value. The plan provides for monthly or quarterly (March, June, September and
December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable CDSC
will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase of
Fund Shares"). Therefore, any shareholder participating in the Withdrawal Plan
will have sufficient shares redeemed from his or her account so that the
proceeds (net of any applicable CDSC) to the shareholder will be the designated
monthly or quarterly amount.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the sales charges which may be applicable
to purchases and redemptions of shares (see "Purchase of Fund Shares").
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent within five business days after the date of redemption.
The Withdrawal Plan may be terminated at any time by the Fund.
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her DWR or other selected broker-dealer account executive or by written
notification to the Transfer Agent. In addition, the party and/or the address to
which checks are mailed may be changed by written notification to the Transfer
Agent, with signature guarantees required in the manner described above. The
shareholder may also terminate the Withdrawal Plan at any time by written notice
to the Transfer Agent. In the event of such termination, the account will be
continued as a regular shareholder investment account. The shareholder may also
redeem all or part of the shares held in the Withdrawal Plan account (see
"Repurchases and Redemptions" in the Prospectus) at any time. Shareholders
wishing to enroll in the Withdrawal Plan should contact their account executive
or the Transfer Agent.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of each Class of shares of the Fund
may exchange their shares for shares of the same Class of shares of any other
TCW/DW Multi-Class Fund without the imposition of any exchange fee. Shares
36
<PAGE>
may also be exchanged for TCW/DW North American Government Income Trust and five
money market funds for which InterCapital serves as investment manager (the
foregoing six funds are hereinafter collectively referred to as the "Exchange
Funds"). Exchanges may be made after the shares of the fund acquired by purchase
(not by exchange or dividend reinvestment) have been held for thirty days. There
is no waiting period for exchanges of shares acquired by exchange or dividend
reinvestment. An exchange will be treated for federal income tax purposes the
same as a repurchase or redemption of shares, on which the shareholder may
realize a capital gain or loss.
Shareholders utilizing the Fund's Exchange Privilege may subsequently
re-exchange such shares back to the Fund. However, no exchange privilege is
available between the Fund and any other fund managed by the Manager or
InterCapital, except for other TCW/DW Funds and the five money market funds
listed in the Prospectus.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a TCW/DW Multi-
Class Fund are exchanged for shares of an Exchange Fund, the exchange is
executed at no charge to the shareholder, without the imposition of the CDSC at
the time of the exchange. During the period of time the shareholder remains in
the Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired), the holding period or "year since purchase
payment made" is frozen. When shares are redeemed out of the Exchange Fund, they
will be subject to a CDSC which would be based upon the period of time the
shareholder held shares in a TCW/DW Multi-Class Fund. However, in the case of
shares exchanged into an Exchange Fund, upon a redemption of shares which
results in a CDSC being imposed, a credit (not to exceed the amount of the CDSC)
will be given in an amount equal to the Exchange Fund 12b-1 distribution fees
which are attributable to those shares. Shareholders acquiring shares of an
Exchange Fund pursuant to this exchange privilege may exchange those shares back
into a TCW/DW Multi-Class Fund from the Exchange Fund, with no charge being
imposed on such exchange. The holding period previously frozen when shares were
first exchanged for shares of an Exchange Fund resumes on the last day of the
month in which shares of a TCW/ DW Multi-Class Fund are reacquired. A CDSC is
imposed only upon an ultimate redemption, based upon the time (calculated as
described above) the shareholder was invested in a TCW/DW Multi-Class Fund.
