<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1999
REGISTRATION NO. 33-
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
----------------
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
----------------
TCW/DW MID-CAP EQUITY TRUST
(Exact Name of Registrant as Specified in Charter)
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(Address of Principal Executive Offices)
212-392-2550
(Registrant's Telephone Number)
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(Name and Address of Agent for Service)
----------------
COPY TO:
STUART M. STRAUSS, ESQ.
GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
The Exhibit Index is located on page [ ]
Pursuant to Rule 429, this Registration Statement relates to shares
previously registered by the Registrant on Form N-1A (Registration Nos.
33-63685, 811-7377).
- --------------------------------------------------------------------------------
<PAGE>
FORM N-14
TCW/DW MID-CAP EQUITY TRUST
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PART A OF FORM N-14 ITEM NO. PROXY STATEMENT AND PROSPECTUS HEADING
- ------------------------------ -------------------------------------------------------
<S> <C>
1(a) ........................ Cross Reference Sheet
(b) ........................ Front Cover Page
(c) ........................ *
2(a) ........................ *
(b) ........................ Table of Contents
3(a) ........................ Fee Table
(b) ........................ Synopsis
(c) ........................ Principal Risk Factors
4(a) ........................ The Reorganization
(b) ........................ The Reorganization -- Capitalization Table (Unaudited)
5(a) ........................ Registrant's Prospectus
(b) ........................ *
(c) ........................ *
(d) ........................ *
(e) ........................ Available Information
(f) ........................ Available Information
6(a) ........................ Prospectus of Morgan Stanley Dean Witter Mid-Cap
Growth Fund
(b) ........................ Available Information
(c) ........................ *
(d) ........................ *
7(a) ........................ Introduction -- Proxies
(b) ........................ *
(c) ........................ Introduction; The Reorganization -- Appraisal Rights
8(a) ........................ The Reorganization
(b) ........................ *
9 .......................... *
</TABLE>
<TABLE>
<CAPTION>
PART B OF FORM N-14 ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- ------------------------------ ---------------------------------------------------
<S> <C>
10(a) ........................ Cover Page
(b) ........................ *
11 .......................... Table of Contents
12(a) ........................ Additional Information about TCW/DW Mid-Cap Equity
Trust
(b) ........................ *
(c) ........................ *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B OF FORM N-14 ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- ------------------------------ ----------------------------------------------------------
<S> <C>
13(a) ........................ Additional Information about Morgan Stanley Dean Witter
Mid-Cap Growth Fund
(b) ........................ *
(c) ........................ *
14 .......................... Registrant's Annual Report for the fiscal year ended
November 30, 1998; Morgan Stanley Dean Witter
Mid-Cap Growth Fund's Annual Report for the fiscal
year ended May 31, 1998 and the Semi-Annual Report
(unaudited) for the period ended November 30, 1998;
and Pro Forma financial statements for Registrant for the
period ended November 30, 1998.
PART C OF FORM N-14 ITEM NO. OTHER INFORMATION HEADING
- ------------------------------- ----------------------------------------------------------
15 .......................... Indemnification
16 .......................... Exhibits
17 .......................... Undertakings
</TABLE>
- --------------------
* Not Applicable or negative answer
<PAGE>
PRELIMINARY FILING -- FOR USE BY THE SECURITIES AND EXCHANGE COMMISSION ONLY
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(800) 869-NEWS
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 8, 1999
TO THE SHAREHOLDERS OF MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND:
Notice is hereby given of a Special Meeting of the Shareholders of Morgan
Stanley Dean Witter Mid-Cap Growth Fund ("MSDW Mid-Cap") to be held in
Conference Room A, Forty-Fourth Floor, Two World Trade Center, New York, New
York 10048, at 11:00 A.M., New York time, on June 8, 1999, and any adjournments
thereof (the "Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization, dated
February 25, 1999 (the "Reorganization Agreement"), between MSDW Mid-Cap
and TCW/DW Mid-Cap Equity Trust ("TCW/DW Mid-Cap"), pursuant to which
substantially all of the assets of MSDW Mid-Cap would be combined with
those of TCW/DW Mid-Cap and shareholders of MSDW Mid-Cap would become
shareholders of TCW/DW Mid-Cap receiving shares of TCW/DW Mid-Cap with a
value equal to the value of their holdings in MSDW Mid-Cap (the
"Reorganization"). The proposed Reorganization, even if approved by
shareholders of MSDW Mid-Cap, is contingent upon implementation of
proposals pursuant to which (1) Morgan Stanley Dean Witter Advisors Inc.
would become the investment manager for TCW/DW Mid-Cap; (2) TCW Funds
Management, Inc. would become sub-advisor for TCW/DW Mid-Cap; and (3)
TCW/DW Mid-Cap would become a member of the Morgan Stanley Dean Witter
family of funds (collectively, the "TCW/DW Mid-Cap Conversion
Transaction"). Implementation of the TCW/DW Mid-Cap Conversion Transaction
is subject to approval by shareholders of TCW/DW Mid-Cap. Subsequent to
the TCW/DW Mid-Cap Conversion Transaction, TCW/DW Mid-Cap will change its
name to "Morgan Stanley Dean Witter Mid-Cap Equity Trust."
2. To act upon such other matters as may properly come before the Meeting.
The Reorganization is more fully described in the accompanying Proxy
Statement and Prospectus and a copy of the Reorganization Agreement is attached
as Exhibit A thereto. Shareholders of record at the close of business on March
26, 1999 are entitled to notice of, and to vote at, the Meeting. Please read
the Proxy Statement and Prospectus carefully before telling us, through your
proxy or in person, how you wish your shares to be voted. THE BOARD OF TRUSTEES
OF MSDW MID-CAP RECOMMENDS YOU VOTE IN FAVOR OF THE REORGANIZATION. WE URGE YOU
TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Trustees,
BARRY FINK,
Secretary
April , 1999
IMPORTANT
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE UNABLE
TO BE PRESENT IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED PROXY
IN ORDER THAT THE NECESSARY QUORUM BE REPRESENTED AT THE MEETING. THE
ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
CERTAIN SHAREHOLDERS WILL BE ABLE TO VOTE TELEPHONICALLY BY TOUCHTONE
TELEPHONE OR ELECTRONICALLY ON THE INTERNET BY FOLLOWING INSTRUCTIONS
CONTAINED ON THEIR PROXY CARDS OR ON THE ENCLOSED VOTING INSTRUCTION CARD.
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(800) 869-NEWS
ACQUISITION OF THE ASSETS OF
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
BY AND IN EXCHANGE FOR SHARES OF
TCW/DW MID-CAP EQUITY TRUST
This Proxy Statement and Prospectus is being furnished to shareholders of
Morgan Stanley Dean Witter Mid-Cap Growth Fund ("MSDW Mid-Cap") in connection
with an Agreement and Plan of Reorganization, dated February 25, 1999 (the
"Reorganization Agreement"), pursuant to which substantially all of the assets
of MSDW Mid-Cap will be combined with those of TCW/DW Mid-Cap Equity Trust
("TCW/DW Mid-Cap") in exchange for shares of TCW/DW Mid-Cap (the
"Reorganization"). As a result of this transaction, shareholders of MSDW
Mid-Cap will become shareholders of TCW/DW Mid-Cap and will receive shares of
TCW/DW Mid-Cap with a value equal to the value of their holdings in MSDW
Mid-Cap. The Reorganization, even if approved by shareholders of MSDW Mid-Cap,
is contingent upon implementation of proposals pursuant to which (1) Morgan
Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the "Investment Manager")
would become the investment manager for TCW/DW Mid-Cap; (2) TCW Funds
Management, Inc. ("TCW") would become sub-advisor for TCW/DW Mid-Cap; and (3)
TCW/DW Mid-Cap would become a member of the Morgan Stanley Dean Witter family
of funds (collectively, the "TCW/DW Mid-Cap Conversion Transaction").
Implementation of the TCW/DW Mid-Cap Conversion Transaction is subject to
approval by shareholders of TCW/DW Mid-Cap. Subsequent to the TCW/DW Mid-Cap
Conversion Transaction, TCW/DW Mid-Cap will change its name to "Morgan Stanley
Dean Witter Mid-Cap Equity Trust."
The terms and conditions of the proposed Reorganization are more fully
described in this Proxy Statement and Prospectus and in the Reorganization
Agreement between MSDW Mid-Cap and TCW/DW Mid-Cap, attached hereto as Exhibit
A. The address of MSDW Mid-Cap is that of TCW/DW Mid-Cap set forth above. This
Proxy Statement also constitutes a Prospectus of TCW/DW Mid-Cap, which is dated
April , 1999, filed by TCW/DW Mid-Cap with the Securities and Exchange
Commission (the "Commission") as part of its Registration Statement on Form
N-14 (the "Registration Statement").
TCW/DW Mid-Cap is an open-end diversified management investment company
whose investment objective is long-term capital appreciation. The fund seeks to
achieve its investment objective by investing primarily in equity securities
issued by medium-sized companies whose market capitalizations, at the time of
acquisition, are within the capitalization range of the companies comprising
the Standard & Poor's Mid-Cap 400 Index (approximately between $220 million and
$15 billion as of February 24, 1998) and that, in the opinion of TCW, exhibit
superior earnings growth prospects and attractive stock market valuations.
This Proxy Statement and Prospectus sets forth concisely information about
TCW/DW Mid-Cap that shareholders of MSDW Mid-Cap should know before voting on
the Reorganization Agreement. A copy of the Prospectus of TCW/DW Mid-Cap dated
March , 1999, is attached as Exhibit B and incorporated herein by reference.
Also enclosed and incorporated herein by reference is TCW/DW Mid-Cap's Annual
Report for the fiscal year ended November 30, 1998. A Statement of Additional
Information relating to the Reorganization, described in this Proxy Statement
and Prospectus (the "Additional Statement"), dated April , 1999, has been
filed with the Commission and is also incorporated herein by reference. Also
incorporated herein by reference are MSDW Mid-Cap's Prospectus, dated July 29,
1998, and Annual Report for its fiscal year ended May 31, 1998 and the
succeeding unaudited Semi-Annual Report for the six months ended November 30,
1998. Such documents are available without charge by calling (800) 869-NEWS
(TOLL FREE).
Investors are advised to read and retain this Proxy Statement and Prospectus
for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROXY STATEMENT AND PROSPECTUS IS DATED APRIL , 1999.
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION ............................................................................. 1
General ................................................................................ 1
Record Date; Share Information ......................................................... 2
Proxies ................................................................................ 2
Expenses of Solicitation ............................................................... 2
Vote Required .......................................................................... 3
SYNOPSIS ................................................................................. 4
The Reorganization ..................................................................... 4
Fee Table .............................................................................. 4
Tax Consequences of the Reorganization ................................................. 8
Comparison of MSDW Mid-Cap and TCW/DW Mid-Cap .......................................... 8
PRINCIPAL RISK FACTORS ................................................................... 11
THE REORGANIZATION ....................................................................... 12
The Proposal ........................................................................... 12
The Board's Consideration .............................................................. 12
The Reorganization Agreement ........................................................... 14
Tax Aspects of the Reorganization ...................................................... 15
Description of Shares .................................................................. 16
Capitalization Table (unaudited) ....................................................... 17
Appraisal Rights ....................................................................... 17
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS ........................... 17
Investment Objectives and Policies ..................................................... 17
Investment Restrictions ................................................................ 19
ADDITIONAL INFORMATION ABOUT MSDW MID-CAP AND TCW/DW MID-CAP ............................. 20
General ................................................................................ 20
Financial Information .................................................................. 20
Management ............................................................................. 20
Description of Securities and Shareholder Inquiries .................................... 20
Dividends, Distributions and Taxes ..................................................... 20
Purchases, Repurchases and Redemptions ................................................. 21
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE .............................................. 21
FINANCIAL STATEMENTS AND EXPERTS ......................................................... 21
LEGAL MATTERS ............................................................................ 21
AVAILABLE INFORMATION .................................................................... 21
OTHER BUSINESS ........................................................................... 22
Exhibit A - Agreement and Plan of Reorganization, dated February 25, 1999, by and between
MSDW Mid-Cap and TCW/DW Mid-Cap ......................................................... A-1
Exhibit B - Prospectus of TCW/DW Mid-Cap dated March , 1999 ............................. B-1
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(800) 869-NEWS
--------------------
PROXY STATEMENT AND PROSPECTUS
--------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 8, 1999
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the shareholders
of Morgan Stanley Dean Witter Mid-Cap Growth Fund ("MSDW Mid-Cap"), an open-end
diversified management investment company, in connection with the solicitation
by the Board of Trustees of MSDW Mid-Cap (the "Board") of proxies to be used at
the Special Meeting of Shareholders of MSDW Mid-Cap to be held in Conference
Room A, Forty-Fourth Floor, Two World Trade Center, New York, New York 10048 at
11:00 A.M., New York time, on June 8, 1999, and any adjournments thereof (the
"Meeting"). It is expected that the mailing of this Proxy Statement and
Prospectus will be made on or about April , 1999.
At the Meeting, MSDW Mid-Cap shareholders ("Shareholders") will consider
and vote upon an Agreement and Plan of Reorganization, dated February 25, 1999
(the "Reorganization Agreement"), between MSDW Mid-Cap and TCW/DW Mid-Cap
Equity Trust ("TCW/DW Mid-Cap") pursuant to which substantially all of the
assets of MSDW Mid-Cap will be combined with those of TCW/DW Mid-Cap in
exchange for shares of TCW/DW Mid-Cap. As a result of this transaction,
Shareholders will become shareholders of TCW/DW Mid-Cap and will receive shares
of TCW/DW Mid-Cap equal to the value of their holdings in MSDW Mid-Cap on the
date of such transaction (the "Reorganization"). Pursuant to the
Reorganization, each Shareholder will receive the class of shares of TCW/DW
Mid-Cap that corresponds to the class of shares of MSDW Mid-Cap currently held
by that Shareholder. Accordingly, as a result of the Reorganization, each Class
A, Class B, Class C and Class D Shareholder of MSDW Mid-Cap will receive Class
A, Class B, Class C and Class D shares of TCW/DW Mid-Cap, respectively. The
shares to be issued by TCW/DW Mid-Cap pursuant to the Reorganization (the
"TCW/DW Mid-Cap Shares") will be issued at net asset value without an initial
sales charge. Further information relating to TCW/DW Mid-Cap is set forth
herein and in TCW/DW Mid-Cap's current Prospectus, dated March , 1999
("TCW/DW Mid-Cap's Prospectus"), attached to this Proxy Statement and
Prospectus and incorporated herein by reference. The Reorganization, even if
approved by shareholders of MSDW Mid-Cap, is contingent upon implementation of
proposals pursuant to which (1) Morgan Stanley Dean Witter Advisors Inc. ("MSDW
Advisors" or the "Investment Manager") would become the investment manager for
TCW/DW Mid-Cap; (2) TCW Funds Management, Inc. ("TCW") would become sub-advisor
for TCW/DW Mid-Cap; and (3) TCW/DW Mid-Cap would become a member of the Morgan
Stanley Dean Witter family of funds (collectively, the "TCW/DW Mid-Cap
Conversion Transaction"). Implementation of the TCW/DW Mid-Cap Conversion
Transaction is subject to approval by shareholders of TCW/DW Mid-Cap.
Subsequent to the TCW/DW Mid-Cap Conversion Transaction, TCW/DW Mid-Cap will
change its name to "Morgan Stanley Dean Witter Mid-Cap Equity Trust."
1
<PAGE>
The information concerning MSDW Mid-Cap contained herein has been supplied
by MSDW Mid-Cap and the information concerning TCW/DW Mid-Cap contained herein
has been supplied by TCW/DW Mid-Cap.
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on March 26, 1999 as the record
date (the "Record Date") for the determination of the Shareholders entitled to
notice of, and to vote at, the Meeting. As of the Record Date, there were
shares of MSDW Mid-Cap issued and outstanding. Shareholders on
the Record Date are entitled to one vote per share on each matter submitted to
a vote at the Meeting. A majority of the outstanding shares entitled to vote,
represented in person or by proxy, will constitute a quorum at the Meeting.
The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of a Class of MSDW Mid-Cap as of the Record
Date: Class A -- [TO COME] As of the Record Date, the trustees and officers of
MSDW Mid-Cap, as a group, owned less than 1% of the outstanding shares of MSDW
Mid-Cap.
The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of a Class of TCW/DW Mid-Cap as of the Record
Date: [TO COME] As of the Record Date, the trustees and officers of TCW/DW
Mid-Cap, as a group, owned less than 1% of the outstanding shares of TCW/DW
Mid-Cap.
PROXIES
The enclosed form of proxy, if properly executed and returned, will be
voted in accordance with the choice specified thereon. The proxy will be voted
in favor of the Reorganization Agreement unless a choice is indicated to vote
against or to abstain from voting on the Reorganization Agreement. The Board
knows of no business, other than that set forth in the Notice of Special
Meeting of Shareholders, to be presented for consideration at the Meeting.
However, the proxy confers discretionary authority upon the persons named
therein to vote as they determine on other business, not currently
contemplated, which may come before the Meeting. Abstentions and, if
applicable, broker "non-votes" will not count as votes in favor of the
Reorganization Agreement, and broker "non-votes" will not be deemed to be
present at the meeting for purposes of determining whether the Reorganization
Agreement has been approved. Broker "non-votes" are shares held in street name
for which the broker indicates that instructions have not been received from
the beneficial owners or other persons entitled to vote and for which the
broker does not have discretionary voting authority. If a Shareholder executes
and returns a proxy but fails to indicate how the votes should be cast, the
proxy will be voted in favor of the Reorganization Agreement. The proxy may be
revoked at any time prior to the voting thereof by: (i) delivering written
notice of revocation to the Secretary of MSDW Mid-Cap at Two World Trade
Center, New York, New York 10048; (ii) attending the Meeting and voting in
person; or (iii) signing and returning a new proxy (if returned and received in
time to be voted). Attendance at the Meeting will not in and of itself revoke a
proxy.
In the event that the necessary quorum to transact business or the vote
required to approve or reject the Reorganization Agreement is not obtained at
the Meeting, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of the holders of a majority of shares of
MSDW Mid-Cap present in person or by proxy at the Meeting. The persons named as
proxies will vote in favor of such adjournment those proxies which they are
entitled to vote in favor of the Reorganization Agreement and will vote against
any such adjournment those proxies required to be voted against the
Reorganization Agreement.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement and Prospectus, will be borne by MSDW Mid-Cap
which expenses are expected to approximate $ . MSDW
2
<PAGE>
Mid-Cap and TCW/DW Mid-Cap will bear all of their respective other expenses
associated with the Reorganization. In addition to the solicitation of proxies
by mail, proxies may be solicited by officers of MSDW Mid-Cap, and officers and
regular employees of MSDW Advisors and Morgan Stanley Dean Witter Trust FSB
("MSDW Trust"), an affiliate of MSDW Advisors, personally or by mail,
telephone, telegraph or otherwise, without compensation therefor. Brokerage
houses, banks and other fiduciaries may be requested to forward soliciting
material to the beneficial owners of shares and to obtain authorization for the
execution of proxies.
Shareholders whose shares are registered with MSDW Trust will be able to
vote their shares by touchtone telephone or by Internet by following the
instructions on the proxy card or on the Voting Information Card accompanying
this proxy statement. To vote by touchtone telephone, Shareholders can call the
toll-free number 1-800-690-6903. To vote by Internet, Shareholders can access
the websites www.msdwt.com or www.proxyvote.com. Telephonic and Internet voting
with MSDW Trust presently are not available to Shareholders whose shares are
held in street name.
In certain instances, MSDW Trust may call Shareholders to ask if they
would be willing to have their votes recorded by telephone. This telephone
voting procedure is designed to authenticate Shareholders' identities, to allow
Shareholders to authorize the voting of their shares in accordance with their
instructions and to confirm that their instructions have been recorded
properly. No recommendation will be made as to how a Shareholder should vote on
the Reorganization Agreement other than to refer to the recommendation of the
Board. MSDW Mid-Cap has been advised by counsel that these procedures are
consistent with the requirements of applicable law. Shareholders voting by
telephone in this manner will be asked for their social security number or
other identifying information and will be given an opportunity to authorize
proxies to vote their shares in accordance with their instructions. To ensure
that the Shareholders' instructions have been recorded correctly, they will
receive a confirmation of their instructions in the mail. A special toll-free
number will be available in case the information contained in the confirmation
is incorrect. Although a Shareholder's vote may be taken by telephone, each
Shareholder will receive a copy of this Proxy Statement and Prospectus and may
vote by mail using the enclosed proxy card or by touchtone telephone or the
Internet as set forth above. The last proxy vote received in time to be voted,
whether by proxy card, touchtone telephone or Internet will be the vote that is
counted and will revoke all previous votes by the shareholder.
VOTE REQUIRED
Approval of the Reorganization Agreement by the Shareholders requires the
affirmative vote of a majority (i.e., more than 50%) of the shares of MSDW
Mid-Cap represented in person or by proxy and entitled to vote at the Meeting,
provided a quorum is present at the Meeting. If the Reorganization Agreement is
not approved by Shareholders, MSDW Mid-Cap will continue in existence and the
Board will consider alternative actions.
3
<PAGE>
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus. This synopsis
is only a summary and is qualified in its entirety by the more detailed
information contained or incorporated by reference in this Proxy Statement and
Prospectus and the Reorganization Agreement. Shareholders should carefully
review this Proxy Statement and Prospectus and The Reorganization Agreement in
their entirety and, in particular, TCW/DW Mid-Cap's Prospectus, which is
attached to this Proxy Statement and incorporated herein by reference.
THE REORGANIZATION
The Reorganization Agreement provides for the transfer of substantially
all the assets of MSDW Mid-Cap, subject to stated liabilities, to TCW/DW
Mid-Cap in exchange for the TCW/DW Mid-Cap Shares. The aggregate net asset
value of the TCW/DW Mid-Cap Shares issued in the exchange will equal the
aggregate value of the net assets of MSDW Mid-Cap received by TCW/DW Mid-Cap.
On or after the closing date scheduled for the Reorganization (the "Closing
Date"), MSDW Mid-Cap will distribute the TCW/DW Mid-Cap Shares received by MSDW
Mid-Cap to Shareholders as of the Valuation Date (as defined below under "The
Reorganization Agreement") in complete liquidation of MSDW Mid-Cap and MSDW
Mid-Cap will thereafter be dissolved and deregistered under the Investment
Company Act of 1940, as amended (the "1940 Act"). As a result of the
Reorganization, each Shareholder will receive that number of full and
fractional TCW/DW Mid-Cap Shares equal in value to such Shareholder's pro rata
interest in the net assets of MSDW Mid-Cap transferred to TCW/DW Mid-Cap.
Pursuant to the Reorganization, each Shareholder will receive the class of
shares of TCW/DW Mid-Cap that corresponds to the class of shares of MSDW
Mid-Cap currently held by that Shareholder. Accordingly, as a result of the
Reorganization, each Class A, Class B, Class C and Class D Shareholder of MSDW
Mid-Cap will become holders of Class A, Class B, Class C and Class D shares of
TCW/DW Mid-Cap, respectively. Shareholders holding their shares of MSDW Mid-Cap
in certificate form will be asked to surrender their certificates in connection
with the Reorganization. Shareholders who do not surrender their certificates
prior to the Closing Date will still receive their shares of TCW/DW Mid-Cap
(showing its new name Morgan Stanley Dean Witter Mid-Cap Equity Trust);
however, such Shareholders will not be able to redeem, transfer or exchange the
TCW/DW Mid-Cap Shares received until the old certificates have been
surrendered. The Board has determined that the interests of Shareholders will
not be diluted as a result of the Reorganization.
FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION -- THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING THE TRUSTEES WHO ARE NOT "INTERESTED
PERSONS" OF MSDW MID-CAP ("INDEPENDENT TRUSTEES"), AS THAT TERM IS DEFINED IN
THE 1940 ACT, HAS CONCLUDED THAT THE REORGANIZATION IS IN THE BEST INTERESTS OF
MSDW MID-CAP AND ITS SHAREHOLDERS AND RECOMMENDS APPROVAL OF THE REORGANIZATION
AGREEMENT.