When shares initially purchased in a TCW/DW Multi-Class Fund are exchanged
for shares of a TCW/DW Multi-Class Fund or shares of an Exchange Fund, the date
of purchase of the shares of the fund exchanged into, for purposes of the CDSC
upon redemption, will be the last day of the month in which the shares being
exchanged were originally purchased. In allocating the purchase payments between
funds for purposes of the CDSC, the amount which represents the current net
asset value of shares at the time of the exchange which were (i) purchased more
than one, three or six years (depending on the CDSC schedule applicable to the
shares) prior to the exchange and (ii) originally acquired through reinvestment
of dividends or distributions (all such shares called "Free Shares"), will be
exchanged first. After an exchange, all dividends earned on shares in the
Exchange Fund will be considered Free Shares. If the exchanged amount exceeds
the value of such Free Shares, an exchange is made, on a block-by-block basis,
of non-Free Shares held for the longest period of time. Shares equal to any
appreciation in the value of non-Free Shares exchanged will be treated as Free
Shares, and the amount of the purchase payments for the non-Free Shares of the
fund exchanged into will be equal to the lesser of (a) the purchase payments
for, or (b) the current net asset value of, the exchanged non-Free Shares. If an
exchange between funds would result in exchange of only part of a particular
block of non-Free Shares, then shares equal to any appreciation in the value of
the block (up to the amount of the exchange) will be treated as
37
<PAGE>
Free Shares and exchanged first, and the purchase payment for that block will be
allocated on a pro rata basis between the non-Free Shares of that block to be
retained and the non-Free Shares to be exchanged. The prorated amount of such
purchase payment attributable to the retained non-Free Shares will remain as the
purchase payment for such shares, and the amount of purchase payment for the
exchanged non-Free Shares will be equal to the lesser of (a) the prorated amount
of the purchase payment for, or (b) the current net asset value of, those
exchanged non-Free Shares. Based upon the procedures described in the CDSC Fund
Prospectus under the caption "Purchase of Fund Shares," any applicable CDSC will
be imposed upon the ultimate redemption of shares of any fund, regardless of the
number of exchanges since those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer.
With respect to exchanges, redemptions or repurchases, the Transfer Agent
shall be liable for its own negligence and not for the default or negligence of
its correspondents or for losses in transit. The Fund shall not be liable for
any default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer, if any, in the performance of such functions.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of the shares of any
other fund and the general administration of the Exchange Privilege. No
commission or discounts will be paid to the Distributor or any selected
broker-dealer for any transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege Account of each Class is $5,000 for Dean Witter Liquid Asset
Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter California
Tax-Free Daily Income Trust and Dean Witter New York Municipal Money Market
Trust, although those funds may, at their discretion, accept initial investments
of as low as $1,000. The minimum initial investment for the Exchange Privilege
Account of each Class for Dean Witter U.S. Government Money Market Trust and all
TCW/DW Funds is $1,000.) Upon exchange into a money market fund, the shares of
that fund will be held in a special Exchange Privilege Account separately from
accounts of those shareholders who have acquired their shares directly from that
fund. As a result, certain services normally available to shareholders of money
market funds, including the check writing feature, will not be available for
funds held in that account.
The Fund, each of the other TCW/DW Funds and each of the money market funds
may limit the number of times this Exchange Privilege may be exercised by any
investor within a specified period of time. Also, the Exchange Privilege may be
terminated or revised at any time by any of the TCW/DW Funds or the money market
funds, upon such notice as may be required by applicable regulatory agencies
(presently sixty days for termination or material revision), provided that six
months' prior written notice of termination will be given to the shareholders
who hold shares of Exchange Funds, pursuant to this Exchange Privilege, and
provided further that the Exchange Privilege may be terminated or materially
revised at times (a) when the New York Stock Exchange is closed for other than
customary weekends and holidays, (b) when trading on that Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, (d) during any other period when the Securities and Exchange Commission
by order so permits (provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist), or (e), if the Fund would be unable to invest
amounts effectively in accordance with its investment objective(s), policies and
restrictions. Shareholders maintaining margin accounts with DWR or another
selected broker-dealer are referred to their account executive regarding
restrictions on exchange of shares of the Fund pledged in the margin account.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
38
<PAGE>
REPURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------
REDEMPTION. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC. If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by
the shareholder, the shares may be redeemed by surrendering the certificates
with a written request for redemption. The share certificate, or an accompanying
stock power, and the request for redemption, must be signed by the shareholder
or shareholders exactly as the shares are registered. Each request for
redemption, whether or not accompanied by a share certificate, must be sent to
the Fund's Transfer Agent, which will redeem the shares at their net asset value
next computed (see "Purchase of Fund Shares") after it receives the request, and
certificate, if any, in good order. Any redemption request received after such
computation will be redeemed at the next determined net asset value. The term
"good order" means that the share certificate, if any, and request for
redemption are properly signed, accompanied by any documentation required by the
Transfer Agent, and bear signature guarantees when required by the Fund or the
Transfer Agent. If redemption is requested by a corporation, partnership, trust
or fiduciary, the Transfer Agent may require that written evidence of authority
acceptable to the Transfer Agent be submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures must be guaranteed by an eligible
guarantor acceptable to the Transfer Agent (shareholders should contact the
Transfer Agent for a determination as to whether a particular institution is
such an eligible guarantor). A stock power may be obtained from any dealer or
commercial bank. The Fund may change the signature guarantee requirements from
time to time upon notice to shareholders, which may be by means of a revised
prospectus.
REPURCHASE. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by DWR
and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
PAYMENT FOR SHARES REPURCHASED OR REDEEMED. As discussed in the Prospectus,
payment for shares of any Class presented for repurchase or redemption will be
ordinarily made by check within seven days after receipt by the Transfer Agent
of the certificate and/or written request in good order. Such payment may be
postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on that Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check and the check has not yet cleared, payment of
redemption proceeds may be delayed until the check has cleared (not more than
fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another selected
broker-dealer are referred to their account executive regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares subject to the
39
<PAGE>
charge have been held), any transfer involving less than all of the shares in an
account will be made on a pro rata basis (that is, by transferring shares in the
same proportion that the transferred shares bear to the total shares in the
account immediately prior to the transfer). The transferred shares will continue
to be subject to any applicable CDSC as if they had not been so transferred.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may within 35 days after the date of
redemption or repurchase reinstate any portion or all of the proceeds of such
redemption or repurchase in shares of the Fund in the same Class at the net
asset value next determined after a reinstatement request, together with such
proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes,
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and shareholders will be required to include such undistributed
gains in their taxable income and will be able to claim their share of the tax
paid by the Fund as a credit against their individual federal income tax.
Because the Fund intends to distribute all of its net investment income and
net capital gains to shareholders and otherwise continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code, it
is not expected that the Fund will be required to pay any federal income tax.
Shareholders will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from net
investment income or net short-term capital gains, are taxable to the
shareholder as ordinary income regardless of whether the shareholder receives
such payments in additional shares or in cash. Any dividends declared in the
last quarter of any calendar year which are paid in the following year prior to
February 1 will be deemed received by the shareholder in the prior calendar
year.
Gains or losses on sales of securities by the Fund will be long-term capital
gains or losses if the securities have been held by the Fund for more than
twelve months. Gains or losses on the sale of securities held for twelve months
or less will be short-term gains or losses.
The Fund's transactions, if any, in options and futures contracts may be
subject to special provisions of the Internal Revenue Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These rules also (a) could require the Fund to mark-to-market
certain types of the positions in its portfolio (i.e., treat them as if they
were closed out) and (b) may cause the Fund to recognize income without
receiving cash with which to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding income and
excise taxes.
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
40
<PAGE>
investor should consider the tax implications of purchasing Fund shares
immediately prior to a dividend or distribution record date.
Dividend payments will be eligible for the federal dividends received
deduction available to the Fund's corporate shareholders only to the extent the
aggregate dividends received by the Fund would be eligible for the deduction if
the Fund were the shareholder claiming the dividends received deduction. The
amount of dividends paid by the Fund which may qualify for the dividends
received deduction is limited to the aggregate amount of qualifying dividends
which the Fund derives from its portfolio investments which the Fund has held
for a minimum period, usually 46 days. Any distributions made by the Fund will
not be eligible for the dividends received deduction with respect to shares
which are held by the shareholder for 45 days or less. Any long-term capital
gain distributions will also not be eligible for the dividends received
deduction. The ability to take the dividends received deduction will also be
limited in the case of a Fund shareholder which incurs or continues indebtedness
which is directly attributable to its investment in the Fund.
After the end of the year, shareholders will be sent full information on
their dividends and capital gains distributions for tax purposes, including
information as to the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the portion eligible for the dividends received
deduction. To avoid being subject to a 31% federal backup withholding tax on
taxable dividends, capital gains distributions and the proceeds of redemptions
and repurchases, shareholders' taxpayer identification numbers must be furnished
and certified as to their accuracy.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature. These
figures are computed separately for Class A, Class B, Class C and Class D
shares. Prior to July 28, 1997 the Fund offered only one Class of shares.