FEE TABLE
MSDW Mid-Cap and TCW/DW Mid-Cap each pay expenses for management of their
assets, distribution of their shares and other services, and those expenses are
reflected in the net asset value per share of each fund. The following table
illustrates expenses and fees that each class of shares of MSDW Mid-Cap
incurred during the twelve month period ended November 30, 1998. With respect
to TCW/DW Mid-Cap, the table sets forth expenses and fees based on the fund's
November 30, 1998 fiscal year end. The table also sets forth pro forma fees for
the surviving combined fund (TCW/DW Mid-Cap) reflecting what the fee schedule
would have been on November 30, 1998, if the Reorganization had been
consummated twelve (12) months prior to that date.
4
<PAGE>
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
TCW/DW
MID-CAP MID-CAP PRO FORMA
GROWTH EQUITY COMBINED
------ ------ --------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFERING PRICE)
Class A ............................................... 5.25%(1) 5.25%(1) 5.25%(1)
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
MAXIMUM SALES CHARGE IMPOSED ON REINVESTED DIVIDENDS
Class A ............................................... none none none
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
MAXIMUM CONTINGENT DEFERRED SALES CHARGE (AS A
PERCENTAGE OF THE LESSER OF ORIGINAL PURCHASE PRICE OR
REDEMPTION PROCEEDS)
Class A ............................................... none(2) none(2) none(2)
Class B ............................................... 5.00%(3) 5.00%(3) 5.00%(3)
Class C ............................................... 1.00%(4) 1.00%(4) 1.00%(4)
Class D ............................................... none none none
REDEMPTION FEES
Class A ............................................... none none none
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
EXCHANGE FEE
Class A ............................................... none none none
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
</TABLE>
Annual Fund Operating Expenses As a Percentage of Average Net Assets
<TABLE>
<CAPTION>
TCW/DW
MID-CAP MID-CAP PRO FORMA
GROWTH EQUITY COMBINED
------ ------ --------
<S> <C> <C> <C>
MANAGEMENT AND ADVISORY FEE(5)
Class A ...................... 0.75% 1.00% 0.74%
Class B ...................... 0.75% 1.00% 0.74%
Class C ...................... 0.75% 1.00% 0.74%
Class D ...................... 0.75% 1.00% 0.74%
12B-1 FEES(6)(7)
Class A ...................... 0.25% 0.25% 0.25%
Class B ...................... 1.00% 0.90% 1.00%
Class C ...................... 1.00% 1.00% 1.00%
Class D ...................... none none none
OTHER EXPENSES
Class A ...................... 0.20% 0.30% 0.20%
Class B ...................... 0.20% 0.30% 0.20%
Class C ...................... 0.20% 0.30% 0.20%
Class D ...................... 0.20% 0.30% 0.20%
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
TCW/DW
MID-CAP MID-CAP PRO FORMA
GROWTH EQUITY COMBINED
------ ------ --------
<S> <C> <C> <C>
TOTAL FUND OPERATING EXPENSES
Class A ..................... 1.20% 1.55% 1.19%
Class B ..................... 1.95% 2.20% 1.94%
Class C ..................... 1.95% 2.30% 1.94%
Class D ..................... 0.95% 1.30% 0.94%
</TABLE>
- ----------
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund Shares
-- Initial Sales Charge Alternative -- Class A Shares" in MSDW Mid-Cap's
Prospectus and "Share Class Arrangements" in TCW/DW Mid-Cap's
Prospectus).
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a Contingent Deferred Sales Charge ("CDSC") of
1.00% that will be imposed on redemptions made within one year after
purchase, except for certain specific circumstances (see "Purchases,
Exchanges and Redemptions" below. "Purchase of Fund Shares -- Initial
Sales Charge Alternative -- Class A Shares" in MSDW Mid-Cap's Prospectus
and "Share Class Arrangements" in TCW/DW Mid-Cap's Prospectus).
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchases, Exchanges and Redemptions" below, "Purchase of Fund Shares --
Level Load Alternative -- Class C Shares" in MSDW Mid-Cap's Prospectus
and "Share Class Arrangements" in TCW/DW Mid-Cap's Prospectus).
(5) This rate reflects the anticipated lower advisory fee of TCW/DW Mid-Cap
obtained by the effect of (i) a lower advisory fee payable to MSDW
Advisors Inc. as a result of the TCW/DW Mid-Cap Conversion Transaction
and (ii) having additional assets at a lower breakpoint in the advisory
fee upon the combination of the two funds based upon MSDW Mid-Cap's
average net assets for the fiscal year ended May 31, 1998 and TCW/DW
Mid-Cap's average net assets for the fiscal year ended November 30, 1998.
(6) The 12b-1 fee is accrued daily and payable monthly. With respect to each
fund, the entire 12b-1 fee payable by Class A and a portion of the 12b-1
fee payable by each of Class B and Class C equal to 0.25% of the average
daily net assets of the class are currently characterized as a service
fee within the meaning of National Association of Securities Dealers,
Inc. ("NASD") guidelines and are payments made for personal service
and/or maintenance of shareholder accounts. The remainder of the 12b-1
fee, if any, is an asset-based sales charge, and is a distribution fee
paid to Morgan Stanley Dean Witter Distributors Inc. (the "Distributor")
to compensate it for the services provided and the expenses borne by the
Distributor and others in the distribution of each fund's shares (see
"Description of Shares" below, "Purchase of Fund Shares -- Plan of
Distribution" in MSDW Mid-Cap's Prospectus and "Share Class Arrangements"
in TCW/DW Mid-Cap's Prospectus).
(7) Upon conversion of Class B shares to Class A shares, such shares will be
subject to the lower 12b-1 fee applicable to Class A shares. No sales
charge is imposed at the time of conversion of Class B shares to Class A
shares. Class C shares do not have a conversion feature and, therefore,
are subject to an ongoing 1.00% distribution fee (see "Description of
Shares" below, "Purchase of Fund Shares -- Alternative Purchase
Arrangements" in MSDW Mid-Cap's Prospectus and "Share Class Arrangements"
in TCW/DW Mid-Cap's Prospectus).
6
<PAGE>
HYPOTHETICAL EXPENSES
To attempt to show the effect of these expenses on an investment over
time, the hypotheticals shown below have been created. Assuming that an
investor makes a $10,000 investment in either MSDW Mid-Cap or TCW/DW Mid-Cap or
the new combined fund (TCW/DW Mid-Cap), that the annual return is 5% and that
the operating expenses for each fund are the ones shown in the chart above, if
the investment was redeemed at the end of each period shown below, the investor
would incur the following expenses by the end of each period shown:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Mid-Cap Growth
Class A ......... $641 $886 $1,150 $1,903
Class B ......... $698 $912 $1,252 $2,275
Class C ......... $298 $612 $1,052 $2,275
Class D ......... $ 97 $303 $ 525 $1,166
TCW Mid-Cap Equity
Class A ......... $674 $989 $1,325 $2,274
Class B ......... $723 $988 $1,380 $2,534
Class C ......... $333 $718 $1,230 $2,636
Class D ......... $132 $412 $ 713 $1,568
Pro Forma Combined
Class A ......... $640 $883 $1,145 $1,892
Class B ......... $697 $909 $1,247 $2,264
Class C ......... $297 $609 $1,047 $2,264
Class D ......... $ 96 $300 $ 520 $1,155
</TABLE>
If such investment was not redeemed, the investor would incur the
following expenses:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Mid-Cap Growth
Class A ......... $ 641 $886 $1,150 $ 1,903
Class B ......... $ 198 $612 $1,052 $ 2,275
Class C ......... $ 198 $612 $1,052 $ 2,275
Class D ......... $ 97 $303 $ 525 $ 1,166
TCW Mid-Cap Equity
Class A ......... $ 674 $989 $1,325 $ 2,274
Class B ......... $ 223 $688 $1,180 $ 2,534
Class C ......... $ 233 $718 $1,230 $ 2,636
Class D ......... $ 132 $412 $ 713 $ 1,568
Pro Forma Combined
Class A ......... $,640 $883 $1,145 $ 1,892
Class B ......... $ 197 $609 $1,047 $ 2,264
Class C ......... $ 197 $609 $1,047 $ 2,264
Class D ......... $ 96 $300 $ 520 $ 1,155
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL OPERATING EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. LONG-TERM SHAREHOLDERS OF CLASS B AND CLASS C SHARES OF
MID-CAP GROWTH AND TCW MID-CAP EQUITY MAY PAY MORE IN SALES CHARGES, INCLUDING
DISTRIBUTION FEES, THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END SALES
CHARGES PERMITTED BY THE NASD.
The purpose of the foregoing fee table is to assist the investor or
shareholder in understanding the various costs and expenses that an investor or
shareholder in the Fund will bear directly or indirectly. For a more complete
description of these costs and expenses, see "Comparison of MSDW Mid-Cap and
TCW/DW Mid-Cap -- Investment Management and Distribution Plan Fees, Other
Significant Fees, and Purchases, Exchanges and Redemptions" below.
7
<PAGE>
TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the Reorganization, MSDW Mid-Cap will receive an opinion
of Gordon Altman Butowsky Weitzen Shalov & Wein to the effect that the
Reorganization will constitute a tax-free reorganization for Federal income tax
purposes, and that no gain or loss will be recognized by MSDW Mid-Cap or the
shareholders of MSDW Mid-Cap for Federal income tax purposes as a result of the
transactions included in the Reorganization. For further information about the
tax consequences of the Reorganization, see "The Reorganization -- Tax Aspects
of the Reorganization" below.
COMPARISON OF MSDW MID-CAP AND TCW/DW MID-CAP
INVESTMENT OBJECTIVES AND POLICIES. MSDW Mid-Cap and TCW/DW Mid-Cap are
funds which have similar investment objectives and policies. The investment
objective of MSDW Mid-Cap is long-term capital growth The investment objective
of TCW/DW Mid-Cap is long-term capital appreciation.
MSDW Mid-Cap seeks to achieve its investment objective by investing, under
normal circumstances, at least 65% of its total assets in a diversified
portfolio of domestic and foreign equity securities of "mid-cap" companies
which are companies whose market capitalization falls within the range of $250
million to $5 billion. In selecting stocks for MSDW Mid-Cap within this mid-cap
universe, MSDW Advisors uses an industry approach that seeks to diversify the
assets of MSDW Mid-Cap in approximately 18 to 35 industries. TCW/DW Mid-Cap
seeks to achieve its investment objective by investing under normal
circumstances at least 65% of its total assets in equity securities issued by
medium-sized companies whose market capitalizations, at the time of
acquisition, are within the capitalization range of the companies comprising
the Standard & Poor's Mid-Cap 400 Index (the "S&P 400 Index") (approximately
between $220 million and $15 billion as of February 24, 1998) and that, in the
opinion of TCW, exhibit superior earnings growth prospects and attractive stock
market valuations. In investing TCW/DW Mid-Cap's assets, TCW uses its
proprietary research in pursuing a "bottom-up" investment philosophy, which
emphasizes individual company selection.
MSDW Mid-Cap may invest up to 35% of its total assets in (i) U.S.
Government securities, investment grade corporate debt securities and money
market instruments, or (ii) equity securities of companies with market
capitalizations which fall outside of the range of $250 million to $5 billion
at the time of purchase, as long as such investments are consistent with MSDW
Mid-Cap's investment objective. MSDW Mid-Cap may also invest up to 35% of its
total assets in the equity securities of non-U.S. companies, including American
Depository Receipts, rights, warrants, and the direct purchase of foreign
securities. Additionally, MSDW Mid-Cap may acquire, through purchase or
distribution by the issuer of a security held in its portfolio, fixed income
securities that are convertible into common stock of the issuer, including
lower rated convertible securities. Up to 35% of TCW/DW Mid-Cap's total assets
may be invested in equity securities whose market capitalization at the time of
acquisition is not within the capitalization range of companies comprising the
S&P 400 Index, as well as in investment grade fixed-income securities
consisting of securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, corporate debt securities and money market
instruments. TCW/DW Mid-Cap may also invest up to 5% of its assets in certain
high yield, high risk convertible or other fixed-income securities (commonly
known as "junk bonds"). Additionally, TCW/DW Mid-Cap may invest up to 25% of
its total assets in equity securities of foreign issuers in the form of direct
investments or depository receipts or similar investments. The processes by
which each fund selects common stocks and other investments differ and are more
fully described under "Comparison of Investment Objectives, Policies and
Restrictions" below.
The principal differences between the funds' investment policies, as well
as certain similarities, are more fully described under "Comparison of
Investment Objectives, Policies and Restrictions" below.
8
<PAGE>
The investment policies of both MSDW Mid-Cap and TCW/DW Mid-Cap are not
fundamental and may be changed by their respective Boards of Trustees.
INVESTMENT MANAGEMENT AND DISTRIBUTION PLAN FEES. MSDW Mid-Cap obtains
investment management services from MSDW Advisors for which it pays MSDW
Advisors monthly compensation calculated daily by applying the following annual
rates to MSDW Mid-Cap's net assets: 0.75% of the portion of daily net assets
not exceeding $500 million; and 0.725% of the portion of daily net assets
exceeding $500 million. TCW/DW Mid-Cap currently obtains investment management
services from Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services"), a wholly-owned subsidiary of MSDW Advisors, and investment advisory
services from TCW. As compensation for such services, TCW/DW Mid-Cap pays
(i) MSDW Services a fee at an annual rate of 0.60% of the fund's average daily
net assets and (ii) TCW a fee at an annual rate of 0.40% of the fund's average
daily net assets. Both fees are paid monthly and calculated daily. Following
the TCW/DW Mid-Cap Conversion Transaction upon which the Reorganization is
contingent, TCW/DW Mid-Cap will obtain investment management services from MSDW
Advisors and sub-advisory services from TCW, and will pay only an investment
management fee to MSDW Advisors calculated daily by applying the same annual
rate(s) as those listed above for MSDW Mid-Cap's investment management fee.
MSDW Advisors would, in turn, pay TCW a sub-advisory fee equal to 0.40% of the
investment management fee paid by TCW/DW Mid-Cap. Thus, the rate at which
investment management fees will be payable by TCW/DW Mid-Cap after the
Reorganization will be equal to the investment management fees currently paid
by MSDW Mid-Cap.
Both MSDW Mid-Cap and TCW/DW Mid-Cap have adopted identical distribution
plans ("Plans") pursuant to Rule 12b-1 under the 1940 Act. In the case of Class
A and Class C shares, each fund's Plan provides that the fund will reimburse
the Distributor and others for the expenses of certain activities and services
incurred by them in connection with the distribution of the Class A and Class C
shares of each fund. Reimbursement for these expenses is made in monthly
payments by each fund to the Distributor which will in no event exceed amounts
equal to payments at the annual rates of 0.25% and 1.0% of the average daily
net assets of Class A and Class C shares, respectively. In the case of Class B
shares, each fund's Plan provides that the fund will pay the Distributor a fee,
which is accrued daily and paid monthly, at the annual rate of 1.0% of the
lesser of: (a) the average daily aggregate gross sales of each fund's Class B
shares since the inception of each fund (not including reinvestments of
dividends or capital gains distributions), less the average daily aggregate net
asset value of each fund's Class B shares redeemed since each fund's inception
upon which a contingent deferred sales charge ("CDSC") has been imposed or
waived, or (b) the average daily net assets of Class B. The fee is paid for the
services provided and the expenses borne by the Distributor and others in
connection with the distribution of each fund's Class B shares. There are no
12b-1 fees applicable to both funds' Class D shares. For further information
relating to the 12b-1 fees applicable to each class of TCW/DW Mid-Cap's shares,
see the section entitled "Share Class Arrangements" in TCW/DW Mid-Cap's
Prospectus, attached hereto. The Distributor also receives the proceeds of any
CDSC paid by the fund's shareholders at the time of redemption. The CDSC
schedules applicable to each of MSDW Mid-Cap and TCW/DW Mid-Cap are set forth
below under "Purchases, Exchanges and Redemptions."
OTHER SIGNIFICANT FEES. Both MSDW Mid-Cap and TCW/DW Mid-Cap pay
additional fees in connection with their operations, including legal, auditing,
transfer agent, trustees fees and custodial fees. See "Synopsis -- Fee Table"
above for the percentage of average net assets represented by such "Other
Expenses."
PURCHASES, EXCHANGES AND REDEMPTIONS. Class A shares of each fund are sold
at net asset value plus an initial sales charge of up to 5.25%. The initial
sales charge is reduced for certain purchases. Investments of $1 million or
more (and investment by certain other limited categories of investors) are not
subject to any sales charges at the time of purchase, but are subject to a CDSC
of 1.0% on redemptions made within one year after purchase (except for certain
specific circumstances fully described in each fund's Prospectus).
9
<PAGE>
Class B shares of each fund are offered at net asset value with no initial
sales charge, but are subject to the same CDSC schedule set forth below (Class
B shares of each fund purchased by certain qualified employer sponsored benefit
plans are subject to a reduced CDSC schedule):
<TABLE>
<CAPTION>
CLASS B SHARES OF MSDW MID-CAP AND
YEAR SINCE PURCHASE PAYMENT MADE TCW/DW MID-CAP
- -------------------------------- --------------
<S> <C>
First ............................ 5.0%
Second ........................... 4.0%
Third ............................ 3.0%
Fourth ........................... 2.0%
Fifth ............................ 2.0%
Sixth ............................ 1.0%
Seventh and thereafter ........... none
</TABLE>
Class C shares of each fund are sold at net asset value with no initial
sales charge, but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. The CSDC may be waived for certain redemptions (which are
fully described in each fund's Prospectus).
Class D shares of each fund are available only to limited categories of
investors and are sold at net asset value with no initial sales charge or CDSC.
The CDSC charge is paid to the Distributor. Shares of MSDW Mid-Cap and
TCW/DW Mid-Cap are distributed by the Distributor and offered by Dean Witter
Reynolds Inc. and other dealers who have entered into selected dealer
agreements with the Distributor. For further information relating to the CDSC
schedules applicable to each of the classes of shares of MSDW Mid-Cap and
TCW/DW Mid-Cap, see the section entitled "Purchase of Fund Shares" in MSDW
Mid-Cap's Prospectus and the section entitled "Share Class Arrangements" in
TCW/DW Mid-Cap's Prospectus.
Shares of each class of MSDW Mid-Cap may be exchanged for shares of the
same class of any other Morgan Stanley Dean Witter Fund that offers its shares
in more than one class, without the imposition of an exchange fee.
Additionally, shares of each class of MSDW Mid-Cap may be exchanged for shares
of Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust, Morgan Stanley
Dean Witter Limited Term Municipal Trust, Morgan Stanley Dean Witter Short-Term
Bond Fund and the five Morgan Stanley Dean Witter Funds that are money market
funds (the foregoing eight funds are collectively referred to as the "MSDW
Mid-Cap Exchange Funds"), without the imposition of an exchange fee. Class A
shares of MSDW Mid-Cap may also be exchanged for shares of Morgan Stanley Dean
Witter Multi-State Municipal Series Trust and Morgan Stanley Dean Witter Hawaii
Municipal Trust. Upon consummation of the Reorganization, the foregoing
exchange privileges will still be applicable to shareholders of the combined
fund (TCW/DW Mid-Cap).
Shares of each class of TCW/DW Mid-Cap may currently be exchanged for
shares of the same class of any other TCW/DW Fund advised by TCW and managed by
MSDW Services that offers its shares in more than one class, without the
imposition of an exchange fee. TCW/DW Mid-Cap shares may also be exchanged for
shares of TCW/DW North American Government Income Trust or for any of the five
Morgan Stanley Dean Witter Funds that are money market funds (the foregoing six
funds are collectively referred to as the "TCW/DW Mid-Cap Exchange Funds"),
without the imposition of an exchange fee.
With respect to both funds, no CDSC is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate
redemption. During the period of time a TCW/DW Mid-Cap and MSDW Mid-Cap
shareholder remains in a TCW/DW Mid-Cap Exchange Fund or a MSDW Mid-Cap
Exchange Fund,
10
<PAGE>
respectively, the holding period (for purposes of determining the CDSC rate) is
frozen. Following the TCW/DW Mid-Cap Conversion Transaction which must precede
the Reorganization, shareholders of TCW/DW Mid-Cap will be able to exchange
their shares for shares of Morgan Stanley Dean Witter Funds. THEREFORE, THERE
WILL BE NO CHANGE IN THE EXCHANGE PRIVILEGES FOR SHAREHOLDERS OF MSDW MID-CAP
AS A RESULT OF THE REORGANIZATION. Both MSDW Mid-Cap and TCW/DW Mid-Cap provide
telephone exchange privileges to their shareholders. For greater details
relating to exchange privileges applicable to TCW/DW Mid-Cap following the
Reorganization, see the section entitled "Shareholder Services" in MSDW
Mid-Cap's Prospectus.
Shareholders of MSDW Mid-Cap and TCW/DW Mid-Cap may redeem their shares
for cash at any time at the net asset value per share next determined; however,
such redemption proceeds may be reduced by the amount of any applicable CDSC.
Both MSDW Mid-Cap and TCW/DW Mid-Cap offer a reinstatement privilege whereby a
shareholder who has not previously exercised such privilege whose shares have
been redeemed or repurchased may, within thirty-five days after the date of
redemption or repurchase, reinstate any portion or all of the proceeds thereof
in shares of the same class from which such shares were redeemed or repurchased
and receive a pro rata credit for any CDSC paid in connection with such
redemption or repurchase. MSDW Mid-Cap and TCW/DW Mid-Cap may redeem
involuntarily, at net asset value, most accounts valued at less than $100 or,
in the case of an account opened through EasyInvestSM, if after twelve months
the shareholder has invested less than $1,000 in the account. For more
information about EasyInvestSM, see "Shareholder Services" in MSDW Mid-Cap's
Prospectus and "Shareholder Information -- How To Buy Shares" in TCW/DW
Mid-Cap's Prospectus.
DIVIDENDS. Each fund declares dividends separately for each of its
classes. Both MSDW Mid-Cap and TCW/DW Mid-Cap distribute substantially all of
their net investment income and net realized short-term and long-term capital
gains, if any, at least once each year. Each fund, however, may determine
either to distribute or to retain all or part of any net long-term capital
gains in any year for reinvestment. With respect to each fund, dividends and
capital gains distributions are automatically reinvested in additional shares
of the same class of shares of the fund at net asset value unless the
shareholder elects to receive cash.
PRINCIPAL RISK FACTORS
The net asset value of TCW/DW Mid-Cap and MSDW Mid-Cap will fluctuate with
changes in the market value of their respective portfolio securities. The
market value of the funds' portfolio securities will increase or decrease due
to a variety of economic, market and political factors, including movements in
interest rates, which cannot be predicted. Both funds invest in medium-sized
companies which may involve greater risk of volatility of a fund's net asset
value than is customarily associated with investing in larger, established
companies. Often medium-sized companies and the industries in which they are
focused are still evolving and while this may offer better growth potential
than larger, established companies, it also may make them more sensitive to
changing market conditions.
Both funds may invest a portion (up to 25% for TCW/DW Mid-Cap and up to
35% for MSDW Mid-Cap) of their total assets in foreign securities and, as such,
are subject to additional risks such as adverse political and economic
developments abroad, including the possibility of expropriations or
confiscatory taxation, limitations on the use or transfer of fund assets and
any effects of foreign social, economic or political instability. Foreign
companies are not subject to the regulatory requirements of U.S. companies and,
as such, there may be less publicly available information about such companies.
Moreover, foreign companies are not subject to uniform accounting, auditing and
financial reporting standards and requirements comparable to those applicable
to U.S. companies. Additionally, securities of foreign issuers may be less
liquid than comparable securities of U.S. issuers and, as such, their price
changes may be more volatile. Furthermore, foreign exchanges and broker-dealers
are generally subject to less government and exchange scrutiny and regulation
than their
11
<PAGE>
American counterparts and brokerage commissions, dealer concessions and other
transaction costs may be higher on foreign markets than in the U.S.
Fluctuations in the relative rates of exchange between the currencies of
different countries will affect the value of a fund's investments. Changes in
foreign currency exchange rates relative to the U.S. dollar will affect the
U.S. dollar value of a fund's assets denominated in that currency and thereby
impact upon the fund's total return on such assets.
Although TCW/DW Mid-Cap does not currently hold such securities, it may
invest up to 5% of its assets in certain high yield, high risk convertible and
other fixed income securities (commonly known as "junk bonds"), which
securities are subject to certain special risks. Although MSDW Mid-Cap does not
currently hold such securities, it also may invest in lower rated convertible
securities.
MSDW Mid-Cap and TCW/DW Mid-Cap may enter into foreign currency exchange
contracts when purchasing foreign securities in order to facilitate settlement
and to limit the effect of changes in the relationship between the U.S. dollar
and the foreign currency during the period between trade date and settlement
date. [Although it does not currently do so,] MSDW Mid-Cap may enter into
options and futures transactions and both funds may enter into repurchase
agreements, may purchase securities on a when issued and delayed delivery
basis, or on a when, as and if issued basis, may lend their portfolio
securities, may purchase zero coupon securities and may invest in real estate
investment trusts, all of which involve certain special risks. Both MSDW
Mid-Cap and TCW/DW Mid-Cap may invest in or acquire convertible securities
which are fixed-income securities convertible into common stock. To the extent
that a convertible security's investment value is greater than its conversion
value, its price will be primarily a reflection of such investment value and
its price will be likely to increase when interest rates fall and decrease when
interest rates rise, as with a fixed-income security (the credit standing of
the issuer and other factors may also have an effect on the convertible
security's value). If the conversion value exceeds the investment value, the
price of the convertible security will rise above its investment value and, in
addition, the convertible security will sell at some premium over its
conversion value. (This premium represents the price investors are willing to
pay for the privilege of purchasing a fixed-income security with a possibility
of capital appreciation due to the conversion privilege.) At such times the
price of the convertible security will tend to fluctuate directly with the
price of the underlying equity security.
The foregoing discussion is a summary of the principal risk factors. For a
more complete discussion of the risks of each fund, see "Investment Objective
and Policies -- Portfolio Characteristics" in the Prospectus of MSDW Mid-Cap
and "Principal Risks" and "Additional Risk Information" in TCW/DW Mid-Cap's
Prospectus attached hereto and incorporated herein by reference.
THE REORGANIZATION
THE PROPOSAL
The Board of Trustees of MSDW Mid-Cap, including the Independent Trustees,
having reviewed the financial position of MSDW Mid-Cap and the prospects for
achieving economies of scale through the Reorganization and having determined
that the Reorganization is in the best interests of MSDW Mid-Cap and its
Shareholders and that the interests of Shareholders will not be diluted as a
result thereof, recommends approval of the Reorganization by Shareholders of
MSDW Mid-Cap.
THE BOARD'S CONSIDERATION
At a meeting held on February 25, 1999, the Board, including all of the
Independent Trustees, unanimously approved the Reorganization Agreement and
determined to recommend that Shareholders approve the
12
<PAGE>
Reorganization Agreement. In reaching this decision, the Board made an
extensive inquiry into a number of factors, particularly the investment
performance of TCW/DW Mid-Cap and the capabilities of TCW to provide
sub-advisory services as well as comparative expenses currently incurred in the
operations of MSDW Mid-Cap, TCW/DW Mid-Cap and the anticipated expenses of
TCW/DW Mid-Cap following the TCW/DW Mid-Cap Conversion Transaction (upon which
the Reorganization is contingent) and the Reorganization. The Board also
considered other factors, including, but not limited to: the general
compatibility of the investment objectives, policies, restrictions and
portfolios of MSDW Mid-Cap and TCW/DW Mid-Cap; the terms and conditions of the
Reorganization which would affect the price of shares to be issued in the
Reorganization; the tax-free nature of the Reorganization; and any direct or
indirect costs in connection with the Reorganization.
In recommending the Reorganization to Shareholders, the Board of MSDW
Mid-Cap considered that the Reorganization would have the following benefits to
Shareholders:
1. Once the Reorganization is consummated, the expenses which would be
borne by shareholders of each class of the "combined fund" should be lower on a
percentage basis than the expenses per share of each corresponding class of
MSDW Mid-Cap. Furthermore, to the extent that the Reorganization would result
in Shareholders becoming shareholders of a combined larger fund, further
economies of scale could be achieved since various fixed expenses (e.g.,
auditing and legal) can be spread over a larger number of shares.
2. Shareholders would have a continued participation in a diversified
portfolio of primarily mid-cap stocks through investment in TCW/DW Mid-Cap.
3. The Reorganization will constitute a tax-free reorganization for
Federal income tax purposes, and no gain or loss will be recognized by MSDW
Mid-Cap or its Shareholders for Federal income tax purposes as a result of
transactions included in the Reorganization.
4. The Board also took into consideration that absent the Reorganization,
TCW/DW Mid-Cap will continue to compete for investor funds directly with MSDW
Mid-Cap. The Reorganization should allow for more concentrated selling efforts
to the benefit of both MSDW Mid-Cap and TCW/DW Mid-Cap shareholders and avoid
the inefficiencies associated with the operation and distribution of two
similar funds through the same sales organization.
The Board of Trustees of TCW/DW Mid-Cap, including a majority of the
Independent Trustees of TCW/DW Mid-Cap, also have determined that the
Reorganization is in the best interests of TCW/DW Mid-Cap and its shareholders
and that the interests of existing shareholders of TCW/DW Mid-Cap will not be
diluted as a result thereof. The transaction will enable TCW/DW Mid-Cap to
acquire investment securities which are consistent with TCW/DW Mid-Cap's
investment objective, without the brokerage costs attendant to the purchase of
such securities in the market. Also, the addition of assets to TCW/DW Mid-Cap's
portfolio is expected to result in a further reduction in the investment
management fee resulting from the addition of more assets at a lower breakpoint
rate in the management fee schedule. Furthermore, like the shareholders of MSDW
Mid-Cap, the shareholders of TCW/DW Mid-Cap may also realize an intangible
benefit in having the Morgan Stanley Dean Witter sales organization concentrate
its selling efforts on one rather than two similar funds, which may result in
further economies of scale. Finally, the Board considered that even if the
benefits enumerated above are not realized, the costs to the fund are
sufficiently minor to warrant taking the opportunity to realize those benefits.
THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization would be
consummated, as summarized below, are set forth in the Reorganization
Agreement. This summary is qualified in its entirety by reference to the
Reorganization Agreement, a copy of which is attached as Exhibit A to this
Proxy Statement and Prospectus.
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<PAGE>
The Reorganization Agreement provides that (i) MSDW Mid-Cap will transfer
all of its assets, including portfolio securities, cash (other than cash
amounts retained by MSDW Mid-Cap as a "Cash Reserve" in the amount sufficient
to discharge its liabilities not discharged prior to the Valuation Date (as
defined below) and for expenses of the dissolution), cash equivalents and
receivables to TCW/DW Mid-Cap on the Closing Date in exchange for the
assumption by TCW/DW Mid-Cap of stated liabilities of MSDW Mid-Cap, including
all expenses, costs, charges and reserves, as reflected on an unaudited
statement of assets and liabilities of MSDW Mid-Cap prepared by the Treasurer
of MSDW Mid-Cap as of the Valuation Date (as defined below) in accordance with
generally accepted accounting principles consistently applied from the prior
audited period, and the delivery of the TCW/DW Mid-Cap Shares; (ii) such TCW/DW
Mid-Cap Shares would be distributed to Shareholders of MSDW Mid-Cap on the
Closing Date or as soon as practicable thereafter; (iii) MSDW Mid-Cap would be
dissolved; and (iv) the outstanding shares of MSDW Mid-Cap would be canceled.
The number of TCW/DW Mid-Cap Shares to be delivered to MSDW Mid-Cap will
be determined by dividing the aggregate net asset value of each class of shares
of MSDW Mid-Cap acquired by TCW/DW Mid-Cap by the net asset value per share of
the corresponding class of shares of TCW/DW Mid-Cap; these values will be
calculated as of the close of business of the New York Stock Exchange on the
third business day following the receipt of the requisite approval by
Shareholders of the Reorganization Agreement or at such other time as MSDW
Mid-Cap and TCW/DW Mid-Cap may agree (the "Valuation Date"). As an
illustration, assume that on the Valuation Date, Class B shares of MSDW Mid-Cap
had an aggregate net asset value (not including any Cash Reserve of MSDW
Mid-Cap) of $100,000. If the net asset value per Class B share of TCW/DW
Mid-Cap were $10 per share at the close of business on the Valuation Date, the
number of Class B shares of TCW/DW Mid-Cap to be issued would be 10,000
($100,000 (divided by) $10). These 10,000 Class B shares of TCW/DW Mid-Cap
would be distributed to the former Class B shareholders of MSDW Mid-Cap. This
example is given for illustration purposes only and does not bear any
relationship to the dollar amounts or shares expected to be involved in the
Reorganization.
On the Closing Date or as soon as practicable thereafter, MSDW Mid-Cap
will distribute pro rata to its Shareholders of record as of the close of
business on the Valuation Date, the TCW/DW Mid-Cap Shares it receives. Each
Shareholder of MSDW Mid-Cap will receive the class of shares of TCW/DW Mid-Cap
that corresponds to the class of shares of MSDW Mid-Cap currently held by that
Shareholder. Accordingly, the TCW/DW Mid-Cap Shares will be distributed as
follows: each of the Class A, Class B, Class C and Class D shares of TCW/DW
Mid-Cap will be distributed to holders of Class A, Class B, Class C and Class D
shares of MSDW Mid-Cap, respectively. TCW/DW Mid-Cap will cause its transfer
agent to credit and confirm an appropriate number of TCW/DW Mid-Cap Shares to
each Shareholder. Certificates for TCW/DW Mid-Cap Shares will be issued only
upon written request of a Shareholder and only for whole shares, with
fractional shares credited to the name of the Shareholder on the books of
TCW/DW Mid-Cap. Shareholders who wish to receive certificates representing
their TCW/DW Mid-Cap Shares must, after receipt of their confirmations, make a
written request to TCW/DW Mid-Cap's transfer agent, Morgan Stanley Dean Witter
Trust FSB, Harborside Financial Center, Plaza Two, Jersey City, New Jersey
07311. Shareholders of MSDW Mid-Cap holding their shares in certificate form
will be asked to surrender such certificates in connection with the
Reorganization. Shareholders who do not surrender their certificates prior to
the Closing Date will still receive their shares of TCW/DW Mid-Cap; however,
such Shareholders will not be able to redeem, transfer or exchange the TCW/DW
Mid-Cap Shares (showing its new name Morgan Stanley Dean Witter Mid-Cap Equity
Trust) received until the old certificates have been surrendered.
The Closing Date will be the next business day following the Valuation
Date. The consummation of the Reorganization is contingent upon the approval of
the Reorganization by the Shareholders of MSDW Mid-Cap and the receipt of the
other opinions and certificates set forth in Sections 6, 7 and 8 of the
Reorganization
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<PAGE>
Agreement and the occurrence of the events described in those Sections, certain
of which may be waived by MSDW Mid-Cap or TCW/DW Mid-Cap. The Reorganization
Agreement may be amended in any mutually agreeable manner. All expenses of this
solicitation, including the cost of preparing and mailing this Proxy Statement
and Prospectus, will be borne by MSDW Mid-Cap, which expenses are expected to
approximate $ . MSDW Mid-Cap and TCW/DW Mid-Cap will bear all of their
respective other expenses associated with the Reorganization.
The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by Shareholders by mutual
consent of MSDW Mid-Cap and TCW/DW Mid-Cap. In addition, either party may
terminate the Reorganization Agreement upon the occurrence of a material breach
of the Reorganization Agreement by the other party or if, by , 1999, any
condition set forth in the Reorganization Agreement has not been fulfilled or
waived by the party entitled to its benefits.
Under the Reorganization Agreement, within one year after the Closing
Date, MSDW Mid-Cap shall: either pay or make provision for all of its
liabilities and distribute any remaining amount of the Cash Reserve (after
paying or making provision for such liabilities and the estimated cost of
making the distribution) to former shareholders of MSDW Mid-Cap that received
TCW/DW Mid-Cap Shares. MSDW Mid-Cap shall be dissolved and deregistered as an
investment company promptly following the distribution of shares of TCW/DW
Mid-Cap to Shareholders of record of MSDW Mid-Cap.
The effect of the Reorganization is that Shareholders who vote their
shares in favor of the Reorganization Agreement are electing to sell their
shares of MSDW Mid-Cap (at net asset value on the Valuation Date calculated
after subtracting any Cash Reserve) and reinvest the proceeds in TCW/DW Mid-Cap
Shares at net asset value and without recognition of taxable gain or loss for
Federal income tax purposes. See "Tax Aspects of the Reorganization" below. As
noted in "Tax Aspects of the Reorganization" below, if MSDW Mid-Cap recognizes
net gain from the sale of securities prior to the Closing Date, such gain, to
the extent not offset by capital loss carryforwards, will be distributed to
Shareholders prior to the Closing Date and will be taxable to Shareholders as
capital gain.
Shareholders will continue to be able to redeem their shares of MSDW
Mid-Cap at net asset value next determined after receipt of the redemption
request (subject to any applicable CDSC) until the close of business on the
business day next preceding the Closing Date. Redemption requests received by
MSDW Mid-Cap thereafter will be treated as requests for redemption of shares of
TCW/DW Mid-Cap.
TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation
Date, MSDW Mid-Cap will declare and pay a dividend or dividends which, together
with all previous such dividends, will have the effect of distributing to
Shareholders all of MSDW Mid-Cap's investment company taxable income for all
periods since the inception of MSDW Mid-Cap through and including the Valuation
Date (computed without regard to any dividends paid deduction), and all of MSDW
Mid-Cap's net capital gain, if any, realized in such periods (after reduction
for any capital loss carryforward).
The Reorganization is intended to qualify for Federal income tax purposes
as a tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended (the "Code"). MSDW Mid-Cap and TCW/DW Mid-Cap have
represented that, to their best knowledge, there is no plan or intention by
Shareholders to redeem, sell, exchange or otherwise dispose of a number of
TCW/DW Mid-Cap Shares received in the transaction that would reduce
Shareholders' ownership of TCW/DW Mid-Cap Shares to a number of shares having a
value, as of the Closing Date, of less than 50% of the value of all of the
formerly outstanding MSDW Mid-Cap shares as of the same date. MSDW Mid-Cap and
TCW/DW Mid-Cap have each further represented that, as of the Closing Date, MSDW
Mid-Cap and TCW/DW Mid-Cap will qualify as regulated investment companies.
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<PAGE>
As a condition to the Reorganization, MSDW Mid-Cap and TCW/DW Mid-Cap will
receive an opinion of Gordon Altman Butowsky Weitzen Shalov & Wein that, based
on certain assumptions, facts, the terms of the Reorganization Agreement and
additional representations set forth in the Reorganization Agreement or
provided by MSDW Mid-Cap and TCW/DW Mid-Cap:
1. The transfer of substantially all of MSDW Mid-Cap's assets in exchange
for the TCW/DW Mid-Cap Shares and the assumption by TCW/DW Mid-Cap of certain
stated liabilities of MSDW Mid-Cap followed by the distribution by MSDW Mid-Cap
of the TCW/DW Mid-Cap Shares to Shareholders in exchange for their MSDW Mid-Cap
shares will constitute a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code, and MSDW Mid-Cap and TCW/DW Mid-Cap will each be a
"party to a reorganization" within the meaning of Section 368(b) of the Code;
2. No gain or loss will be recognized by TCW/DW Mid-Cap upon the receipt
of the assets of MSDW Mid-Cap solely in exchange for the TCW/DW Mid-Cap Shares
and the assumption by TCW/DW Mid-Cap of the stated liabilities of MSDW Mid-Cap;
3. No gain or loss will be recognized by MSDW Mid-Cap upon the transfer of
the assets of MSDW Mid-Cap to TCW/DW Mid-Cap in exchange for the TCW/DW Mid-Cap
Shares and the assumption by TCW/DW Mid-Cap of the stated liabilities or upon
the distribution of TCW/DW Mid-Cap Shares to Shareholders in exchange for their
MSDW Mid-Cap shares;
4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of MSDW Mid-Cap for the TCW/DW Mid-Cap Shares;
5. The aggregate tax basis for the TCW/DW Mid-Cap Shares received by each
of the Shareholders pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares in MSDW Mid-Cap held by each such Shareholder
immediately prior to the Reorganization;
6. The holding period of the TCW/DW Mid-Cap Shares to be received by each
Shareholder will include the period during which the shares in MSDW Mid-Cap
surrendered in exchange therefor were held (provided such shares in MSDW
Mid-Cap were held as capital assets on the date of the Reorganization);
7. The tax basis of the assets of MSDW Mid-Cap acquired by TCW/DW Mid-Cap
will be the same as the tax basis of such assets to MSDW Mid-Cap immediately
prior to the Reorganization; and
8. The holding period of the assets of MSDW Mid-Cap in the hands of TCW/DW
Mid-Cap will include the period during which those assets were held by MSDW
Mid-Cap.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE EFFECT, IF
ANY, OF THE PROPOSED TRANSACTION IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
BECAUSE THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED TRANSACTION, SHAREHOLDERS SHOULD ALSO CONSULT
THEIR TAX ADVISORS AS TO STATE AND LOCAL TAX CONSEQUENCES, IF ANY, OF THE
PROPOSED TRANSACTION.
DESCRIPTION OF SHARES
TCW/DW Mid-Cap shares to be issued pursuant to the Reorganization
Agreement will, when issued, be fully paid and non-assessable by TCW/DW Mid-Cap
and transferable without restrictions and will have no preemptive rights. Class
B shares of TCW/DW Mid-Cap, like Class B shares of MSDW Mid-Cap, have a
conversion feature pursuant to which approximately ten (10) years after the
date of the original purchase of such shares, the shares will convert
automatically to Class A shares, based on the relative net asset values of the
two classes. For greater details regarding the conversion feature, including
the method by which the 10 year period is calculated and the treatment of
reinvested dividends, see "Purchase of Fund Shares" in MSDW Mid-Cap's
Prospectus and "Share Class Arrangements" in TCW/DW Mid-Cap's Prospectus.
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CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of the TCW Mid-Cap
Equity Trust and Morgan Stanley Dean Witter Mid-Cap Growth Fund as of January
31, 1999 and on a pro forma combined basis as if the Reorganization had
occurred on that date:
<TABLE>
<CAPTION>
NET ASSET
SHARES VALUE
CLASS A NET ASSETS OUTSTANDING PER SHARE
- ----------------------------------------------- -------------- ------------- -----------
<S> <C> <C> <C>
Morgan Stanley Dean Witter Mid-Cap Growth Fund $ 3,691,926 237,855 $15.52
TCW Mid-Cap Equity Trust........................ $ 1,819,820 82,745 $21.99
Combined Fund (pro forma)....................... $ 5,511,746 250,636 $21.99
CLASS B
- -----------------------------------------------
Morgan Stanley Dean Witter Mid-Cap Growth Fund . $593,724,555 38,788,794 $15.31
TCW Mid-Cap Equity Trust........................ $292,052,348 13,410,653 $21.78
Combined Fund (pro forma)....................... $885,776,903 40,670,734 $21.78
CLASS C
- -----------------------------------------------
Morgan Stanley Dean Witter Mid-Cap Growth Fund . $ 7,271,751 475,001 $15.31
TCW Mid-Cap Equity Trust........................ $ 1,726,233 79,367 $21.75
Combined Fund (pro forma)....................... $ 8,997,984 413,700 $21.75
CLASS D
- -----------------------------------------------
Morgan Stanley Dean Witter Mid-Cap Growth Fund . $ 2,673,104 171,936 $15.55
TCW Mid-Cap Equity Trust........................ $ 20,378 923 $22.08
Combined Fund (pro forma)....................... $ 2,693,482 121,987 $22.08
</TABLE>
APPRAISAL RIGHTS
Shareholders will have no appraisal rights in connection with the
Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
MSDW Mid-Cap and TCW/DW Mid-Cap each are funds which have similar,
although not identical, investment objectives and policies. The investment
objective of MSDW Mid-Cap is long-term capital growth. The investment objective
of TCW/DW Mid-Cap is long-term capital appreciation. Both funds seek to achieve
their objectives by investing principally in a diversified portfolio of common
stocks of medium-sized companies in accordance with their respective investment
strategies set forth below.
TCW/DW Mid-Cap seeks to achieve its investment objective by investing,
under normal circumstances, at least 65% of its total assets in common stocks
and other equity securities issued by medium-sized companies whose market
capitalizations, at the time of acquisition, are within the capitalization
range of the companies
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<PAGE>
comprising the S&P Mid-Cap 400 Index (approximately between $220 million and
$15 billion as of February 24, 1998) and that, in the opinion of TCW, exhibit
superior earnings growth prospects and attractive stock market valuations. The
equity securities in which TCW/DW Mid-Cap may invest include common stocks and
convertible securities such as investment grade convertible bonds, notes,
debentures, preferred stocks or other securities convertible into common stock.
TCW pursues a "bottom-up" investment philosophy in investing the TCW/DW
Mid-Cap's assets. The "bottom-up" investment process is characterized by TCW's
proprietary research process which is used in the selection of investments.
Quantitative and qualitative standards also will be used to screen the more
than 1,000 medium-sized companies within the applicable capitalization range to
provide TCW with a list of potential investment securities. TCW then subjects
the list of securities to fundamental analysis using a variety of criteria. Up
to 35% of the fund's total assets may be invested in equity securities whose
market capitalization at the time of acquisition is not within the stated
capitalization range, as well as in investment grade fixed-income securities
consisting of securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, corporate debt securities and money market
instruments. Up to 25% of the fund's total assets may be invested in equity
securities of foreign issuers in the form of direct investments or depository
receipts or other similar securities convertible into securities of foreign
issuers.
In addition, although it does not currently do so, TCW/DW Mid-Cap may
invest up to 5% of its assets in certain high yield, high risk convertible and
other fixed-income securities (commonly known as "junk bonds"). Moreover, any
amount of TCW/DW Mid-Cap's total assets may be invested in money market
instruments or cash to maintain, temporarily, a "defensive" position when TCW
believes it is advisable to do so.
MSDW Mid-Cap seeks to achieve its investment objective by investing, under
normal circumstances, at least 65% of its total assets in a diversified
portfolio of domestic and foreign equity securities of "mid-cap" companies. For
purposes of MSDW Mid-Cap, a mid-cap company is a company whose market
capitalization falls within the range of $250 million to $5 billion. The fund
may invest up to 35% of its total assets in (i) U.S. Government Securities,
investment grade corporate debt securities and money market instruments, or
(ii) equity securities of companies with market capitalizations which fall
outside of the range of $250 million to $5 billion at the time of purchase, as
long as such investments are consistent with the fund's investment objective.
The fund may invest up to 35% of its total assets in the equity securities of
non-U.S. companies, including American or other Depository Receipts, rights,
warrants, and the direct purchase of foreign securities. Equity securities in
which the fund may invest include common stocks and securities convertible into
common stocks.
MSDW Mid-Cap utilizes an investment process that places primary emphasis
on seeking to identify industries, rather than individual companies, as
prospects for capital appreciation and whereby MSDW Advisors seeks to invest
the assets of the fund in industries it considers to be attractive at the time
of purchase and to sell those it considers overvalued. MSDW Advisors invests
principally in those mid-cap companies that in the opinion of MSDW Advisors
have above-average relative growth potential.
MSDW Mid-Cap may engage in options and futures transactions. The fund may
purchase and sell (write) options on debt and equity securities which are
listed on Exchanges or which are OTC options and may only write covered options
in an amount up to, but not exceeding in the aggregate, 25% of the value of its
total assets. The fund also may purchase listed and OTC call and put options in
amounts equaling up to 10% of its total assets and may invest up to 5% of its
total assets in stock index options. MSDW Mid-Cap may purchase call and put
options to close out covered call or written put positions, as applicable, or
to protect the value of the relevant security. MSDW Mid-Cap may purchase and
sell interest rate and stock index futures contracts that are traded on U.S.
commodity exchanges on such underlying securities as U.S. Treasury securities,
GNMA Certificates, and indexes such as the S&P 500 Index, the New York Stock
Exchange Composite Index and the Moody's Investment-Grade Corporate Bond Index.
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<PAGE>
Both funds may invest their assets in foreign securities, including
securities of foreign issuers denominated in foreign currencies in the form of
direct investments or in the form of American Depository Receipts, European
Depository Receipts or other similar securities convertible into securities of
foreign issuers; TCW/DW Mid-Cap may invest up to 25% of its total assets in
foreign securities while MSDW Mid-Cap may invest up to 35% of its total assets
in foreign securities.
Both TCW/DW Mid-Cap and MSDW Mid-Cap may (i) purchase securities on a
when-issued or delayed delivery basis, (ii) purchase securities on a "when, as
and if issued" basis, (iii) enter into repurchase agreements subject to certain
procedures designed to minimize risks associated with such agreements,
(iv) purchase rights and warrants, (v) invest in zero coupon securities,
(vi) invest in real estate investment trusts, (vii) lend their portfolio
securities, and (viii) invest (up to 15% of TCW/DW Mid-Cap's net assets and up
to 5% of MSDW Mid-Cap's total assets) in securities which are subject to
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended, or which are not otherwise readily
marketable (both funds do not include Rule 144A securities in this limitation).
The investment policies of both MSDW Mid-Cap and TCW/DW Mid-Cap are not
fundamental and may be changed by their respective Boards. The foregoing
discussion is a summary of the principal differences and similarities between
the investment policies of the funds. For a more complete discussion of each
fund's policies, see the sections entitled "Investment Objective and Policies"
and "Investment Practices and Policies" in MSDW Mid-Cap's Prospectus and
Statement of Additional Information, respectively; and the sections entitled
"Principal Investment Strategies" and "Additional Investment Strategy
Information" in TCW/DW Mid-Cap's Prospectus and "Description of the Fund and
its Investments and Risks -- Investment Strategies and Risks" in TCW/DW
Mid-Cap's Statement of Additional Information.
INVESTMENT RESTRICTIONS
The investment restrictions adopted by MSDW Mid-Cap and TCW/DW Mid-Cap as
fundamental policies are substantially similar and are summarized under the
caption "Investment Restrictions" in MSDW Mid-Cap's Prospectus and Statement of
Additional Information and under the caption "Description of the Fund and its
Investments and Risks -- Fund Policies/Investment Restrictions" in TCW/DW
Mid-Cap's Statement of Additional Information. A fundamental investment
restriction cannot be changed without the vote of the majority of the
outstanding voting securities of a fund, as defined in the 1940 Act. The
material differences are as follows: (a) MSDW Mid-Cap has fundamental
restrictions that it may not invest more than 5% of the value of its total
assets in the securities of any one issuer (other than obligations issued, or
guaranteed by, the United States Government, its agencies or instrumentalities)
and that it may not purchase more than 10% of all outstanding voting securities
of any one issuer; TCW/DW Mid-Cap applies the same restrictions but only with
respect to 75% of its assets; (b) both funds are prohibited from issuing senior
securities as defined in the 1940 Act except insofar as a fund may be deemed to
have issued a senior security by reason of: (i) entering into any repurchase
agreement; (ii) borrowing money in accordance with the fund's applicable
restriction; or (iii) lending portfolio securities; TCW/DW Mid-Cap carves out
an additional exception for purchasing securities on a when-issued or delayed
delivery basis; (c) both funds are prohibited from purchasing commodities or
commodities contracts but MSDW Mid-Cap may purchase or sell futures contracts
and related options; (d) TCW/DW Mid-Cap may not purchase warrants if, as a
result, the fund would then have either more than 5% of its net assets invested
in warrants or more than 2% of its net assets invested in warrants not listed
on the New York or American Stock Exchange; MSDW Mid-Cap has no such
restriction; and (e) TCW/DW Mid-Cap is prohibited from investing in options or
futures contracts; MSDW/DW Mid-Cap has no such restriction.
In addition, MSDW Mid-Cap has a fundamental restriction that it may not
invest in securities of any issuer if, to the knowledge of the fund, any
officer or trustee of the fund or of the fund's Investment Manager owns
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<PAGE>
more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers and trustees who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer; TCW/DW Mid-Cap has no
such limitation.
ADDITIONAL INFORMATION ABOUT MSDW MID-CAP
AND TCW/DW MID-CAP
GENERAL
For a discussion of the organization and operation of MSDW Mid-Cap, see
"The Fund and its Management," "Investment Objective and Policies," "Investment
Restrictions" and "Prospectus Summary" in, and the cover page of, the fund's
Prospectus. For a discussion of the organization and operation of TCW/DW
Mid-Cap, see "Fund Management," "Investment Objective," "Principal Investment
Strategies" and "Additional Investment Strategy Information" in the fund's
Prospectus.
FINANCIAL INFORMATION
For certain financial information about TCW/DW Mid-Cap and MSDW Mid-Cap,
see "Financial Highlights" in their respective Prospectuses and "Performance
Information" in MSDW Mid-Cap's Prospectus and "Past Performance" in TCW/DW
Mid-Cap's Prospectus.
MANAGEMENT
For information about the respective Board of Trustees, MSDW Advisors,
TCW, and the Distributor of TCW/DW Mid-Cap and MSDW Mid-Cap, see "The Fund and
its Management" and "Investment Objective and Policies" in, and on the back
cover of, MSDW Mid-Cap's Prospectus and "Fund Management" in TCW/DW Mid-Cap's
Prospectus.
DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES
For a description of the nature and most significant attributes of shares
of MSDW Mid-Cap and TCW/DW Mid-Cap, and information regarding shareholder
inquiries, see "Additional Information" in MSDW Mid-Cap's Prospectus and
"Capital Stock and Other Securities" in TCW/DW Mid-Cap's Statement of
Additional Information dated March , 1999.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of TCW/DW Mid-Cap's and MSDW Mid-Cap's policies with
respect to dividends, distributions and taxes, see "Dividends, Distributions
and Taxes" in MSDW Mid-Cap's Prospectus and "Distributions" and "Tax
Consequences" in TCW/DW Mid-Cap's Prospectus as well as the discussion herein
under "Synopsis -- Purchases, Exchanges and Redemptions."
PURCHASES, REPURCHASES AND REDEMPTIONS
For a discussion of how TCW/DW Mid-Cap's and MSDW Mid-Cap's shares may be
purchased, repurchased and redeemed, see "Purchase of Fund Shares,"
"Shareholder Services" and "Redemptions and Repurchases" in MSDW Mid-Cap's
Prospectus and "How to Buy Shares," "How to Exchange Shares" and "How to Sell
Shares" in TCW/DW Mid-Cap's Prospectus.
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<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For a discussion of TCW/DW Mid-Cap's performance, see management's letter
to shareholders in its Annual Report for its fiscal year ended November 30,
1998 accompanying this Proxy Statement and Prospectus. For a discussion of the
performance of MSDW Mid-Cap, see its Annual Report for its fiscal year ended
May 31, 1998 and its unaudited Semi-Annual Report for the six months ended
November 30, 1998.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of TCW/DW Mid-Cap, for the year ended November
30, 1998, and MSDW Mid-Cap, for the year ended May 31, 1998 that are
incorporated by reference in the Statement of Additional Information relating
to the Registration Statement on Form N-14 of which this Proxy Statement and
Prospectus forms a part, have been audited by PricewaterhouseCoopers LLP,
independent accountants. The financial statements have been incorporated by
reference in reliance upon such reports given upon the authority of
PricewaterhouseCoopers LLP as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of TCW/DW Mid-Cap
will be passed upon by Gordon Altman Butowsky Weitzen Shalov & Wein, New York,
New York. Such firm will rely on Lane Altman & Owens, Boston, Massachusetts, as
to matters of Massachusetts law.
AVAILABLE INFORMATION
Additional information about MSDW Mid-Cap and TCW/DW Mid-Cap is available,
as applicable, in the following documents which are incorporated herein by
reference: (i) TCW/DW Mid-Cap's Prospectus dated March , 1999, attached to
this Proxy Statement and Prospectus, which Prospectus forms a part of
Post-Effective Amendment No. to TCW/DW Mid-Cap's Registration Statement on
Form N-1A (File Nos. 33-63685; 811-7377); (ii) TCW/DW Mid-Cap's Annual Report
for its fiscal year ended November 30, 1998, accompanying this Proxy Statement
and Prospectus; (iii) MSDW Mid-Cap's Prospectus dated July 29, 1998, which
Prospectus forms a part of Post-Effective Amendment No. to MSDW Mid-Cap's
Registration Statement on Form N-1A (File Nos. 33-53955; 811-7179); and
(iv) MSDW Mid-Cap's Annual Report for its fiscal year ended May 31, 1998 and
its unaudited Semi-Annual Report for its six months ended November 30, 1998.
The foregoing documents may be obtained without charge by calling (800)
869-NEWS (toll-free).
MSDW Mid-Cap and TCW/DW Mid-Cap are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, file reports and other information with the Commission.
Proxy material, reports and other information about MSDW Mid-Cap and TCW/DW
Mid-Cap which are of public record can be inspected and copied at public
reference facilities maintained by the Commission at Room 1204, Judiciary
Plaza, 450 Fifth Street, NW, Washington, D.C. 20549 and certain of its regional
offices, and copies of such materials can be obtained at prescribed rates from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549.
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OTHER BUSINESS
Management of MSDW Mid-Cap knows of no business other than the matters
specified above which will be presented at the Meeting. Since matters not known
at the time of the solicitation may come before the Meeting, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meeting, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.
By Order of the Board of Trustees
Barry Fink,
Secretary
April , 1999
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
25th day of February, 1999, by and between TCW/DW MID-CAP EQUITY TRUST, a
Massachusetts business trust ("TCW/DW Mid-Cap") and MORGAN STANLEY DEAN WITTER
MID-CAP GROWTH FUND, a Massachusetts business trust ("MSDW Mid-Cap").
This Agreement is intended to be and is adopted as a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization ("Reorganization") will consist of the
transfer to TCW/DW Mid-Cap of substantially all of the assets of MSDW Mid-Cap
in exchange for the assumption by TCW/DW Mid-Cap of all stated liabilities of
MSDW Mid-Cap and the issuance by TCW/DW Mid-Cap of shares of beneficial
interest, par value $0.01 per share (the "TCW/DW Mid-Cap Shares"), to be
distributed, after the Closing Date hereinafter referred to, to the
shareholders of MSDW Mid-Cap in liquidation of MSDW Mid-Cap as provided herein,
all upon the terms and conditions hereinafter set forth in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. THE REORGANIZATION AND LIQUIDATION OF MSDW MID-CAP
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, MSDW Mid-Cap agrees to
assign, deliver and otherwise transfer the MSDW Mid-Cap Assets (as defined in
paragraph 1.2) to TCW/DW Mid-Cap and TCW/DW Mid-Cap agrees in exchange therefor
to assume all of MSDW Mid-Cap's stated liabilities on the Closing Date as set
forth in paragraph 1.3(a) and to deliver to MSDW Mid-Cap the number of TCW/DW
Mid-Cap Shares, including fractional TCW/DW Mid-Cap Shares, determined in the
manner set forth in paragraph 2.3. Such transactions shall take place at the
closing provided for in paragraph 3.1 ("Closing").
1.2 (a) The "MSDW Mid-Cap Assets" shall consist of all property, including
without limitation, all cash (other than the "Cash Reserve" (as defined in
paragraph 1.3(b)), cash equivalents, securities and dividend and interest
receivables owned by MSDW Mid-Cap, and any deferred or prepaid expenses shown
as an asset on MSDW Mid-Cap's books on the Valuation Date.
(b) On or prior to the Valuation Date, MSDW Mid-Cap will provide TCW/DW
Mid-Cap with a list of all of MSDW Mid-Cap's assets to be assigned, delivered
and otherwise transferred to TCW/DW Mid-Cap and of the stated liabilities to be
assumed by TCW/DW Mid-Cap pursuant to this Agreement. MSDW Mid-Cap reserves the
right to sell any of the securities on such list but will not, without the
prior approval of TCW/DW Mid-Cap, acquire any additional securities other than
securities of the type in which TCW/DW Mid-Cap is permitted to invest and in
amounts agreed to in writing by TCW/DW Mid-Cap. TCW/DW Mid-Cap will, within a
reasonable time prior to the Valuation Date, furnish MSDW Mid-Cap with a
statement of TCW/DW Mid-Cap's investment objectives, policies and restrictions
and a list of the securities, if any, on the list referred to in the first
sentence of this paragraph that do not conform to TCW/DW Mid-Cap's investment
objective, policies and restrictions. In the event that MSDW Mid-Cap holds any
investments that TCW/DW Mid-Cap is not permitted to hold, MSDW Mid-Cap will
dispose of such securities on or prior to the Valuation Date. In addition, if
it is determined that the portfolios of MSDW Mid-Cap and TCW/DW Mid-Cap, when
aggregated, would contain investments exceeding certain percentage limitations
imposed upon TCW/DW Mid-Cap with respect to such investments, MSDW Mid-Cap if
requested by TCW/DW Mid-Cap will, on or prior to the
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Valuation Date, dispose of and/or reinvest a sufficient amount of such
investments as may be necessary to avoid violating such limitations as of the
Closing Date (as defined in paragraph 3.1).
1.3 (a) MSDW Mid-Cap will endeavor to discharge all of its liabilities and
obligations on or prior to the Valuation Date. TCW/DW Mid-Cap will assume all
stated liabilities, which includes, without limitation, all expenses, costs,
charges and reserves reflected on an unaudited Statement of Assets and
Liabilities of MSDW Mid-Cap prepared by the Treasurer of MSDW Mid-Cap as of the
Valuation Date in accordance with generally accepted accounting principles
consistently applied from the prior audited period.
(b) On the Valuation Date, MSDW Mid-Cap may establish a cash reserve,
which shall not exceed 5% of MSDW Mid-Cap's net assets as of the close of
business on the Valuation Date ("Cash Reserve") to be retained by MSDW Mid-Cap
and used for the payment of its liabilities not discharged prior to the
Valuation Date and for the expenses of dissolution.
1.4 In order for MSDW Mid-Cap to comply with Section 852(a)(1) of the Code
and to avoid having any investment company taxable income or net capital gain
(as defined in Sections 852(b)(2) and 1222(11) of the Code, respectively) in
the short taxable year ending with its dissolution, MSDW Mid-Cap will on or
before the Valuation Date (a) declare a dividend in an amount large enough so
that it will have declared dividends of all of its investment company taxable
income and net capital gain, if any, for such taxable year (determined without
regard to any deduction for dividends paid) and (b) distribute such dividend.
1.5 On the Closing Date or as soon as practicable thereafter, MSDW Mid-Cap
will distribute TCW/DW Mid-Cap Shares received by MSDW Mid-Cap pursuant to
paragraph 1.1 pro rata to its shareholders of record determined as of the close
of business on the Valuation Date ("MSDW Mid-Cap Shareholders"). Each MSDW
Mid-Cap Shareholder will receive the class of shares of TCW/DW Mid-Cap that
corresponds to the class of shares of MSDW Mid-Cap currently held by that MSDW
Mid-Cap Shareholder. Accordingly, the TCW/DW Mid-Cap Shares will be distributed
as follows: each of the Class A, Class B, Class C and Class D shares of TCW/DW
Mid-Cap will be distributed to holders of Class A, Class B, Class C and Class D
shares of MSDW Mid-Cap, respectively. Such distribution will be accomplished by
an instruction, signed by MSDW Mid-Cap's Secretary, to transfer TCW/DW Mid-Cap
Shares then credited to MSDW Mid-Cap's account on the books of TCW/DW Mid-Cap
to open accounts on the books of TCW/DW Mid-Cap in the names of the MSDW
Mid-Cap Shareholders and representing the respective pro rata number of TCW/DW
Mid-Cap Shares due such MSDW Mid-Cap Shareholders. All issued and outstanding
shares of MSDW Mid-Cap simultaneously will be canceled on MSDW Mid-Cap's books;
however, share certificates representing interests in MSDW Mid-Cap will
represent a number of TCW/DW Mid-Cap Shares after the Closing Date as
determined in accordance with paragraph 2.3. TCW/DW Mid-Cap will issue
certificates representing TCW/DW Mid-Cap Shares in connection with such
exchange only upon the written request of a MSDW Mid-Cap Shareholder.
1.6 Ownership of TCW/DW Mid-Cap Shares will be shown on the books of
TCW/DW Mid-Cap's transfer agent. TCW/DW Mid-Cap Shares will be issued in the
manner described in TCW/DW Mid-Cap's current Prospectus and Statement of
Additional Information.
1.7 Any transfer taxes payable upon issuance of TCW/DW Mid-Cap Shares in a
name other than the registered holder of TCW/DW Mid-Cap Shares on MSDW
Mid-Cap's books as of the close of business on the Valuation Date shall, as a
condition of such issuance and transfer, be paid by the person to whom TCW/DW
Mid-Cap Shares are to be issued and transferred.
1.8 Any reporting responsibility of MSDW Mid-Cap is and shall remain the
responsibility of MSDW Mid-Cap up to and including the date on which MSDW
Mid-Cap is dissolved and deregistered pursuant to paragraph 1.9.
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1.9 Within one year after the Closing Date, MSDW Mid-Cap shall pay or make
provision for the payment of all its liabilities and taxes, and distribute to
the shareholders of MSDW Mid-Cap as of the close of business on the Valuation
Date any remaining amount of the Cash Reserve (as reduced by the estimated cost
of distributing it to shareholders). MSDW Mid-Cap shall be dissolved as a
Massachusetts business trust and deregistered as an investment company under
the Investment Company Act of 1940, as amended ("1940 Act"), promptly following
the making of all distributions pursuant to paragraph 1.5.
1.10 Copies of all books and records maintained on behalf of MSDW Mid-Cap
in connection with its obligations under the 1940 Act, the Code, state blue sky
laws or otherwise in connection with this Agreement will promptly after the
Closing be delivered to officers of TCW/DW Mid-Cap or their designee and TCW/DW
Mid-Cap or its designee shall comply with applicable record retention
requirements to which MSDW Mid-Cap is subject under the 1940 Act.
2. VALUATION
2.1 The value of the MSDW Mid-Cap Assets shall be the value of such assets
computed as of 4:00 p.m. on the New York Stock Exchange on the third business
day following the receipt of the requisite approval by shareholders of MSDW
Mid-Cap of this Agreement or at such time on such earlier or later date after
such approval as may be mutually agreed upon in writing (such time and date
being hereinafter called the "Valuation Date"), using the valuation procedures
set forth in TCW/DW Mid-Cap's then current Prospectus and Statement of
Additional Information.
2.2 The net asset value of an TCW/DW Mid-Cap Share shall be the net asset
value per share computed on the Valuation Date, using the valuation procedures
set forth in TCW/DW Mid-Cap's then current Prospectus and Statement of
Additional Information.
2.3 The number of TCW/DW Mid-Cap Shares (including fractional shares, if
any) to be issued hereunder shall be determined, with respect to each class, by
dividing the aggregate net asset value of each class of MSDW Mid-Cap shares
(determined in accordance with paragraph 2.1) by the net asset value per share
of the corresponding class of shares of TCW/DW Mid-Cap (determined in
accordance with paragraph 2.2). For purposes of this paragraph, the aggregate
net asset value of each class of shares of MSDW Mid-Cap shall not include the
amount of the Cash Reserve.
2.4 All computations of value shall be made by Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services") in accordance with its regular practice
in pricing TCW/DW Mid-Cap. TCW/DW Mid-Cap shall cause MSDW Services to deliver
a copy of its valuation report at the Closing.
3. CLOSING AND CLOSING DATE
3.1 The Closing shall take place on the next business day following the
Valuation Date (the "Closing Date"). The Closing shall be held as of 9:00 a.m.
Eastern time, or at such other time as the parties may agree. The Closing shall
be held in a location mutually agreeable to the parties hereto. All acts taking
place at the Closing shall be deemed to take place simultaneously as of 9:00
a.m. Eastern time on the Closing Date unless otherwise provided.
3.2 Portfolio securities held by MSDW Mid-Cap and represented by a
certificate or other written instrument shall be presented by it or on its
behalf to The Bank of New York (the "Custodian"), as custodian for TCW/DW
Mid-Cap, for examination no later than five business days preceding the
Valuation Date. Such portfolio securities (together with any cash or other
assets) shall be delivered by MSDW Mid-Cap to the Custodian for the account of
TCW/DW Mid-Cap on or before the Closing Date in conformity with applicable
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custody provisions under the 1940 Act and duly endorsed in proper form for
transfer in such condition as to constitute good delivery thereof in accordance
with the custom of brokers. The portfolio securities shall be accompanied by
all necessary Federal and state stock transfer stamps or a check for the
appropriate purchase price of such stamps. Portfolio securities and instruments
deposited with a securities depository (as defined in Rule 17f-4 under the 1940
Act) shall be delivered on or before the Closing Date by book-entry in
accordance with customary practices of such depository and the Custodian. The
cash delivered shall be in the form of a Federal Funds wire, payable to the
order of "The Bank of New York, Custodian for Morgan Stanley Dean Witter TCW/DW
Mid-Cap Fund."
3.3 In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall be
disrupted so that, in the judgment of both TCW/DW Mid-Cap and MSDW Mid-Cap,
accurate appraisal of the value of the net assets of TCW/DW Mid-Cap or the MSDW
Mid-Cap Assets is impracticable, the Valuation Date shall be postponed until
the first business day after the day when trading shall have been fully resumed
without restriction or disruption and reporting shall have been restored.
3.4 If requested, MSDW Mid-Cap shall deliver to TCW/DW Mid-Cap or its
designee (a) at the Closing, a list, certified by its Secretary, of the names,
addresses and taxpayer identification numbers of the MSDW Mid-Cap Shareholders
and the number and percentage ownership of outstanding MSDW Mid-Cap shares
owned by each such MSDW Mid-Cap Shareholder, all as of the Valuation Date, and
(b) as soon as practicable after the Closing, all original documentation
(including Internal Revenue Service forms, certificates, certifications and
correspondence) relating to the MSDW Mid-Cap Shareholders' taxpayer
identification numbers and their liability for or exemption from back-up
withholding. TCW/DW Mid-Cap shall issue and deliver to such Secretary a
confirmation evidencing delivery of TCW/DW Mid-Cap Shares to be credited on the
Closing Date to MSDW Mid-Cap or provide evidence satisfactory to MSDW Mid-Cap
that such TCW/DW Mid-Cap Shares have been credited to MSDW Mid-Cap's account on
the books of TCW/DW Mid-Cap. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, share certificates, if any,
receipts or other documents as such other party or its counsel may reasonably
request.
4. COVENANTS OF TCW/DW MID-CAP AND MSDW MID-CAP
4.1 Except as otherwise expressly provided herein with respect to MSDW
Mid-Cap, TCW/DW Mid-Cap and MSDW Mid-Cap each will operate its business in the
ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and other distributions.
4.2 TCW/DW Mid-Cap will prepare and file with the Securities and Exchange
Commission ("Commission") a registration statement on Form N-14 under the
Securities Act of 1933, as amended ("1933 Act"), relating to TCW/DW Mid-Cap
Shares ("Registration Statement"). MSDW Mid-Cap will provide TCW/DW Mid-Cap
with the Proxy Materials as described in paragraph 4.3 below, for inclusion in
the Registration Statement. MSDW Mid-Cap will further provide TCW/DW Mid-Cap
with such other information and documents relating to MSDW Mid-Cap as are
reasonably necessary for the preparation of the Registration Statement.
4.3 MSDW Mid-Cap will call a meeting of its shareholders to consider and
act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein. MSDW Mid-Cap will prepare the
notice of meeting, form of proxy and proxy statement (collectively, "Proxy
Materials") to be used in connection with such meeting; provided that TCW/DW
Mid-Cap will furnish MSDW Mid-Cap with its currently effective prospectus for
inclusion in the Proxy Materials and with such other information relating to
TCW/DW Mid-Cap as is reasonably necessary for the preparation of the Proxy
Materials.
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4.4 MSDW Mid-Cap will assist TCW/DW Mid-Cap in obtaining such information
as TCW/DW Mid-Cap reasonably requests concerning the beneficial ownership of
MSDW Mid-Cap shares.
4.5 Subject to the provisions of this Agreement, TCW/DW Mid-Cap and MSDW
Mid-Cap will each take, or cause to be taken, all action, and do or cause to be
done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
4.6 MSDW Mid-Cap shall furnish or cause to be furnished to TCW/DW Mid-Cap
within 30 days after the Closing Date a statement of MSDW Mid-Cap's assets and
liabilities as of the Closing Date, which statement shall be certified by MSDW
Mid-Cap's Treasurer and shall be in accordance with generally accepted
accounting principles consistently applied. As promptly as practicable, but in
any case within 60 days after the Closing Date, MSDW Mid-Cap shall furnish
TCW/DW Mid-Cap, in such form as is reasonably satisfactory to TCW/DW Mid-Cap, a
statement certified by MSDW Mid-Cap's Treasurer of MSDW Mid-Cap's earnings and
profits for Federal income tax purposes that will be carried over to TCW/DW
Mid-Cap pursuant to Section 381 of the Code.
4.7 As soon after the Closing Date as is reasonably practicable, MSDW
Mid-Cap (a) shall prepare and file all Federal and other tax returns and
reports of MSDW Mid-Cap required by law to be filed with respect to all periods
ending on or before the Closing Date but not theretofore filed and (b) shall
pay all Federal and other taxes shown as due thereon and/or all Federal and
other taxes that were unpaid as of the Closing Date, including without
limitation, all taxes for which the provision for payment was made as of the
Closing Date (as represented in paragraph 5.2(k)).
4.8 TCW/DW Mid-Cap agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act and the 1940 Act and to
make such filings required by the state Blue Sky and securities laws as it may
deem appropriate in order to continue its operations after the Closing Date.
5. REPRESENTATIONS AND WARRANTIES
5.1 TCW/DW Mid-Cap represents and warrants to MSDW Mid-Cap as follows:
(a) TCW/DW Mid-Cap is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;
(b) TCW/DW Mid-Cap is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company
under the 1940 Act and the registration of its shares under the 1933 Act
are in full force and effect;
(c) All of the issued and outstanding shares of TCW/DW Mid-Cap have been
offered and sold in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws. Shares
of TCW/DW Mid-Cap are registered in all jurisdictions in which they are
required to be registered under state securities laws and other laws, and
said registrations, including any periodic reports or supplemental filings,
are complete and current, all fees required to be paid have been paid, and
TCW/DW Mid-Cap is not subject to any stop order and is fully qualified to
sell its shares in each state in which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information of
TCW/DW Mid-Cap conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
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(e) TCW/DW Mid-Cap is not in, and the execution, delivery and performance
of this Agreement will not result in a, material violation of any provision
of TCW/DW Mid-Cap's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which TCW/DW
Mid-Cap is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against TCW/DW Mid-Cap or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and TCW/DW
Mid-Cap knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects, or is reasonably likely to materially and
adversely effect, its business or its ability to consummate the
transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights for the year
ended November 30, 1998, of TCW/DW Mid-Cap certified by
PricewaterhouseCoopers LLP (copies of which have been furnished to MSDW
Mid-Cap), fairly present, in all material respects, TCW/DW Mid-Cap's
financial condition as of such date in accordance with generally accepted
accounting principles, and its results of such operations, changes in its
net assets and financial highlights for such period, and as of such date
there were no known liabilities of TCW/DW Mid-Cap (contingent or otherwise)
not disclosed therein that would be required in accordance with generally
accepted accounting principles to be disclosed therein;
(h) All issued and outstanding TCW/DW Mid-Cap Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Additional Information" in
TCW/DW Mid-Cap's current Prospectus incorporated by reference in the
Registration Statement. TCW/DW Mid-Cap does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares;
(i) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of TCW/DW Mid-Cap, and
this Agreement constitutes a valid and binding obligation of TCW/DW Mid-Cap
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors rights and to general equity principles. No other
consents, authorizations or approvals are necessary in connection with
TCW/DW Mid-Cap's performance of this Agreement;
(j) TCW/DW Mid-Cap Shares to be issued and delivered to MSDW Mid-Cap, for
the account of the MSDW Mid-Cap Shareholders, pursuant to the terms of this
Agreement will at the Closing Date have been duly authorized and, when so
issued and delivered, will be duly and validly issued TCW/DW Mid-Cap
Shares, and will be fully paid and non-assessable with no personal
liability attaching to the ownership thereof, except as set forth under the
caption "Additional Information" in TCW/DW Mid-Cap's current Prospectus
incorporated by reference in the Registration Statement;
(k) All material Federal and other tax returns and reports of TCW/DW
Mid-Cap required by law to be filed on or before the Closing Date have been
filed and are correct, and all Federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of TCW/DW
Mid-Cap's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, TCW/DW Mid-Cap has met the
requirements of Subchapter M of the Code for qualification and treatment as
a "regulated investment company" and
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neither the execution or delivery of nor the performance of its obligations
under this Agreement will adversely affect, and no other events are
reasonably likely to occur which will adversely affect the ability of
TCW/DW Mid-Cap to continue to meet the requirements of Subchapter M of the
Code;
(m) Since November 30, 1998 there has been no change by TCW/DW Mid-Cap in
accounting methods, principles, or practices, including those required by
generally accepted accounting principles;
(n) The information furnished or to be furnished by TCW/DW Mid-Cap for
use in registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated hereby
shall be accurate and complete in all material respects and shall comply in
all material respects with Federal securities and other laws and
regulations applicable thereto; and
(o) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to TCW/DW Mid-Cap) will, on the effective date
of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading.
5.2 MSDW Mid-Cap represents and warrants to TCW/DW Mid-Cap as follows:
(a) MSDW Mid-Cap is a validly existing Massachusetts business trust with
full power to carry on its business as presently conducted;
(b) MSDW Mid-Cap is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company
under the 1940 Act and the registration of its shares under the 1933 Act
are in full force and effect;
(c) All of the issued and outstanding shares of beneficial interest of
MSDW Mid-Cap have been offered and sold in compliance in all material
respects with applicable requirements of the 1933 Act and state securities
laws. Shares of MSDW Mid-Cap are registered in all jurisdictions in which
they are required to be registered and said registrations, including any
periodic reports or supplemental filings, are complete and current, all
fees required to be paid have been paid, and MSDW Mid-Cap is not subject to
any stop order and is fully qualified to sell its shares in each state in
which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information of
MSDW Mid-Cap conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(e) MSDW Mid-Cap is not, and the execution, delivery and performance of
this Agreement will not result, in a material violation of any provision of
MSDW Mid-Cap's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which MSDW
Mid-Cap is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against MSDW Mid-Cap or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and MSDW
Mid-Cap knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects, or is reasonably likely to materially and
adversely effect, its business or its ability to consummate the
transactions herein contemplated;
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(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights of MSDW Mid-Cap
for the year ended November 30, 1997, certified by PricewaterhouseCoopers
LLP (copies of which have been or will be furnished to TCW/DW Mid-Cap)
fairly present, in all material respects, MSDW Mid-Cap's financial
condition as of such date, and its results of operations, changes in its
net assets and financial highlights for such period in accordance with
generally accepted accounting principles, and as of such date there were no
known liabilities of MSDW Mid-Cap (contingent or otherwise) not disclosed
therein that would be required in accordance with generally accepted
accounting principles to be disclosed therein;
(h) MSDW Mid-Cap has no material contracts or other commitments (other
than this Agreement) that will be terminated with liability to it prior to
the Closing Date;
(i) All issued and outstanding shares of MSDW Mid-Cap are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Additional Information" in
MSDW Mid-Cap's current Prospectus incorporated by reference in the
Registration Statement. MSDW Mid-Cap does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of its shares,
nor is there outstanding any security convertible to any of its shares. All
such shares will, at the time of Closing, be held by the persons and in the
amounts set forth in the list of shareholders submitted to TCW/DW Mid-Cap
pursuant to paragraph 3.4;
(j) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of MSDW Mid-Cap, and subject to the approval of MSDW Mid-Cap's
shareholders, this Agreement constitutes a valid and binding obligation of
MSDW Mid-Cap, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors rights and to general equity
principles. No other consents, authorizations or approvals are necessary in
connection with MSDW Mid-Cap's performance of this Agreement;
(k) All material Federal and other tax returns and reports of MSDW
Mid-Cap required by law to be filed on or before the Closing Date shall
have been filed and are correct and all Federal and other taxes shown as
due or required to be shown as due on said returns and reports have been
paid or provision has been made for the payment thereof, and to the best of
MSDW Mid-Cap's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, MSDW Mid-Cap has met all
the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the execution or
delivery of nor the performance of its obligations under this Agreement
will adversely affect, and no other events are reasonably likely to occur
which will adversely affect the ability of MSDW Mid-Cap to continue to meet
the requirements of Subchapter M of the Code;
(m) At the Closing Date, MSDW Mid-Cap will have good and valid title to
the MSDW Mid-Cap Assets, subject to no liens (other than the obligation, if
any, to pay the purchase price of portfolio securities purchased by MSDW
Mid-Cap which have not settled prior to the Closing Date), security
interests or other encumbrances, and full right, power and authority to
assign, deliver and otherwise transfer such assets hereunder, and upon
delivery and payment for such assets, TCW/DW Mid-Cap will acquire good and
marketable title thereto, subject to no restrictions on the full transfer
thereof, including any restrictions as might arise under the 1933 Act;
(n) On the effective date of the Registration Statement, at the time of
the meeting of MSDW Mid-Cap's shareholders and on the Closing Date, the
Proxy Materials (exclusive of the currently effective
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<PAGE>
TCW/DW Mid-Cap Prospectus contained therein) will (i) comply in all
material respects with the provisions of the 1933 Act, the Securities
Exchange Act of 1934, as amended ("1934 Act") and the 1940 Act and the
regulations thereunder and (ii) not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. Any
other information furnished by MSDW Mid-Cap for use in the Registration
Statement or in any other manner that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete and
shall comply in all material respects with applicable Federal securities
and other laws and regulations thereunder;
(o) MSDW Mid-Cap will, on or prior to the Valuation Date, declare one or
more dividends or other distributions to shareholders that, together with
all previous dividends and other distributions to shareholders, shall have
the effect of distributing to the shareholders all of its investment
company taxable income and net capital gain, if any, through the Valuation
Date (computed without regard to any deduction for dividends paid);
(p) MSDW Mid-Cap has maintained or has caused to be maintained on its
behalf all books and accounts as required of a registered investment company
in compliance with the requirements of Section 31 of the 1940 Act and the
Rules thereunder; and
(q) MSDW Mid-Cap is not acquiring TCW/DW Mid-Cap Shares to be issued
hereunder for the purpose of making any distribution thereof other than in
accordance with the terms of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF MSDW MID-CAP
The obligations of MSDW Mid-Cap to consummate the transactions provided
for herein shall be subject, at its election, to the performance by TCW/DW
Mid-Cap of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of TCW/DW Mid-Cap contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if
made on and as of the Closing Date;
6.2 TCW/DW Mid-Cap shall have delivered to MSDW Mid-Cap a certificate of
its President and Treasurer, in a form reasonably satisfactory to MSDW Mid-Cap
and dated as of the Closing Date, to the effect that the representations and
warranties of TCW/DW Mid-Cap made in this Agreement are true and correct at and
as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as MSDW Mid-Cap
shall reasonably request;
6.3 MSDW Mid-Cap shall have received a favorable opinion from Gordon
Altman Butowsky Weitzen Shalov & Wein, counsel to TCW/DW Mid-Cap, dated as of
the Closing Date, to the effect that:
(a) TCW/DW Mid-Cap is a validly existing Massachusetts business trust,
and has the power to own all of its properties and assets and to carry on
its business as presently conducted (Massachusetts counsel may be relied
upon in delivering such opinion); (b) TCW/DW Mid-Cap is a duly registered,
open-end, management investment company, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect; (c) this Agreement has been duly authorized, executed and delivered
by TCW/DW Mid-Cap and, assuming that the Registration Statement complies
with the 1933 Act, the 1934 Act and the 1940 Act and regulations thereunder
and assuming due authorization, execution and delivery of this Agreement by
MSDW Mid-Cap, is a valid and binding obligation of TCW/DW Mid-Cap
enforceable against TCW/DW Mid-Cap in accordance with its terms, subject as
to enforcement,
A-9
<PAGE>
to bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors rights and to general equity principles;
(d) TCW/DW Mid-Cap Shares to be issued to MSDW Mid-Cap Shareholders as
provided by this Agreement are duly authorized and upon such delivery will
be validly issued, fully paid and non-assessable (except as set forth under
the caption "Additional Information" in TCW/DW Mid-Cap's Prospectus), and
no shareholder of TCW/DW Mid-Cap has any preemptive rights to subscription
or purchase in respect thereof (Massachusetts counsel may be relied upon in
delivering such opinion); (e) the execution and delivery of this Agreement
did not, and the consummation of the transactions contemplated hereby will
not, violate TCW/DW Mid-Cap's Declaration of Trust or By-Laws; and (f) to
the knowledge of such counsel, no consent, approval, authorization or order
of any court or governmental authority of the United States or any state is
required for the consummation by TCW/DW Mid-Cap of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act and the 1940 Act and such as may be required under state
securities laws; and
6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any increase in the
investment management fees or annual fees pursuant to TCW/DW Mid-Cap's 12b-1
plan of distribution from those described in TCW/DW Mid-Cap's Prospectus dated
March __, 1999 and Statement of Additional Information dated March __, 1999.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCW/DW MID-CAP
The obligations of TCW/DW Mid-Cap to complete the transactions provided
for herein shall be subject, at its election, to the performance by MSDW
Mid-Cap of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of MSDW Mid-Cap contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if
made on and as of the Closing Date;
7.2 MSDW Mid-Cap shall have delivered to TCW/DW Mid-Cap at the Closing a
certificate of its President and its Treasurer, in form and substance
satisfactory to TCW/DW Mid-Cap and dated as of the Closing Date, to the effect
that the representations and warranties of MSDW Mid-Cap made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as TCW/DW Mid-Cap shall reasonably request;
7.3 MSDW Mid-Cap shall have delivered to TCW/DW Mid-Cap a statement of the
MSDW Mid-Cap Assets and its liabilities, together with a list of MSDW Mid-Cap's
portfolio securities and other assets showing the respective adjusted bases and
holding periods thereof for income tax purposes, as of the Closing Date,
certified by the Treasurer of MSDW Mid-Cap;
7.4 MSDW Mid-Cap shall have delivered to TCW/DW Mid-Cap within three
business days after the Closing a letter from PricewaterhouseCoopers LLP dated
as of the Closing Date stating that (a) such firm has performed a limited
review of the Federal and state income tax returns of MSDW Mid-Cap for each of
the last three taxable years and, based on such limited review, nothing came to
their attention that caused them to believe that such returns did not properly
reflect, in all material respects, the Federal and state income tax liabilities
of MSDW Mid-Cap for the periods covered thereby, (b) for the period from
May 31, 1998 to and including the Closing Date, such firm has performed a
limited review (based on unaudited financial data) to ascertain the amount of
applicable Federal, state and local taxes and has determined that same either
have been paid or reserves have been established for payment of such taxes,
and, based on such limited review, nothing came to their attention that caused
them to believe that the taxes paid or reserves set aside for payment
A-10
<PAGE>
of such taxes were not adequate in all material respects for the satisfaction
of all Federal, state and local tax liabilities for the period from May 31,
1998 to and including the Closing Date and (c) based on such limited reviews,
nothing came to their attention that caused them to believe that MSDW Mid-Cap
would not qualify as a regulated investment company for Federal income tax
purposes for any such year or period;
7.5 TCW/DW Mid-Cap shall have received at the Closing a favorable opinion
from Gordon Altman Butowsky Weitzen Shalov & Wein, counsel to MSDW Mid-Cap,
dated as of the Closing Date to the effect that:
(a) MSDW Mid-Cap is a validly existing Massachusetts business trust and
has the power to own all of its properties and assets and to carry on its
business as presently conducted (Massachusetts counsel may be relied upon
in delivering such opinion); (b) MSDW Mid-Cap is a duly registered,
open-end, management investment company under the 1940 Act, and its
registration with the Commission as an investment company under the 1940
Act is in full force and effect; (c) this Agreement has been duly
authorized, executed and delivered by MSDW Mid-Cap and, assuming that the
Registration Statement complies with the 1933 Act, the 1934 Act and the
1940 Act and the regulations thereunder and assuming due authorization,
execution and delivery of this Agreement by TCW/DW Mid-Cap, is a valid and
binding obligation of MSDW Mid-Cap enforceable against MSDW Mid-Cap in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors rights and to general equity principles; (d) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate MSDW Mid-Cap's
Declaration of Trust or By-Laws; and (e) to the knowledge of such counsel,
no consent, approval, authorization or order of any court or governmental
authority of the United States or any state is required for the
consummation by MSDW Mid-Cap of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the
1940 Act and such as may be required under state securities laws; and
7.6 On the Closing Date, the MSDW Mid-Cap Assets shall include no assets
that TCW/DW Mid-Cap, by reason of limitations of the fund's Declaration of
Trust or otherwise, may not properly acquire.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF TCW/DW MID-CAP
AND MSDW MID-CAP
The obligations of MSDW Mid-Cap and TCW/DW Mid-Cap hereunder are each
subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
MSDW Mid-Cap in accordance with the provisions of MSDW Mid-Cap's Declaration of
Trust, and certified copies of the resolutions evidencing such approval shall
have been delivered to TCW/DW Mid-Cap;
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of and exemptive orders from such Federal and state
authorities) deemed necessary by TCW/DW Mid-Cap or MSDW Mid-Cap to permit
consummation, in all material respects, of the transactions contemplated herein
shall have been obtained, except where failure to obtain any such consent,
order or permit would not involve risk of a material adverse effect on the
assets or properties of TCW/DW Mid-Cap or MSDW Mid-Cap;
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8.4 The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.5 MSDW Mid-Cap shall have declared and paid a dividend or dividends
and/or other distribution or distributions that, together with all previous
such dividends or distributions, shall have the effect of distributing to the
MSDW Mid-Cap Shareholders all of MSDW Mid-Cap's investment company taxable
income (computed without regard to any deduction for dividends paid) and all of
its net capital gain (after reduction for any capital loss carry-forward and
computed without regard to any deduction for dividends paid) for all taxable
years ending on or before the Closing Date; and
8.6 The parties shall have received a favorable opinion of the law firm of
Gordon Altman Butowsky Weitzen Shalov & Wein (based on such representations as
such law firm shall reasonably request), addressed to TCW/DW Mid-Cap and MSDW
Mid-Cap, which opinion may be relied upon by the shareholders of MSDW Mid-Cap,
substantially to the effect that, for Federal income tax purposes:
(a) The transfer of substantially all of MSDW Mid-Cap's assets in
exchange for TCW/DW Mid-Cap Shares and the assumption by TCW/DW Mid-Cap of
certain stated liabilities of MSDW Mid-Cap followed by the distribution by
MSDW Mid-Cap of TCW/DW Mid-Cap Shares to the MSDW Mid-Cap Shareholders in
exchange for their MSDW Mid-Cap shares will constitute a "reorganization"
within the meaning of Section 368(a)(1)(C) of the Code, and MSDW Mid-Cap
and TCW/DW Mid-Cap will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by TCW/DW Mid-Cap upon the receipt
of the assets of MSDW Mid-Cap solely in exchange for TCW/DW Mid-Cap Shares
and the assumption by TCW/DW Mid-Cap of the stated liabilities of MSDW
Mid-Cap;
(c) No gain or loss will be recognized by MSDW Mid-Cap upon the transfer
of the assets of MSDW Mid-Cap to TCW/DW Mid-Cap in exchange for TCW/DW
Mid-Cap Shares and the assumption by TCW/DW Mid-Cap of the stated
liabilities or upon the distribution of TCW/DW Mid-Cap Shares to the MSDW
Mid-Cap Shareholders in exchange for their MSDW Mid-Cap shares;
(d) No gain or loss will be recognized by the MSDW Mid-Cap Shareholders
upon the exchange of the MSDW Mid-Cap shares for TCW/DW Mid-Cap Shares;
(e) The aggregate tax basis for TCW/DW Mid-Cap Shares received by each
MSDW Mid-Cap Shareholder pursuant to the reorganization will be the same as
the aggregate tax basis of the MSDW Mid-Cap Shares held by each such MSDW
Mid-Cap Shareholder immediately prior to the Reorganization;
(f) The holding period of TCW/DW Mid-Cap Shares to be received by each
MSDW Mid-Cap Shareholder will include the period during which the MSDW
Mid-Cap Shares surrendered in exchange therefor were held (provided such
MSDW Mid-Cap Shares were held as capital assets on the date of the
Reorganization);
(g) The tax basis of the assets of MSDW Mid-Cap acquired by TCW/DW
Mid-Cap will be the same as the tax basis of such assets to MSDW Mid-Cap
immediately prior to the Reorganization; and
(h) The holding period of the assets of MSDW Mid-Cap in the hands of
TCW/DW Mid-Cap will include the period during which those assets were held
by MSDW Mid-Cap.
Notwithstanding anything herein to the contrary, neither TCW/DW Mid-Cap
nor MSDW Mid-Cap may waive the conditions set forth in this paragraph 8.6.
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<PAGE>
9. FEES AND EXPENSES
9.1 (a) TCW/DW Mid-Cap shall bear its expenses incurred in connection with
the entering into, and carrying out of, the provisions of this Agreement,
including legal, accounting, Commission registration fees and Blue Sky
expenses. MSDW Mid-Cap shall bear its expenses incurred in connection with the
entering into and carrying out of the provisions of this Agreement, including
legal and accounting fees, printing, filing and proxy solicitation expenses and
portfolio transfer taxes (if any) incurred in connection with the consummation
of the transactions contemplated herein.
(b) In the event the transactions contemplated herein are not consummated
by reason of MSDW Mid-Cap being either unwilling or unable to go forward (other
than by reason of the nonfulfillment or failure of any condition to MSDW
Mid-Cap's obligations specified in this Agreement), Capital Appreciation's only
obligation hereunder shall be to reimburse TCW/DW Mid-Cap for all reasonable
out-of-pocket fees and expenses incurred by TCW/DW Mid-Cap in connection with
those transactions.
(c) In the event the transactions contemplated herein are not consummated
by reason of TCW/DW Mid-Cap being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
TCW/DW Mid-Cap's obligations specified in this Agreement), TCW/DW Mid-Cap's
only obligation hereunder shall be to reimburse MSDW Mid-Cap for all reasonable
out-of-pocket fees and expenses incurred by MSDW Mid-Cap in connection with
those transactions.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
herein, except that the representations, warranties and covenants of MSDW
Mid-Cap hereunder shall not survive the dissolution and complete liquidation of
MSDW Mid-Cap in accordance with Section 1.9.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of MSDW Mid-Cap and TCW/DW Mid-Cap;
(b) by either TCW/DW Mid-Cap or MSDW Mid-Cap by notice to the other,
without liability to the terminating party on account of such termination
(providing the terminating party is not otherwise in material default or
breach of this Agreement) if the Closing shall not have occurred on or
before May 31, 1999; or
(c) by either TCW/DW Mid-Cap or MSDW Mid-Cap, in writing without
liability to the terminating party on account of such termination (provided
the terminating party is not otherwise in material default or breach of
this Agreement), if (i) the other party shall fail to perform in any
material respect its agreements contained herein required to be performed
on or prior to the Closing Date, (ii) the other party materially breaches
any of its representations, warranties or covenants contained herein, (iii)
the MSDW Mid-Cap shareholders fail to approve this Agreement at any meeting
called for such purpose at which a quorum was present or (iv) any other
condition herein expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will
not or cannot be met.
A-13
<PAGE>
11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1 (a) or
(b) shall terminate all obligations of the parties hereunder and there shall be
no liability for damages on the part of TCW/DW Mid-Cap or MSDW Mid-Cap, or the
trustees or officers of TCW/DW Mid-Cap or MSDW Mid-Cap, to any other party or
its trustees or officers.
(b) Termination of this Agreement pursuant to paragraph 11.1 (c) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of TCW/DW Mid-Cap or MSDW Mid-Cap, or the
trustees or officers of TCW/DW Mid-Cap or MSDW Mid-Cap, except that any
party in breach of this Agreement shall, upon demand, reimburse the
non-breaching party for all reasonable out-of-pocket fees and expenses
incurred in connection with the transactions contemplated by this
Agreement, including legal, accounting and filing fees.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties.
13. MISCELLANEOUS
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 The obligations and liabilities of TCW/DW Mid-Cap hereunder are
solely those of TCW/DW Mid-Cap. It is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of TCW/DW Mid-Cap shall be
personally liable hereunder. The execution and delivery of this Agreement have
been authorized by the trustees of TCW/DW Mid-Cap and signed by authorized
officers of TCW/DW Mid-Cap acting as such, and neither such authorization by
such trustees nor such execution and delivery by such officers shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally.
13.6 The obligations and liabilities of MSDW Mid-Cap hereunder are solely
those of MSDW Mid-Cap. It is expressly agreed that no shareholder, nominee,
trustee, officer, agent, or employee of MSDW Mid-Cap shall be personally liable
hereunder. The execution and delivery of this Agreement have been authorized by
the trustees of MSDW Mid-Cap and signed by authorized officers of MSDW Mid-Cap
acting as such, and neither such authorization by such trustees nor such
execution and delivery by such officers shall be deemed to have been made by
any of them individually or to impose any liability on any of them personally.
A-14
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by a duly authorized officer.
MORGAN STANLEY DEAN WITTER MID-CAP
GROWTH FUND
By: /s/ CHARLES A. FIUMEFREDDO
--------------------------------------------
Name: Charles A. Fiumefreddo
Title: President
TCW/DW MID-CAP EQUITY TRUST
By: /s/ BARRY FINK
--------------------------------------------
Name: Barry Fink
Title: Vice President
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<PAGE>
EXHIBIT B
[PROSPECTUS FOR TCW/DW MID CAP EQUITY TRUST DATED 3/99]
[TO BE FILED BY AMENDMENT]
<PAGE>
TCW/DW MID-CAP EQUITY TRUST Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS November 30, 1998
DEAR SHAREHOLDER:
Global equity markets witnessed extreme volatility over the past year, most
notably beginning last summer. Deepening recessions in non-Japan Asia and Japan
itself, debt defaults and a currency and economic collapse in Russia, as well
as fears over the outlook for Latin America triggered a major decline in stock
prices during the summer months. As stocks declined and credit market spreads
widened, a severe liquidity crunch developed, which resulted in the
near-collapse of a major hedge fund and enormous trading and loan losses at
banks and investment firms in both the United States and abroad. In turn,
lending was curbed, as was floating of new issues and trading liquidity.
To stave off a global credit crunch, which could have toppled the global
economy into recession or worse, the Federal Reserve Board and virtually all
other global central banks sharply reduced interest rates. Stock markets
rallied in response, and in October values recovered back to their previous
peaks.
PERFORMANCE
For the fiscal year ended November 30, 1998, TCW/DW Mid-Cap Equity Trust turned
in very strong performance, with Class A, Class B, Class C and Class D shares
producing total returns of 43.38 percent, 42.49 percent, 42.27 percent and
43.80 percent, respectively. For the same period, the Standard & Poor's Mid-Cap
400 Index and the Lipper Mid-Cap Fund Index registered total returns of 10.40
percent and 3.68 percent, respectively.
The Fund's favorable performance relative to its benchmark index and its Lipper
peer group is attributable primarily to the portfolio manager's investment in
companies that were able to grow regardless of external events, particularly
those in the Internet-related sector. According to the Fund's investment
adviser, TCW Funds Management, Inc. (TCW), these companies have been adept at
discovering new and creative ways to stay ahead of the competition within their
respective markets.
The accompanying chart illustrates the growth of a $10,000 investment in the
Class B shares of the Fund from its inception on February 27, 1996,
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
LETTER TO THE SHAREHOLDERS November 30, 1998, continued
through November 30, 1998, versus similar hypothetical investments in the
issues that comprise the Standard & Poor's Mid-Cap 400 Index and the Lipper
Mid-Cap Funds Index, respectively.
THE PORTFOLIO
The past year was one in which the Fund made significant changes in its
portfolio sector weightings to take advantage of the fastest-growing sectors in
the economy and minimize the effect of any macroeconomic slowdown. Over the
reporting period, the Internet-related sector consistently exceeded
expectations, often by huge margins. Accordingly, large positions were built in
the sector, including powerful growth names such as Yahoo!, Amazon.com and
eBay, which were the Fund's three largest holdings as of November 30. TCW
believes that the Internet, with its power to change the way people interact
with each other, represents the U.S. economy's next major change, similar to
the PC revolution that took place in the early 1980s, which spawned a
technological revolution and created enormous shareholder wealth.
In the portion of the portfolio that is not invested in Internet-related
companies, the Fund also benefited from changes in the cable television
industry, where it has significant exposure. Industry consolidation, increased
share of advertising spending and the prospect of additional revenue streams
led to considerable stock appreciation. Another area where the Fund profited
was in specialty retail, which took advantage of a preference among consumers
to shop for specific and quality merchandise rather than undifferentiated
products offered by mass-marketed retailers.
The portfolio's three major areas of concentration on November 30, 1998, were
consumer-related groups, business services and technology. The most significant
reduction was in health care, which went from approximately 20 percent of net
assets to less than 10 percent. According to TCW, the health-care industry is
experiencing significant pricing pressure, which is affecting corporate
earnings growth.
GOING FORWARD
While the widespread easing of monetary policy has been encouraging, in TCW's
opinion several problems still loom large. Commodity prices are plunging,
global trade is declining, the prices of goods are falling and retail sales are
slowing sharply. These factors indicate that the global economy is in the grip
of a major slowdown, the extent of which cannot be forecast with much
conviction at this time.
According to TCW, the key, as ever, is in finding companies that have the
ability to grow throughout these and other trying economic times, companies
that concentrate their efforts on developing new and better products and
improving their processes, services and technologies in an effort to dominate
their industries. Investing in stocks that fit these criteria will continue to
be the Fund's priority.
2
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
LETTER TO THE SHAREHOLDERS November 30, 1998, continued
We appreciate your ongoing support of TCW/DW Mid-Cap Equity Trust and look
forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
- --------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
3
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
FUND PERFORMANCE November 30, 1998
GROWTH OF $10,000 CLASS B
<TABLE>
<CAPTION>
Date Total S&P Midcap IX Lipper
- -------------------- -------------- ------------------- ------------
<S> <C> <C> <C>
February 27, 1996 $10,000 $10,000 $10,000
November 30, 1996 $10,920 $11,351 $11,192
November 30, 1997 $10,850 $14,468 $12,974
November 30, 1998 $15,160(3) $15,972 $13,452
</TABLE>
-- Fund -- S&P Midcap IX(4) -- Lipper(5)
Past performance is not predictive of future returns. Performance for Class A,
Class C, and Class D shares will vary from the performance of Class B shares
shown above due to differences in sales charges and expenses.
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES*
- -------------------------------------------------------------
PERIOD ENDED 11/30/98
- ---------------------------
<S> <C> <C>
1 Year 42.49%(1) 37.49%(2)
Since Inception (2/27/96) 17.12%(1) 16.29%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++
- -------------------------------------------------------------
PERIOD ENDED 11/30/98
- ---------------------------
<S> <C> <C>
1 Year 42.27%(1) 41.27%(2)
Since Inception (7/28/97) 30.14%(1) 30.14%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES++
- -------------------------------------------------------------
PERIOD ENDED 11/30/98
- ---------------------------
<S> <C> <C>
1 Year 43.38%(1) 35.85%(2)
Since Inception (7/28/97) 31.08%(1) 25.92%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES#
- -------------------------------------------------------------
PERIOD ENDED 11/30/98
- ---------------------------
<S> <C>
1 Year 43.80%(1)
Since Inception (7/28/97) 31.46%(1)
</TABLE>
- ---------------
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable sales charge. See the Fund's current prospectus
for complete details on fees and sales charges.
(3) Closing value after the deduction of a 3% contingent deferred sales charge
(CDSC), assuming a complete redemption on November 30, 1998.
(4) The Standard & Poor's Mid-Cap Index is a market-value weighted index, the
performance of which is based on the average performance of 400 domestic
stocks chosen for market size, liquidity, and industry group
representation. The Index does not include any expenses, fees or charges.
The Index is unmanaged and should not be considered an investment.
(5) The Lipper Mid-Cap Fund Index is an equally-weighted performance index of
the largest qualifying funds (based on net assets) in the Lipper Mid-Cap
Funds objective. The Index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in this
index.
* The maximum CDSC for Class B shares is 5.0%. The CDSC declines to 0% after
six years.
+ The maximum front-end sales charge for Class A shares is 5.25%.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one
year of purchase.
# Class D shares have no sales charge.
4
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
PORTFOLIO OF INVESTMENTS November 30, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.4%)
Accident & Health Insurance (2.0%)
78,200 Hartford Life, Inc. (Class A) .......... $ 4,286,337
------------
Advertising (3.2%)
253,712 Outdoor Systems, Inc.* ................. 6,850,224
------------
Biotechnology (1.2%)
34,400 Biogen, Inc.* .......................... 2,610,100
------------
Books/Magazine (0.3%)
39,000 Playboy Enterprises, Inc.
(Class B)* ............................. 602,062
------------
Broadcast Media (9.9%)
152,000 Cablevision Systems Corp.
(Class A)* ............................. 6,289,000
171,800 Clear Channel Communications,
Inc.* .................................. 8,031,650
130,000 TCA Cable TV, Inc. ..................... 3,705,000
119,600 Westwood One, Inc.* .................... 3,139,500
------------
21,165,150
------------
Cable & Telecommunications (2.9%)
82,900 Global Crossing Ltd.* .................. 3,139,837
114,100 MetroNet Communications Corp.
(Class B) (Canada)* .................... 3,016,519
------------
6,156,356
------------
Casino/Gambling (1.0%)
139,800 Mirage Resorts, Inc.* .................. 2,079,525
------------
Computer Software (1.8%)
149,400 Cerner Corp.* .......................... 3,921,750
------------
Computer Software
& Services (8.6%)
55,200 Documentum, Inc.* ...................... 2,318,400
178,300 FORE Systems, Inc.* .................... 2,696,787
106,200 National Techteam, Inc.* ............... 716,850
56,300 Rational Software Corp.* ............... 1,277,306
333,600 Siebel Systems, Inc.* .................. 8,048,100
86,400 VeriSign, Inc.* ........................ 3,434,400
------------
18,491,843
------------
Diversified Commercial
Services (10.7%)
68,287 Apollo Group, Inc. (Class A)* .......... 2,202,256
121,250 Paychex, Inc. .......................... 6,032,187
133,800 Robert Half International, Inc.* ....... 6,288,600
275,500 Romac International, Inc.* ............. 3,839,781
209,700 Whittman-Hart, Inc.* ................... 4,613,400
------------
22,976,224
------------
Diversified Financial Services (1.6%)
93,000 Price (T. Rowe) Associates, Inc. ....... 3,324,750
------------
Electronic Components (2.5%)
103,300 Xilinx, Inc.* .......................... $ 5,242,475
------------
Electronics - Semiconductors/
Components (5.8%)
87,800 Altera Corp.* .......................... 4,307,688
147,600 Maxim Integrated Products, Inc.*........ 5,793,300
66,600 Microchip Technology, Inc.* ............ 2,318,513
------------
12,419,501
------------
Hospital/Nursing Management (2.3%)
230,287 Health Management Associates,
Inc. (Class A)* ........................ 4,994,349
------------
Household Furnishings &
Appliances (1.6%)
123,900 Restoration Hardware, Inc.* ............ 3,407,250
------------
Internet (26.8%)
72,100 Amazon.com, Inc.* ...................... 13,843,200
104,800 At Home Corp. (Series A)* .............. 6,091,500
53,300 Broadcast.com Inc.* .................... 3,517,800
141,200 E*TRADE Group, Inc.* ................... 3,812,400
56,500 eBay Inc.* ............................. 11,158,750
3,200 GeoCities* ............................. 96,200
97,500 Yahoo! Inc.* ........................... 18,713,906
------------
57,233,756
------------
Life Insurance (0.5%)
32,300 MONY Group Inc.* ....................... 999,281
------------
Medical Specialties (1.3%)
151,300 Safeskin Corp.* ........................ 2,865,244
------------
Oil & Gas Drilling (0.9%)
174,700 Precision Drilling Corp. (Canada)*...... 1,888,944
------------
Real Estate (0.4%)
48,000 CB Richard Ellis Services, Inc.* ....... 852,000
------------
Retail - Specialty (9.7%)
155,600 Bed Bath & Beyond, Inc.* ............... 4,852,775
141,200 Best Buy Co., Inc.* .................... 8,136,650
140,300 Corporate Express, Inc.* ............... 806,725
167,500 Just For Feet, Inc.* ................... 3,789,688
358,200 PetSmart, Inc.* ........................ 3,067,088
------------
20,652,926
------------
Retail - Specialty Apparel (1.2%)
104,800 Talbot's, Inc. (The) ................... 2,672,400
------------
Wireless Communication (2.2%)
207,300 American Tower Corp. (Class A)*......... 4,793,813
------------
TOTAL COMMON STOCKS
(Identified Cost $123,840,678).......... 210,486,260
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
PORTFOLIO OF INVESTMENTS November 30, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (1.6%)
REPURCHASE AGREEMENT
$ 3,398 The Bank of New York 4.625%
due 12/01/98 (dated 11/30/98;
proceeds $3,398,551) (a)
(Identified Cost $3,398,114).......... $ 3,398,114
-------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $127,238,792) (b)..... 100.0% 213,884,374
LIABILITIES IN EXCESS OF OTHER
ASSETS ................................ ( 0.0) (7,569)
----- -----------
NET ASSETS ............................ 100.0% $213,876,805
===== ============
</TABLE>
- ----------------
* Non-income producing security.
(a) Collateralized by $1,052,812 Student Loan Marketing Assoc. 5.057% due
12/17/98 valued at $1,052,580; $1,740,000 U.S. Treasury Note 4.00% due
10/31/00 valued at $1,726,623 and $655,872 U.S. Treasury Note 6.25% due
10/31/01 valued at $687,554.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$95,811,768 and the aggregate gross unrealized depreciation is
$9,166,186, resulting in net unrealized appreciation of $86,645,582.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $127,238,792)................................ $213,884,374
Receivable for:
Investments sold ............................................ 325,774
Shares of beneficial interest sold .......................... 185,611
Dividends ................................................... 18,566
Deferred organizational expenses ............................... 74,115
Prepaid expenses ............................................... 40,983
------------
TOTAL ASSETS ................................................ 214,529,423
------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased ................... 271,355
Plan of distribution fee .................................... 140,902
Management fee .............................................. 102,036
Investment advisory fee ..................................... 68,024
Investments purchased ....................................... 24,750
Accrued expenses ............................................... 45,551
------------
TOTAL LIABILITIES ........................................... 652,618
------------
NET ASSETS .................................................. $213,876,805
============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................................ $130,533,669
Net unrealized appreciation .................................... 86,645,582
Accumulated net realized loss .................................. (3,302,446)
------------
NET ASSETS .................................................. $213,876,805
============
CLASS A SHARES:
Net Assets ..................................................... $ 1,107,296
Shares Outstanding (unlimited authorized, $.01 par value)....... 70,981
NET ASSET VALUE PER SHARE ................................... $ 15.60
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ........... $ 16.46
============
CLASS B SHARES:
Net Assets ..................................................... $212,042,718
Shares Outstanding (unlimited authorized, $.01 par value)....... 13,717,791
NET ASSET VALUE PER SHARE ................................... $ 15.46
============
CLASS C SHARES:
Net Assets ..................................................... $ 712,341
Shares Outstanding (unlimited authorized, $.01 par value)....... 46,118
NET ASSET VALUE PER SHARE ................................... $ 15.45
============
CLASS D SHARES:
Net Assets ..................................................... $ 14,450
Shares Outstanding (unlimited authorized, $.01 par value)....... 923
NET ASSET VALUE PER SHARE ................................... $ 15.66
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended November 30, 1998
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT LOSS:
INCOME
Dividends ......................................... $ 176,224
Interest .......................................... 102,687
------------
TOTAL INCOME ................................... 278,911
------------
EXPENSES
Plan of distribution fee (Class A shares) ......... 1,092
Plan of distribution fee (Class B shares) ......... 1,616,961
Plan of distribution fee (Class C shares) ......... 2,906
Management fee .................................... 1,085,682
Investment advisory fee ........................... 723,788
Transfer agent fees and expenses .................. 242,766
Registration fees ................................. 84,733
Shareholder reports and notices ................... 59,459
Professional fees ................................. 51,628
Organizational expenses ........................... 33,032
Custodian fees .................................... 32,366
Trustees' fees and expenses ....................... 31,640
Other ............................................. 11,845
------------
TOTAL EXPENSES ................................. 3,977,898
------------
NET INVESTMENT LOSS ............................ (3,698,987)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ................................. 31,236,102
Net change in unrealized appreciation ............. 37,809,903
------------
NET GAIN ....................................... 69,046,005
------------
NET INCREASE ...................................... $ 65,347,018
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1997*
------------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .................................. $ (3,698,987) $ (3,891,233)
Net realized gain (loss) ............................. 31,236,102 (22,962,571)
Net change in unrealized appreciation ................ 37,809,903 23,258,457
------------- -------------
NET INCREASE (DECREASE) ........................... 65,347,018 (3,595,347)
Net decrease from transactions in shares of beneficial
interest ........................................... (26,033,572) (27,115,386)
------------- -------------
NET INCREASE (DECREASE) ........................... 39,313,446 (30,710,733)
NET ASSETS:
Beginning of period .................................. 174,563,359 205,274,092
------------- -------------
END OF PERIOD ...................................... $ 213,876,805 $ 174,563,359
============= =============
</TABLE>
- ----------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
TCW/DW Mid-Cap Equity Trust (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end
management investment company. The Fund's investment objective is to seek
long-term capital appreciation. The Fund seeks to achieve its objective by
investing primarily in equity securities, including common stocks and
securities convertible into common stock, issued by medium-sized companies. The
Fund was organized as a Massachusetts business trust on October 17, 1995 and
commenced operations on February 27, 1996. On July 28, 1997, the Fund commenced
offering three additional classes of shares, with the then current shares
designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price
(in cases where securities are traded on more than one exchange, the 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); and
(4) short-term debt securities having a maturity date of more than sixty days
at time of purchase are valued on a mark-to-market basis until sixty days prior
to
10
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1998, continued
maturity and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. Discounts are accreted over
the life of the respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date
such items are recognized. Distribution fees are charged directly to the
respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record 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.
F. ORGANIZATIONAL EXPENSES -- Morgan Stanley Dean Witter Advisors Inc.,
formerly Dean Witter InterCapital Inc., an affiliate of Morgan Stanley Dean
Witter Services Co. Inc. (the "Manager"), paid the organizational expenses of
the Fund in the amount of approximately $165,000 which have been reimbursed for
the full amount thereof. Such expenses have been deferred and are being
amortized on the straight-line method over a period not to exceed five years
from the commencement of operations.
11
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1998, continued
2. MANAGEMENT AGREEMENT
Pursuant to a Management Agreement, the Fund pays the Manager a management fee,
accrued daily and payable monthly, by applying the annual rate of 0.60% to the
net assets of the Fund determined as of the close of each business day.
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 annual rate of
0.40% to the net assets of the Fund determined as of the close of each business
day.
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
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The
Plan provides that the Fund will pay the Distributor a fee which is accrued
daily and paid monthly at the following annual rates: (i) Class A - up to 0.25%
of the average daily net assets of Class A; (ii) Class B - 1.0% of the lesser
of: (a) the average daily aggregate gross sales of the Class B shares since
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average net asset value of the Class B shares redeemed
since the Fund's inception upon which a contingent deferred sales charge has
been imposed or waived; or (b) the average daily net assets of Class B; and
(iii) Class C - up to 1.0% of the average daily net assets of Class C. In the
case of Class A shares, amounts paid under the Plan are paid to the Distributor
for services provided. In the case of Class B and Class C shares, amounts paid
under the Plan are paid to the Distributor for (1) services
12
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1998, continued
provided and the expenses borne by it and others in the distribution of the
shares of these Classes, including the payment of commissions for sales of
these Classes and incentive compensation to, and expenses of, Morgan Stanley
Dean Witter Financial Advisors and others who engage in or support distribution
of the shares or who service shareholder accounts, including overhead and
telephone expenses; (2) printing and distribution of prospectuses and reports
used in connection with the offering of these shares to other than current
shareholders; and (3) preparation, printing and distribution of sales
literature and advertising materials. In addition, the Distributor may utilize
fees paid pursuant to the Plan, in the case of Class B shares, to compensate
Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and other selected broker-dealers for their opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the Distributor
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. The Distributor has advised the Fund that such excess amounts,
including carrying charges, totaled $8,805,273 at November 30, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended November 30, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the year ended November 30,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $679,862 and $372, respectively
and received $15,552 in front-end sales charges from sales of the Fund's Class
A shares. The respective shareholders pay such charges which are not an expense
of the Fund.
13
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1998, continued
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 November 30, 1998
aggregated $92,856,026 and $125,265,184, respectively.
For the year ended November 30, 1998, the Fund incurred brokerage commissions
of $645 with Morgan Stanley & Co., Inc., an affliate of the Manager and
Distributor, for portfolio transactions executed on behalf of the Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Manager and
Distributor, is the Fund's transfer agent. At November 30, 1998, the Fund had
transfer agent fees and expenses payable of approximately $1,000.
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1997*
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ............................ 70,760 $ 975,219 6,748 $ 74,233
Repurchased ..................... (5,127) (68,294) (1,400) (15,778)
------ ------------- ------ -------------
Net increase -- Class A ......... 65,633 906,925 5,348 58,455
------ ------------- ------ -------------
CLASS B SHARES
Sold ............................ 2,515,413 32,751,132 2,893,121 29,335,443
Repurchased ..................... (4,871,632) (60,224,693) (5,621,922) (56,605,744)
---------- ------------- ---------- -------------
Net decrease -- Class B ......... (2,356,219) (27,473,561) (2,728,801) (27,270,301)
---------- ------------- ---------- -------------
CLASS C SHARES
Sold ............................ 41,665 574,086 7,669 86,447
Repurchased ..................... (3,216) (41,022) -- --
---------- ------------- ---------- -------------
Net increase -- Class C ......... 38,449 533,064 7,669 86,447
---------- ------------- ---------- -------------
CLASS D SHARES
Sold ............................ -- -- 923 10,013
---------- ------------- ---------- -------------
Net decrease in Fund ............ (2,252,137) $ (26,033,572) (2,714,861) $ (27,115,386)
========== ============= ========== =============
</TABLE>
- ---------------
* For Class A, C and D, for the period July 28, 1997 (issue date) through
November 30, 1997.
14
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1998, continued
7. FEDERAL INCOME TAX STATUS
During the year ended November 30, 1998, the Fund utilized its net capital loss
carryover of approximately $34,462,000.
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $3,106,000 during fiscal 1998.
As of November 30, 1998, the Fund had temporary book/tax differences
attributable to post-October losses and capital loss deferrals on wash sales
and permanent book/tax differences primarily attributable to a net operating
loss. To reflect reclassifications arising from the permanent differences,
paid-in-capital was charged and net investment loss was credited $3,698,987.
15
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR FEBRUARY 27, 1996*
ENDED ENDED THROUGH
NOVEMBER 30, 1998++ NOVEMBER 30, 1997**++ NOVEMBER 30, 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA
Net asset value, beginning of period ................... $10.85 $10.92 $10.00
------ ------ ------
Income (loss) from investment operations:
Net investment loss ................................... (0.26) (0.22) (0.13)
Net realized and unrealized gain ...................... 4.87 0.15 1.05
------ ------ ------
Total income (loss) from investment operations ......... 4.61 (0.07) 0.92
------ ------ ------
Net asset value, end of period ......................... $15.46 $10.85 $10.92
====== ====== ======
TOTAL RETURN+ .......................................... 42.49 % (0.64)% 9.20 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 2.20 %(3) 2.29 % 2.28 %(2)
Net investment loss .................................... (2.05)%(3) (2.16)% (1.79)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $212,043 $174,412 $205,274
Portfolio turnover rate ................................ 52 % 49 % 25 %(1)
</TABLE>
- -------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
NOVEMBER 30, 1998 NOVEMBER 30, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA
Net asset value, beginning of period ............ $10.88 $10.85
------ ------
Income from investment operations:
Net investment loss ............................ (0.18) (0.06)
Net realized and unrealized gain ............... 4.90 0.09
------ ------
Total income from investment operations ......... 4.72 0.03
------ ------
Net asset value, end of period .................. $15.60 $10.88
====== ======
TOTAL RETURN+ ................................... 43.38 % 0.28 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.55 %(3) 1.55 %(2)
Net investment loss ............................. (1.40)%(3) (1.46)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $1,107 $58
Portfolio turnover rate ......................... 52 % 49 %
CLASS C SHARES++
SELECTED PER SHARE DATA
Net asset value, beginning of period ............ $10.85 $10.85
------ ------
Income from investment operations:
Net investment loss ............................ (0.28) (0.08)
Net realized and unrealized gain ............... 4.88 0.08
------ ------
Total income from investment operations ......... 4.60 --
------ ------
Net asset value, end of period .................. $15.45 $10.85
====== ======
TOTAL RETURN+ ................................... 42.27 % 0.09 %(1)
RATIOS TO AVERAGE NET ASSETS :
Expenses ........................................ 2.30 %(3) 2.32 %(2)
Net investment loss ............................. (2.15)%(3) (2.22)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $712 $83
Portfolio turnover rate ......................... 52 % 49 %
</TABLE>
- --------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
et asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
NOVEMBER 30, 1998 NOVEMBER 30, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA
Net asset value, beginning of period ............ $10.89 $10.85
------ ------
Income from investment operations:
Net investment loss ............................ (0.15) (0.05)
Net realized and unrealized gain ............... 4.92 0.09
------ ------
Total income from investment operations ......... 4.77 0.04
------ ------
Net asset value, end of period .................. $15.66 $10.89
====== ======
TOTAL RETURN+ ................................... 43.80 % 0.37 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.30 %(3) 1.30 %(2)
Net investment loss ............................. (1.15)%(3) (1.19)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $15 $10
Portfolio turnover rate ......................... 52 % 49 %
</TABLE>
- --------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF TCW/DW MID-CAP EQUITY TRUST
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 Mid-Cap Equity Trust (the
"Fund") at November 30, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at November 30, 1998 by correspondence with the custodian and
brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
January 8, 1999
19
<PAGE>
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and General Counsel
Douglas S. Foreman
Vice President
Christopher J. Ainley
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Morgan Stanley Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus
of the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
TCW/DW
MID-CAP EQUITY TRUST
[GRAPHIC]
ANNUAL REPORT
NOVEMBER 30, 1998
<PAGE>
PROSPECTUS
NOVEMBER 28, 1994
PROSPECTUS -- JULY 29, 1998
- -----------------------------------------------------------------------------
Morgan Stanley Dean Witter Mid-Cap Growth Fund (the "Fund") is an
open-end, diversified management investment company whose investment objective
is to seek long-term capital growth. The Fund seeks to meet its investment
objective by investing primarily in equity securities of "mid-cap" companies.
The Fund offers four classes of shares (each, a "Class"), each with a
different combination of sales charges, ongoing fees and other features. The
different distribution arrangements permit an investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should know
before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated July 29, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
MORGAN STANLEY DEAN WITTER
MID-CAP GROWTH FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550 OR
(800) 869-NEWS (TOLL-FREE)
TABLE OF CONTENTS
Prospectus Summary/ 2
Summary of Fund Expenses/ 4
Financial Highlights/ 6
The Fund and its Management/ 9
Investment Objective and Policies/ 9
Risk Considerations/ 16
Investment Restrictions/ 18
Purchase of Fund Shares/ 19
Shareholder Services/ 30
Redemptions and Repurchases/ 33
Dividends, Distributions and Taxes/ 34
Performance Information/ 35
Additional Information/ 36
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 NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Morgan Stanley Dean Witter
Distributors Inc.,
Distributor
<PAGE>
PROSPECTUS SUMMARY
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
THE FUND The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an open-end,
diversified management investment company. The Fund invests primarily in equity securities of "mid-cap"
companies (see page 9).
- -------------------------------------------------------------------------------------------------------------------------------
SHARES OFFERED Shares of beneficial interest with $.01 par value (see page 36). The Fund offers four Classes of shares,
each with a different combination of sales charges, ongoing fees and other features (see pages 19-29).
- -------------------------------------------------------------------------------------------------------------------------------
MINIMUM The minimum initial investment for each Class is $1,000 ($100 if the account is opened through EasyInvest
PURCHASE (Service Mark) ). Class D shares are only available to persons investing $5 million ($25 million for
certain qualified plans) or more and to certain other limited categories of investors. For the purpose
of meeting the minimum $5 million (or $25 million) investment for Class D shares, and subject to the
$1,000 minimum initial investment for each Class of the Fund, an investor's existing holdings of Class
A shares and shares of funds for which Morgan Stanley Dean Witter Advisors Inc. serves as investment
manager ("Morgan Stanley Dean Witter Funds") that are sold with a front-end sales charge, and concurrent
investments in Class D shares of the Fund and other Morgan Stanley Dean Witter Funds that are multiple
class funds, will be aggregated. The minimum subsequent investment is $100 (see page 19).
- -------------------------------------------------------------------------------------------------------------------------------
INVESTMENT The investment objective of the Fund is long-term capital growth (see page 9).
OBJECTIVE
- -------------------------------------------------------------------------------------------------------------------------------
INVESTMENT Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Fund, and its wholly-owned
MANAGER subsidiary, Morgan Stanley Dean Witter Services Company Inc., serve in various investment management,
advisory, management and administrative capacities to 101 investment companies and other portfolios
with net assets under management of approximately $115.2 billion at June 30, 1998 (see page 9).
- -------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT The Investment Manager receives a monthly fee at the annual rate of 0.75% of the portion of the Fund's
FEE average daily net assets not exceeding $500 million and 0.725% of the portion of the Fund's average
daily net assets exceeding $500 million. The fee should not be compared with fees paid by other investment
companies without also considering applicable sales loads and distribution fees, including those noted
below (see page 9).
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution
AND plan pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1 Plan") with respect to the
DISTRIBUTION distribution fees paid by the Class A, Class B and Class C shares of the Fund to the Distributor. The
FEE entire 12b-1 fee payable by Class A and a portion of the 12b-1 fee payable by each of Class B and Class
C equal to 0.25% of the average daily net assets of the Class are currently each characterized as a
service fee within the meaning of the National Association of Securities Dealers, Inc. guidelines.
The remaining portion of the 12b-1 fee, if any, is characterized as an asset-based sales charge (see
pages 19 and 28).
- -------------------------------------------------------------------------------------------------------------------------------
ALTERNATIVE Four classes of shares are offered:
PURCHASE o Class A shares are offered with a front-end sales charge, starting at 5.25% and reduced for larger
ARRANGEMENTS 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 19, 22 and 28).
2
<PAGE>
- -------------------------------------------------------------------------------------------------------------------------------
o Class B shares are offered without a front-end sales charge, but will in most cases be subject to
a CDSC (scaled down from 5.0% to 1.0%) if redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate current value of a Class
B account with the Fund falls below the aggregate amount of the investor's purchase payments made during
the six years preceding the redemption. A different CDSC schedule applies to investments by certain
qualified plans. Class B shares are also subject to a 12b-1 fee assessed at the annual rate of 1.0%
of the lesser of: (a) the average daily net sales of the Fund's Class B shares or (b) the average daily
net assets of Class B. All shares of the Fund held prior to July 28, 1997 have been designated Class
B shares. Shares held before May 1, 1997 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 19, 25 and 28).
o Class C shares are offered without a front-end sales charge, but will in most cases be subject to
a CDSC of 1.0% if redeemed within one year after purchase. The Fund is authorized to reimburse the
Distributor for specific expenses incurred in promoting the distribution of the Fund's Class C shares
and servicing shareholder accounts pursuant to the Fund's 12b-1 Plan. Reimbursement may in no event
exceed an amount equal to payments at an annual rate of 1.0% of average daily net assets of the Class
(see pages 19, 27 and 28).
o Class D shares are offered only to investors meeting an initial investment minimum of $5 million
($25 million for certain qualified plans) and to certain other limited categories of investors. Class
D shares are offered without a front-end sales charge or CDSC and are not subject to any 12b-1 fee
(see pages 19, 27 and 28).
- -------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS Dividends from net investment income and distributions from net capital gains, if any, are paid at
AND CAPITAL GAINS least annually. The Fund may, however, determine to retain all or part of any net long-term capital
DISTRIBUTIONS gains in any year for reinvestment. Dividends and capital gains distributions paid on shares of a Class
are automatically reinvested in additional shares of the same Class at net asset value unless the shareholder
elects to receive cash. Shares acquired by dividend and distribution reinvestment will not be subject
to any sales charge or CDSC (see pages 30 and 34).
- -------------------------------------------------------------------------------------------------------------------------------
REDEMPTION Shares are redeemable by the shareholder at net asset value less any applicable CDSC on Class A, Class
B or Class C shares. An account may be involuntarily redeemed if the total value of the account is
less than $100 or, if the account was opened through EasyInvestSM, if after twelve months the shareholder
has invested less than $1,000 in the account (see page 33).
- -------------------------------------------------------------------------------------------------------------------------------
RISK The net asset value of the Fund's shares will fluctuate with changes in the market value of portfolio
CONSIDERATIONS securities. Investing in medium-sized market capitalization companies may involve greater risk of volatility
in the Fund's net asset value than is customarily associated with investing in larger, more established
companies. In addition, it should be recognized that the foreign securities and markets in which the
Fund may invest up to 35% of its total assets pose different and greater risks than those customarily
associated with domestic securities and their markets (see pages 9-18).
- -------------------------------------------------------------------------------------------------------------------------------
The above is qualified in its entirety by the detailed information appearing elsewhere in this Prospectus
and in the Statement of Additional Information.
</TABLE>
3
<PAGE>
SUMMARY OF FUND EXPENSES
- -----------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are based
on the expenses and fees for the fiscal year ended May 31,
1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
- ---------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) ..................... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments .... None None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds)............................... None(2) 5.00%(3) 1.00%(4) None
Redemption Fees..................................... None None None None
Exchange Fee........................................ None None None None
Annual Fund Operating Expenses (as a percentage of average net assets)
- ----------------------------------------------------------------------
Management Fees (5)................................. 0.75% 0.75% 0.75% 0.75%
12b-1 Fees (6)(7)................................... 0.25% 1.00% 1.00% None
Other Expenses (5).................................. 0.18% 0.18% 0.18% 0.18%
Total Fund Operating Expenses (8)................... 1.18% 1.93% 1.93% 0.93%
</TABLE>
- ------------
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on
redemptions made within one year after purchase, except for certain
specific circumstances (see "Purchase of Fund Shares--Initial Sales
Charge Alternative--Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares--Level Load Alternative--Class C Shares").
(5) Management fees and other expenses are based on the Fund's actual
aggregate expenses.
(6) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1
fee payable by Class A and a portion of the 12b-1 fee payable by each
of Class B and Class C equal to 0.25% of the average daily net assets
of the Class are currently each characterized as a service fee within
the meaning of National Association of Securities Dealers, Inc.
("NASD") guidelines and are payments made for personal service and/or
maintenance of shareholder accounts. The remainder of the 12b-1 fee, if
any, is an asset-based sales charge, and is a distribution fee paid to
the Distributor to compensate it for the services provided and the
expenses borne by the Distributor and others in the distribution of the
Fund's shares (see "Purchase of Fund Shares--Plan of Distribution").
(7) Upon conversion of Class B shares to Class A shares, such shares will
be subject to the lower 12b-1 fee applicable to Class A shares. No
sales charge is imposed at the time of conversion of Class B shares to
Class A shares. Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing 1.00% distribution fee (see
"Purchase of Fund Shares--Alternative Purchase Arrangements").
(8) There were no outstanding shares of Class A, Class C or Class D prior
to July 28, 1997.
4
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------- -------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
Class A ...................................................... $64 $88 $114 $188
Class B ...................................................... $70 $91 $124 $225
Class C....................................................... $30 $61 $104 $225
Class D ...................................................... $ 9 $30 $ 51 $114
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A ...................................................... $64 $88 $114 $188
Class B ...................................................... $20 $61 $104 $225
Class C ...................................................... $20 $61 $104 $225
Class D ...................................................... $ 9 $30 $ 51 $114
</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 "Redemption and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales
charges, including distribution fees, than the economic equivalent of the
maximum front-end sales charges permitted by the NASD.
5
<PAGE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by
PricewaterhouseCoopers LLP, independent accountants. The financial highlights
should be read in conjunction with the financial statements, notes thereto,
and the unqualified report of independent accountants, which are contained in
the Statement of Additional Information. Further information about the
performance of the Fund is contained in the Fund's Annual Report to
Shareholders, which may be obtained without charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED MAY 31, SEPTEMBER 29, 1994*
THROUGH
------------------------------------- MAY 31, 1995
1998**++ 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $14.76 $15.11 $10.81 $10.00
----------- ----------- ----------- -------------------
Net investment loss ....................... (0.22) (0.13) (0.10) (0.01)
Net realized and unrealized gain .......... 3.79 0.94 5.60 0.84
----------- ----------- ----------- -------------------
Total from investment operations .......... 3.57 0.81 5.50 0.83
----------- ----------- ----------- -------------------
Less distributions from net realized gain (1.16) (1.16) (1.20) (0.02)
----------- ----------- ----------- -------------------
Net asset value, end of period ............ $17.17 $14.76 $15.11 $10.81
=========== =========== =========== ===================
TOTAL INVESTMENT RETURN+ .................. 24.68 % 6.01 % 53.02 % 8.26 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.93 % 1.99 % 2.05 % 2.21 %(2)
Net investment loss ....................... (1.31)% (1.06)% (1.05)% (0.16)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $635,816 $418,752 $309,272 $115,126
Portfolio turnover rate ................... 169 % 209 % 328 % 199 %(1)
Average commission rate paid .............. $0.0579 $0.0592 $0.0582 --
</TABLE>
- ------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B
shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
6
<PAGE>
FINANCIAL HIGHLIGHTS, continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MAY 31, 1998++
- ----------------------------------------- --------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 16.43
--------------
Net investment loss ...................... (0.10)
Net realized and unrealized gain ........ 2.12
--------------
Total from investment operations ........ 2.02
--------------
Less distributions from net realized gain (1.16)
--------------
Net asset value, end of period ........... $ 17.29
==============
TOTAL INVESTMENT RETURN+ ................. 12.77 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................. 1.19 %(2)
Net investment loss ...................... (0.70)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $ 2,876
Portfolio turnover rate .................. 169 %
Average commission rate paid ............. $ 0.0579
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 16.43
--------------
Net investment loss ...................... (0.20)
Net realized and unrealized gain ........ 2.10
--------------
Total from investment operations ........ 1.90
--------------
Less distributions from net realized gain (1.16)
--------------
Net asset value, end of period ........... $ 17.17
==============
TOTAL INVESTMENT RETURN+ ................. 12.01 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................. 1.94 %(2)
Net investment loss ...................... (1.40)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $ 5,802
Portfolio turnover rate .................. 169 %
Average commission rate paid ............. $ 0.0579
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
7
<PAGE>
FINANCIAL HIGHLIGHTS, continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MAY 31, 1998++
- ----------------------------------------- --------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 16.43
--------------
Net investment loss ...................... (0.06)
Net realized and unrealized gain ........ 2.10
--------------
Total from investment operations ........ 2.04
--------------
Less distributions from net realized gain (1.16)
--------------
Net asset value, end of period ........... $ 17.31
==============
TOTAL INVESTMENT RETURN+ ................. 12.89 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. 0.93 %(2)
Net investment loss ...................... (0.41)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $ 1,081
Portfolio turnover rate .................. 169 %
Average commission rate paid ............. $ 0.0579
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
8
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Morgan Stanley Dean Witter Mid-Cap Growth Fund (the "Fund") (formerly
named Dean Witter Mid-Cap Growth Fund) is an open-end, diversified management
investment company. The Fund is a trust of the type commonly known as a
"Massachusetts business trust" and was organized under the laws of The
Commonwealth of Massachusetts on May 25, 1994.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the
"Investment Manager"), whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. The Investment Manager is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., a preeminent
global financial services firm that maintains leading market positions in
each of its three primary businesses--securities, asset management and credit
services. The Investment Manager, which was incorporated in July, 1992 under
the name Dean Witter InterCapital Inc., changed its name to Morgan Stanley
Dean Witter Advisors Inc. on June 22, 1998.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services"), serve in various investment
management, advisory, management and administrative capacities to 101
investment companies, 28 of which are listed on the New York Stock Exchange,
with combined assets of approximately $110.8 billion at June 30, 1998. The
Investment Manager also manages portfolios of pension plans, other
institutions and individuals which aggregated approximately $4.4 billion at
such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of
portfolio securities. MSDW Advisors has retained MSDW Services to perform the
aforementioned administrative services for the Fund.
The Fund's Trustees review the various services provided by the Investment
Manager to ensure that the Fund's general investment policies and programs
are being properly carried out and that administrative services are being
provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
following annual rates to the Fund's net assets: 0.75% of the portion of
daily net assets not exceeding $500 million; and 0.725% of the portion of
daily net assets exceeding $500 million. This fee is higher than the fee paid
by most other investment companies. For the fiscal year ended May 31, 1998,
the Fund accrued total compensation to the Investment Manager amounting to
0.75% of the Fund's average daily net assets and the total expenses of Class
B amounted to 1.93% of the average daily net assets of Class B. Shares of
Class A, Class C and Class D were first issued on July 28, 1997. The expenses
of the Fund include: the fee of the Investment Manager; the fee pursuant to
the Plan of Distribution (see "Purchase of Fund Shares"); taxes; transfer
agent, custodian and auditing fees; certain legal fees; and printing and
other expenses relating to the Fund's operations which are not expressly
assumed by the Investment Manager under its Investment Management Agreement
with the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
The investment objective of the Fund is long-term capital growth. The
objective is a fundamental policy of the Fund and may not be changed without
a vote of a majority of the outstanding voting securities of the Fund. There
is no assurance that the objective will be achieved. The following policies
may be changed by the Board of Trustees without shareholder approval.
9
<PAGE>
The Fund seeks to achieve its investment objective by investing, under
normal circumstances, at least 65% of its total assets in a diversified
portfolio of domestic and foreign equity securities of "mid-cap" companies. A
mid-cap company is a company whose market capitalization falls within the
range of $250 million to $5 billion. The Fund may invest up to 35% of its
total assets in (i) U.S. Government Securities, investment grade corporate
debt securities and money market instruments, or (ii) equity securities of
companies with market capitalizations which fall outside of the range of $250
million to $5 billion at the time of purchase as long as such investments are
consistent with the Fund's investment objective. The Fund may invest up to
35% of its total assets in the equity securities of non-U.S. companies,
including American or other Depository Receipts, rights, warrants, and the
direct purchase of foreign securities. Equity securities in which the Fund
may invest include common stocks and securities convertible into common
stocks. The Fund utilizes an investment process that places primary emphasis
on seeking to identify industries, rather than individual companies, as
prospects for capital appreciation and whereby the Investment Manager seeks
to invest assets of the Fund in industries it considers to be attractive at
the time of purchase and to sell those it considers overvalued. The
Investment Manager will invest principally in those mid-cap companies that in
the opinion of the Investment Manager have above-average relative growth
potential. Mid-cap companies typically have a better growth potential than
their large-cap counterparts because they are still in the early and more
dynamic period of their corporate existences. Often mid-size companies and
the industries in which they are focused are still evolving as opposed to the
more mature industries served by large-cap companies. Moreover, mid-cap
companies are not considered "emerging" stocks, nor are they as volatile as
small-cap firms. This is due to the fact that mid-cap companies have
increased liquidity, attributable to their larger market capitalization as
well as longer and more established track records, and a stronger market
presence and dominance than small-cap firms. Consequently, because of the
better growth inherent in these companies and their industries, mid-cap
companies offer superior return potential to large-cap companies, yet owing
to their relatively larger size and better recognition in the investment
community, they have a reduced risk profile compared to smaller, emerging or
micro-cap companies.
In selecting stocks within the mid-cap universe, the Investment Manager
will use an industry approach that seeks to diversify the assets of the Fund
in approximately 18 to 35 industries. The Fund will hold less than 5% of its
net assets in any one security and will hold less than 10% of its net assets
in any one industry. Companies will be selected based on at least three-year
track records, and purchases will be primarily focused on companies that: (1)
have the potential for above-average relative earnings growth; (2) are
focused in industries that are rapidly expanding or have the potential to see
increasing sales or earnings; (3) historically have had well-defined and
recurring revenues; or (4) are attractive based on an assessment of private
market or franchise values.
After selection of the Fund's target industries, specific company
investments are selected. In this process, the Investment Manager seeks to
identify companies whose prospects are deemed attractive on the basis of an
evaluation of valuation screens and prospective company fundamentals. From
the total of all companies included in the industry valuation process, the
Investment Manager selects a limited number from each industry as
representative of that industry. Such selections are made on the basis of
various criteria, including size and quality of a company, the visibility of its
earnings and various valuation parameters. Valuation screens may include
dividend discount model values, price-to-book ratios, price-to-cash flow values,
relative and absolute price-to-earnings ratios and ratios of price-earnings
multiples to earnings growth. Price and earnings momentum ratings derived from
external sources are also factored into the stock selection decision. Those
companies which the Investment Manager believes to be attractive investments are
finally selected for inclusion in the Fund. For a discussion of the risks of
mid-cap stocks, see "Risk Considerations" below.
10
<PAGE>
Asset Allocation. Common stocks, particularly those sought for possible
capital appreciation, have historically experienced a great amount of price
fluctuation. The Investment Manager believes it is desirable to attempt to
reduce the risks of extreme price fluctuations even if such an attempt
results, as it likely will at times, in reducing the probabilities of
obtaining greater capital appreciation. Accordingly, the Investment Manager's
investment process incorporates elements which may reduce, although certainly
not eliminate, the volatility of a portfolio. The Fund may hold a portion of
its portfolio in investment grade fixed-income securities, including
convertible securities, in an effort to moderate extremes of price
fluctuation. The determination of the appropriate asset allocation as between
equity and fixed-income investments will be made by the Investment Manager in
its discretion, based upon its evaluation of economic and market conditions.
Money market instruments in which the Fund may invest include securities
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities (Treasury bills, notes and bonds, including zero coupon
securities); bank obligations; Euro-dollar certificates of deposit;
obligations of savings institutions; fully insured certificates of deposit;
and commercial paper rated within the four highest grades by Moody's or S&P
or, if not rated, issued by a company having an outstanding debt issue rated
at least AA by S&P or Aa by Moody's. Such securities may be used to invest
uncommitted cash balances.
There may be periods during which, in the opinion of the Investment
Manager, market conditions warrant reduction of some or all of the Fund's
securities holdings. During such periods, the Fund may adopt a temporary
"defensive" posture in which up to 100% of its total assets is invested in
money market instruments or cash.
PORTFOLIO CHARACTERISTICS
Fixed-income Securities. Investments in fixed-income securities rated
either BBB by S&P or Baa by Moody's (the lowest credit ratings designated
"investment grade") have speculative characteristics and, therefore, changes
in economic conditions or other circumstances are more likely to weaken their
capacity to make principal and interest payments than would be the case with
investments in securities with higher credit ratings. If a non-convertible
fixed-income security held by the Fund is rated BBB or Baa and is
subsequently downgraded by a rating agency, the Fund will retain such
security in its portfolio until the Investment Manager determines that it is
practicable to sell the security without undue market or tax consequences to
the Fund. In the event that such downgraded securities constitute 5% or more
of the Fund's net assets, the Investment Manager will sell such securities as
soon as is practicable, in sufficient amounts to reduce the total to below
5%.
Convertible Securities. The Fund may acquire, through purchase or a
distribution by the issuer of a security held in its portfolio, a
fixed-income security which is convertible into common stock of the issuer.
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, will sell at some premium over its
conversion value. (This premium represents the price investors are willing to
pay for the privilege of purchasing a fixed-income security with a
possibility of capital appreciation due to the
11
<PAGE>
conversion privilege.) At such times the price of the convertible security
will tend to fluctuate directly with the price of the underlying equity
security.
Because of the special nature of the Fund's permitted investments in lower
rated convertible securities, the Investment Manager must take account of
certain special considerations in assessing the risks associated with such
investments. The prices of lower rated securities have been found to be less
sensitive to changes in prevailing interest rates than higher rated
investments, but are likely to be more sensitive to adverse economic changes
or individual corporate developments. During an economic downturn or
substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet their
projected business goals or to obtain additional financing. If the issuer of
a lower rated convertible security owned by the Fund defaults, the Fund may
incur additional expenses to seek recovery. In addition, periods of economic
uncertainty and change can be expected to result in an increased volatility
of market prices of lower rated securities and a corresponding volatility in
the net asset value of a share of the Fund.
When-Issued and Delayed Delivery Securities and Forward Commitments. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after the date of the commitment.
An increase in the percentage of the Fund's assets committed to the purchase
of securities on a when-issued, delayed delivery or forward commitment basis
may increase the volatility of the Fund's net asset value.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when, as
and if issued" basis may increase the volatility of its net asset value.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at
any time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account
pursuant to applicable regulations and that are equal to at least the market
value, determined daily, of the loaned securities. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail
financially. However, loans of portfolio securities will only be made to
firms deemed by the Investment Manager to be creditworthy and when the income
which can be earned from such loans justifies the attendant risks.
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.
12
<PAGE>
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by
the Fund. If a restricted security is determined to be "liquid," such
security will not be included within the category "illiquid securities,"
which under current policy may not exceed 15% of the Fund's net assets.
However, investing in Rule 144A securities could have the effect of
increasing the level of Fund illiquidity to the extent the Fund, at a
particular point in time, may be unable to find qualified institutional
buyers interested in purchasing such securities.
Options. The Fund also may purchase and sell (write) call and put options
on debt and equity securities which are listed on Exchanges or are written in
over-the-counter transactions ("OTC Options"). Listed options, which are
currently listed on several different Exchanges, are issued by the Options
Clearing Corporation ("OCC"). Ownership of a listed call option gives the
Fund the right to buy from the OCC the underlying security covered by the
option at the stated exercise price (the price per unit of the underlying
security) 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 the underlying security 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 at the stated exercise price. The Fund will
not write covered options on portfolio securities exceeding in the aggregate
25% of the value of its total assets.
OTC Options. 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. The Fund will
engage in OTC option transactions only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities in order to aid it in achieving its investment
objective. As a writer of a call option, the Fund has the obligation, upon
notice of exercise of the option, to deliver the security underlying the
option (certain listed call options written by the Fund will be exercisable
by the purchaser only on a specific date). See "Options and Futures
Transactions--Covered Call Writing" in the Statement of Additional
Information.
Covered Put Writing. As a writer of covered put options, 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.
The Fund will write put options for two purposes: (1) to receive the premiums
paid by purchasers; and (2) when the Investment Manager wishes to purchase
the security 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. See "Options and Futures
Transactions--Covered Put Writing" in the Statement of Additional
Information.
Purchasing Call and Put Options. The Fund may invest up to 5% of its total
assets in the purchase of put and call options on securities and stock
indexes. The Fund may purchase put options on securities which it holds (or
has the right to acquire) 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.
Stock Index Options. The Fund may purchase and write options on stock
indexes only for hedging purposes. Options on stock indexes are similar to
options on stock except that, rather than the right to
13
<PAGE>
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. See "Stock Index Options" and "Risks
of Options on Indexes" in the Statement of Additional Information.
Futures Contracts. The Fund may 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 Corporate Bond Index
("bond index" futures). As a futures contract purchaser, the Fund incurs an
obligation to take delivery of a specified amount of the obligation
underlying the contract at a specified time in the future for a specified
price. As a seller of a futures contract, the Fund incurs an obligation to
deliver the specified amount of the underlying obligation at a specified time
in return for an agreed upon price. 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) securities
against changes in prevailing interest rates. The Fund will purchase or sell
stock index futures contracts for the purpose of hedging its equity portfolio
(or anticipated portfolio) securities against changes in their prices. See
"Options and Futures Transactions--Futures Contracts" in the Statement of
Additional Information.
The Fund also may purchase and write call and put options on futures
contracts and enter into closing transactions with respect to such options to
terminate an existing position.
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 whose
financial condition will be continually monitored by the Investment Manager
subject to procedures established by the Board of Trustees of the Fund. In
addition, as described above, the value of the collateral underlying the
repurchase agreement will be at least equal to the repurchase price,
including any accrued interest earned on the repurchase agreement. In the
event of a default or bankruptcy by a selling financial institution, the Fund
will seek to liquidate such collateral. However, the exercising of the Fund's
right to liquidate such collateral could involve certain costs or delays and,
to the extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss.
It is the current policy of the Fund not to invest in repurchase agreements
that do not mature within seven days if any such investment, together with
any other illiquid assets held by the Fund, amounts to more than 15% of its
net assets.
Foreign Securities up to 35% of the value of its total assets, at the time
of purchase, in equity securities, rights and warrants issued by foreign
issuers. Such investments may also be in the form of American Depository
Receipts (ADRs), European Depository Receipts (EDRs) or other similar
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically is-
14
<PAGE>
sued by a United States bank or trust company evidencing ownership of the
underlying securities. EDRs are European receipts evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
United States securities markets and EDRs, in bearer form, are designed for
use in European securities markets. When purchasing foreign securities, the
Fund will generally enter into foreign currency exchange transactions or
forward foreign exchange contracts to facilitate settlement. The Fund will
utilize forward foreign exchange contracts in these instances as an attempt
to limit the effect of changes in the relationship between the U.S. dollar
and the foreign currency during the period between the trade date and
settlement date for the transaction. 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. For a
discussion of the risks of foreign securities, see "Risk Considerations"
below.
Zero Coupon Securities. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. The interest earned on such securities is,
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as
income each year even though the Fund receives no interest payments in cash
on the security during the year.
Investment in Real Estate Investment Trusts. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments
primarily in commercial real estate properties. Investment in real estate
investment trusts may be the most practical available means for the Fund to
invest in the real estate industry (the Fund is prohibited from investing in
real estate directly). As a shareholder in a real estate investment trust,
the Fund would bear its ratable share of the real estate investment trust's
expenses, including its advisory and administration fees. At the same time
the Fund would continue to pay its own investment management fees and other
expenses, as a result of which the Fund and its shareholders in effect will
be absorbing duplicate levels of fees with respect to investments in real
estate investment trusts. Real estate investment trusts are not diversified
and are subject to the risk of financing projects. They are also subject to
heavy cash flow dependency, defaults by borrowers or tenants,
self-liquidation, and the possibility of failing to qualify for tax-free
status under the Internal Revenue Code and failing to maintain exemption from
the Investment Company Act of 1940, as amended.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers, including Dean
Witter Reynolds Inc., Morgan Stanley & Co. Incorporated and other
broker-dealers that are affiliates of the Investment Manager, and the
Investment Manager's own analysis of factors it deems relevant. No particular
emphasis is given to investments in securities for the purpose of earning
current income. The Fund's portfolio is
15
<PAGE>
managed within MSDW Advisors' Growth Group, which manages 29 funds and fund
portfolios with approximately $12.6 billion in assets as of June 30, 1998.
Peter Hermann, Vice President of MSDW Advisors and a member of the Growth
Group, has been the primary portfolio manager of the Fund since January 1998.
Prior to joining MSDW Advisors in March 1994, Mr. Hermann was a portfolio
manager at The Bank of New York.
The Fund intends to buy and hold securities for capital appreciation.
Although the Fund does not intend to engage in substantial short-term trading
as a means of achieving its investment objective, it may sell portfolio
securities without regard to the length of time they have been held, in
accordance with the investment policies described earlier. Portfolio changes
will be effected whenever the Fund's Investment Manager believes they will
benefit the performance of the portfolio. As a result the Fund does expect to
engage in a substantial number of portfolio transactions. It is anticipated
that, under normal market conditions, the Fund's portfolio turnover rate will
not exceed 350% in any one year. The Fund will incur brokerage costs
commensurate with its portfolio turnover rate; thus a higher level (over
100%) of portfolio transactions will increase the Fund's overall brokerage
expenses. Short term gains and losses may result from such portfolio
transactions. See "Dividends, Distributions and Taxes" for a discussion of
the tax implications of the Fund's trading policy. A more extensive
discussion of the Fund's portfolio brokerage policies is set forth in the
Statement of Additional Information.
Pursuant to an order of the Securities and Exchange Commission the Fund
may effect principal transactions in certain money market instruments with
Dean Witter Reynolds Inc. In addition, the Fund may incur brokerage
commissions on transactions conducted through Dean Witter Reynolds Inc.,
Morgan Stanley & Co. Incorporated and other brokers and dealers that are
affiliates of the Investment Manager.
RISK CONSIDERATIONS
- -----------------------------------------------------------------------------
The net asset value of the Fund's shares will fluctuate with changes in
the market value of its portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market or political factors which cannot be predicted. The Fund is intended
for long-term investors who can accept the risks involved in seeking
long-term growth of capital through investment primarily in the securities of
medium-sized growth companies. It should be recognized that investing in such
companies involves greater risk than is customarily associated with investing
in more established companies.
Mid-Cap Stocks. Investing in medium-sized market capitalization companies
may involve greater risk of volatility of the Fund's net asset value than is
customarily associated with investing in larger, more established companies.
Often mid-size companies and the industries in which they are focused are
still evolving and while this may offer better growth potential than larger,
established companies, it also may make them more sensitive to changing
market conditions. Because prices of stocks, including mid-cap stocks,
fluctuate from day to day, the value of an investment in the Fund will vary
based upon the Fund's investment performance.
Foreign Securities. The Fund may invest up to 35% of its total assets in
equity securities of non-U.S. companies, including American or other
Depository Receipts, rights, warrants and the direct purchase of foreign
securities. While investments in foreign securities are intended to reduce
risk by providing further diversification, such investments involve risks
relating to local foreign political or economic developments, potential
nationalization, withholding taxes on dividend or interest payments, and
limitations on the use or transfer of Fund assets and any effects of foreign
social, economic or political instability. Foreign securities investments may
be affected by changes in currency rates or ex-
16
<PAGE>
change 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.
Foreign companies may have less public or less reliable information available
about them and may be subject to less governmental regulation than U.S.
companies. Securities of foreign companies may be less liquid and more
volatile than securities of 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.
Many European countries are about to adopt a single European currency, the
euro (the "Euro Conversion"). The consequences of the Euro Conversion for
foreign exchange rates, interest rates and the value of European securities
eligible for purchase by the Fund are presently unclear. Such consequences
may adversely affect the value and/or increase the volatility of securities
held by the Fund.
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. 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.
The extent to which the Fund may enter into transactions involving options
and futures contracts 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."
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such
instruments. One such risk is that the Investment Manager 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, causing bond prices to rise, the Fund would incur a loss on the sale.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the cash
prices of the Fund's portfolio securities. See the Statement of Additional
Information for a further discussion of risks.
New futures contracts, options and other financial products and various
combinations thereof con-
17
<PAGE>
tinue 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.
Year 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the
Distributor and the Transfer Agent depend on the smooth functioning of their
computer systems. Many computer software systems in use today cannot
recognize the year 2000, but revert to 1900 or some other date, due to the
manner in which dates were encoded and calculated. That failure could have a
negative impact on the handling of securities trades, pricing and account
services. The Investment Manager, the Distributor and the Transfer Agent have
been actively working on necessary changes to their own computer systems to
prepare for the year 2000 and expect that their systems will be adapted
before that date, but there can be no assurance that they will be successful,
or that interaction with other non-complying computer systems will not impair
their services at that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout
the financial services industry beginning January 1, 2000. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S.
and foreign financial statements. Accordingly, the Fund's investments may be
adversely affected.
For additional risk disclosure, please refer to the "Portfolio
Characteristics" section of the Prospectus and to the "Investment Practices
and Policies" section of the Statement of Additional Information.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities
of the Fund, as defined in the Act. For purposes of the following
limitations: (i) all percentage limitations apply immediately after a
purchase or initial investment; and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
The Fund may not:
1. Invest more than 5% of the value of its total assets in the securities
of any one issuer (other than obligations issued, or guaranteed by, the
United States Government, its agencies or instrumentalities).
2. Purchase more than 10% of all outstanding voting securities or any
class of securities of any one issuer.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities.
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years
of continuous operation. This restriction shall not apply to any obligation
of the United States Government, its agencies or instrumentalities.
18
<PAGE>
See the Statement of Additional Information for additional investment
restrictions.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially
all of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and
Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors" or the
"Distributor"), an affiliate of the Investment Manager, shares of the Fund
are distributed by the Distributor and offered by Dean Witter Reynolds Inc.
("DWR"), a selected dealer and subsidiary of Morgan Stanley Dean Witter &
Co., and other dealers who have entered into selected dealer agreements with
the Distributor ("Selected Broker-Dealers"). It is anticipated that DWR will
undergo a change of corporate name which is expected to incorporate the brand
name of "Morgan Stanley Dean Witter," pending approval of various regulatory
authorities. The principal executive office of the Distributor is located at
Two World Trade Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares
are sold to investors with an initial sales charge that declines to zero for
larger purchases; however, Class A shares sold without an initial sales
charge are subject to a contingent deferred sales charge ("CDSC") of 1.0% if
redeemed within one year of purchase, except for certain specific
circumstances. Class B shares are sold without an initial sales charge but
are subject to a CDSC (scaled down from 5.0% to 1.0%) payable upon most
redemptions within six years after purchase. (Class B shares purchased by
certain qualified plans are subject to a CDSC scaled down from 2.0% to 1.0%
if redeemed within three years after purchase.) Class C shares are sold
without an initial sales charge but are subject to a CDSC of 1.0% on most
redemptions made within one year after purchase. Class D shares are sold
without an initial sales charge or CDSC and are available only to investors
meeting an initial investment minimum of $5 million ($25 million for certain
qualified plans), and to certain other limited categories of investors. At
the discretion of the Board of Trustees of the Fund, Class A shares may be
sold to categories of investors in addition to those set forth in this
prospectus at net asset value without a front-end sales charge, and Class D
shares may be sold to certain other categories of investors, in each case as
may be described in the then current prospectus of the Fund. See "Alternative
Purchase Arrange ments--Selecting a Particular Class" for a discussion of
factors to consider in selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25
million for certain qualified plans) or more and to certain other limited
categories of investors. For the purpose of meeting the minimum $5 million
(or $25 million) initial investment for Class D shares, and subject to the
$1,000 minimum initial investment for each Class of the Fund, an investor's
existing holdings of Class A shares of the Fund and other Morgan Stanley Dean
Witter Funds that are multiple class funds ("Morgan Stanley Dean Witter
Multi-Class Funds") and shares of Morgan Stanley Dean Witter Funds sold with
a front-end sales charge ("FSC Funds") and concurrent investments in Class D
shares of the Fund and other Morgan Stanley Dean Witter Multi-Class Funds
will be aggregated. Subsequent purchases of $100 or more may be made by
sending a check, payable to Morgan Stanley Dean Witter Mid-Cap Growth Fund,
directly to Morgan Stanley Dean Witter Trust FSB (the "Transfer Agent" or
"MSDW Trust") at P.O. Box 1040, Jersey City, NJ 07303 or by contacting a
19
<PAGE>
Morgan Stanley Dean Witter Financial Advisor or other Selected Broker-Dealer
representative. 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 (Service Mark), an automatic purchase
plan (see "Shareholder Services"), is $100, provided that the schedule of
automatic investments will result in investments totalling at least $1,000
within the first twelve months. The minimum initial purchase in the case of
an "Education IRA" is $500, if the Distributor has reason to believe that
additional investments will increase the investment in the account to $1,000
within three years. In the case of investments pursuant to (i) Systematic
Payroll Deduction Plans (including Individual Retirement Plans), (ii) the
MSDW Advisors mutual fund asset allocation program and (iii) fee-based
programs approved by the Distributor, pursuant to which participants pay an
asset based fee for services in the nature of investment advisory,
administrative and/or brokerage services, the Fund, in its discretion, may
accept investments without regard to any minimum amounts which would
otherwise be required, provided, in the case of Systematic Payroll Deduction
Plans, that the Distributor has reason to believe that additional investments
will increase the investment in all accounts under such Plans to at least
$1,000. Certificates for shares purchased will not be issued unless a request
is made by the shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since
DWR and other Selected Broker-Dealers forward investors' funds on settlement
date, they will benefit from the temporary use of the funds if payment is
made prior thereto. As noted above, orders placed directly with the Transfer
Agent must be accompanied by payment. Investors will be entitled to receive
income dividends and capital gains distributions if their order is received
by the close of business on the day prior to the record date for such
dividends and distributions. Sales personnel of a Selected Broker-Dealer are
compensated for selling shares of the Fund by the Distributor or any of its
affiliates and/or the Selected Broker-Dealer. In addition, some sales
personnel of the Selected Broker-Dealer will receive various types of
non-cash compensation as special sales incentives, including trips,
educational and/or business seminars and merchandise. The Fund and the
Distributor reserve the right to reject any purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the 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
"Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and
the factors an investor
20
<PAGE>
should consider when selecting a particular Class. This summary is qualified
in its entirety by detailed discussion of each Class that follows this
summary.
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain
other limited categories of investors) are not subject to any sales charges
at the time of purchase but are subject to a CDSC of 1.0% on redemptions made
within one year after purchase, except for certain specific circumstances.
Class A shares are also subject to a 12b-1 fee of up to 0.25% of the average
daily net assets of the Class. See "Initial Sales Charge Alternative--Class A
Shares."
Class B Shares. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to
1.0%) if redeemed within six years of purchase. (Class B shares purchased by
certain qualified plans are subject to a CDSC scaled down from 2.0% to 1.0%
if redeemed within three years after purchase.) This CDSC may be waived for
certain redemptions. Class B shares are also subject to an annual 12b-1 fee
of 1.0% of the lesser of: (a) the average daily aggregate gross sales of the
Fund's Class B shares since the inception of the Fund (not including
reinvestments of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since
the Fund's inception upon which a CDSC has been imposed or waived, or (b) the
average daily net assets of Class B. The Class B shares' distribution fee
will cause that Class to have higher expenses and pay lower dividends than
Class A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition,
a certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time.
See "Contingent Deferred Sales Charge Alternative--Class B Shares."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They
are subject to an annual 12b-1 fee of up to 1.0% of the average daily net
assets of the Class C shares. The Class C shares' distribution fee may cause
that Class to have higher expenses and pay lower dividends than Class A or
Class D shares. See "Level Load Alternative--Class C Shares."
Class D Shares. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares
are sold at net asset value with no initial sales charge or CDSC. They are
not subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
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
21
<PAGE>
amounts may partially or wholly offset the higher annual expenses of these
Classes. Because the Fund's future return cannot be predicted, however, there
can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly
lower CDSC upon redemptions, they do not, unlike Class B shares, convert into
Class A shares after approximately ten years, and, therefore, are subject to
an ongoing 12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A
shares) for an indefinite period of time. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks. Other investors, however, may elect to purchase Class C shares if,
for example, they determine that they do not wish to be subject to a
front-end sales charge and they are uncertain as to the length of time they
intend to hold their shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A shares in all
Morgan Stanley Dean Witter Multi-Class Funds, shares of FSC Funds and shares
of Morgan Stanley Dean Witter Funds for which such shares have been exchanged
will be included together with the current investment amount.
Sales personnel may receive different compensation for selling each Class
of shares. Investors should understand that the purpose of a CDSC is the same
as that of the initial sales charge in that the sales charges applicable to
each Class provide for the financing of the distribution of shares of that
Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
- --------------------------------------------------------------------------
<S> <C> <C> <C>
A Maximum 5.25% 0.25% No
initial sales charge
reduced for
purchases of
$25,000 and over;
shares sold without
an initial sales
charge generally
subject to a 1.0%
CDSC during first
- --------------------------------------------------------------------------
B Maximum 5.0% 1.0% B shares convert
CDSC during the first to A shares
year decreasing automatically
to 0 after six years after
approximately
ten years
- --------------------------------------------------------------------------
C 1.0% CDSC during 1.0% No
first year
- --------------------------------------------------------------------------
D None None No
- --------------------------------------------------------------------------
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees
for each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
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
22
<PAGE>
circumstances set forth below in the section "Contingent Deferred Sales
Charge Alternative--Class B Shares--CDSC Waivers," except that the references
to six years in the first paragraph of that section shall mean one year in
the case of Class A shares, and (ii) in the circumstances identified in the
section "Additional Net Asset Value Purchase Options" below. Class A shares
are also subject to an annual 12b-1 fee of up to 0.25% of the average daily
net assets of the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
--------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
- -------------------- --------------- ---------------
<S> <C> <C>
Less than $25,000 .. 5.25% 5.54%
$25,000 but less
than $50,000 ...... 4.75% 4.99%
$50,000 but less
than $100,000 ..... 4.00% 4.17%
$100,000 but less
than $250,000 ..... 3.00% 3.09%
$250,000 but less
than $1 million .. 2.00% 2.04%
$1 million and over 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the
sales charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or
her spouse and their children under the age of 21 purchasing shares for his,
her or their own accounts; (c) a trustee or other fiduciary purchasing shares
for a single trust estate or a single fiduciary account; (d) a pension,
profit-sharing or other employee benefit plan qualified or non-qualified
under Section 401 of the Internal Revenue Code; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Internal Revenue Code; (f)
employee benefit plans qualified under Section 401 of the Internal Revenue
Code of a single employer or of employers who are "affiliated persons" of
each other within the meaning of Section 2(a)(3)(c) of the Act; and for
investments in Individual Retirement Accounts of employees of a single
employer through Systematic Payroll Deduction plans; or (g) any other
organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
Combined Purchase Privilege. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class
A shares of other Morgan Stanley Dean Witter Multi-Class Funds and shares of
FSC Funds. The sales charge payable on the purchase of the Class A shares of
the Fund, the Class A shares of the other Morgan Stanley Dean Witter
Multi-Class Funds and the shares of the FSC Funds will be at their respective
rates applicable to the total amount of the combined concurrent purchases of
such shares.
Right of Accumulation. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single
transaction, together with shares of the Fund and other Morgan Stanley Dean
Witter Funds previously purchased at a price including a front-end sales
charge (including shares of the Fund and other Morgan Stanley Dean Witter
Funds acquired in exchange for those shares, and including in each case
shares acquired through reinvestment of dividends and distributions), which
are held at the time of such transaction, amounts to $25,000 or more. If such
investor has a cumulative net asset value of shares of FSC Funds and Class A
and Class D shares that, together with the current
23
<PAGE>
investment amount, is equal to at least $5 million ($25 million for certain
qualified plans), such investor is eligible to purchase Class D shares
subject to the $1,000 minimum initial investment requirement of that Class of
the Fund. See "No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Selected Broker-Dealer or the Transfer Agent
fails to confirm the investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will
also be available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from DWR or other Selected Broker-Dealers. The cost of Class A
shares of the Fund or shares of other Morgan Stanley Dean Witter Funds which
were previously purchased at a price including a front-end sales charge
during the 90-day period prior to the date of receipt by the Distributor of
the Letter of Intent, or of Class A shares of the Fund or shares of other
Morgan Stanley Dean Witter Funds acquired in exchange for shares of such
funds purchased during such period at a price including a front-end sales
charge, which are still owned by the shareholder, may also be included in
determining the applicable reduction.
Additional Net Asset Value Purchase Options. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value
by the following:
(1) trusts for which MSDW Trust (which is an affiliate of the Investment
Manager) provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for
services in the nature of investment advisory, administrative and/or
brokerage services (such investments are subject to all of the terms and
conditions of such programs, which may include termination fees, mandatory
redemption upon termination and such other circumstances as specified in the
programs' agreements, and restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section
401(a) of the Internal Revenue Code ("Qualified Retirement Plans") with at
least 200 eligible employees and for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class
A shares, regardless of the plan's asset size or number of eligible
employees;
(5) investors who are clients of a Morgan Stanley Dean Witter Financial
Advisor who joined Morgan Stanley Dean Witter from another investment firm
within six months prior to the date of purchase of Fund shares by such
investors, if the shares are being purchased with the proceeds from a
redemption of shares of an open-end proprietary mutual fund of the Financial
Advisor's previous firm which imposed either a front-end or deferred sales
charge, provided such purchase was made within sixty days after the
redemption and the proceeds of the redemption had been maintained in the
interim in cash or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
24
<PAGE>
For further information concerning purchases of the Fund's shares, contact
DWR or another