Because all shares of the Fund held prior to such time (other than shares which
were acquired in exchange for shares of TCW/DW Funds offered with a CDSC and
shares acquired through reinvestment of dividends and distributions thereon)
have been designated Class C, certain historical performance data may be
restated to reflect the 1.0% CDSC imposed on most Class C shares redeemed within
one year after purchase.
Yield is calculated for any 30-day period as follows: the amount of interest
and/or dividend income for each security in the Fund's portfolio is determined
in accordance with regulatory requirements; the total for the entire portfolio
constitutes the Fund's gross income for the period. Expenses accrued during the
period are subtracted to arrive at "net investment income" of each Class. The
resulting amount is divided by the product of the maximum offering price per
share on the last day of the period multiplied by the average number of shares
of the applicable Class outstanding during the period that were entitled to
dividends. This amount is added to 1 and raised to the sixth power. 1 is then
subtracted from the result and the difference is multiplied by 2 to arrive at
the annualized yield. The Fund's yield for the 30-day period ended January 31,
1997 was 4.85%. This yield is for Class C only; there were no other Classes of
shares outstanding on such date.
The Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. The ending redeemable value is
reduced by any CDSC at the end of the one, five or ten year or other period. For
the purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing the average annual total
return involves a percentage obtained by dividing the ending redeemable value by
the amount of the initial investment, taking a root of the quotient (where the
root is equivalent to the number of years in the period) and subtracting 1 from
the result. The restated average annual total return for Class C shares of the
Fund for the fiscal year ended January 31, 1997 was 12.46%. The actual average
annual total return for the Fund for the same period was 13.46%. The average
annual total return for the
41
<PAGE>
period from March 31, 1993 (commencement of operations) through January 31, 1997
was 10.86%. The actual return figures are for Class C only; there were no other
Classes of shares outstanding on such date.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, year-by-year or
other types of total return figures. Such calculations may or may not reflect
the imposition of the maximum front-end sales charge for Class A or the
deduction of the CDSC for each of Class B and Class C which, if reflected, would
reduce the performance quoted. For example, the average annual total return of
the Fund may be calculated in the manner described above, but without deduction
for any applicable sales charge. In addition, the Fund may compute its aggregate
total return for specified periods by determining the aggregate percentage rate
which will result in the ending value of a hypothetical $1,000 investment made
at the beginning of the period. For the purpose of this calculation, it is
assumed that all dividends and distributions are reinvested. The formula for
computing aggregate total return involves a percentage obtained by dividing the
ending value (without reduction for any sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing
calculation, the Fund's total returns for 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. These returns are for Class C only; there were no other
Classes of shares outstanding on such date.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,575, $48,250 and $97,250 in the case of Class A (investments of $10,000,
$50,000 and $100,000 adjusted for the initial sales charge), or by $10,000,
$50,000 and $100,000 in the case of each of Class B, Class C and Class D, as the
case may be. Investments of $10,000, $50,000 and $100,000 in the Class C shares
of the Fund at inception would have grown to $14,854, $74,270 and $148,540,
respectively, at January 31, 1997. This information is for Class C only; there
were no other Classes of shares outstanding on such date.
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. The Trustees presently have not authorized any such
additional series or classes of shares other than as set forth in the
Prospectus.
The Declaration of Trust provides that no Trustee, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, nor is any Trustee,
officer, employee or agent liable to any third persons in connection with the
affairs of the Fund, except as such liability may arise from his own bad faith,
willful misfeasance, gross negligence, or reckless disregard of his duties. It
also provides that all third persons shall look solely to the Fund's property
for satisfaction of claims arising in connection with the affairs of the Fund.
With the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liabilities
in connection with the affairs of the Fund.
42
<PAGE>
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 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.
43
<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.
44
<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
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>
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
46
<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
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> <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
48
<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
49
<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
50
<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
51
<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>
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
52
<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
53
<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
54
<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-
55
<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.
56
<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
57
<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.
58
<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
59
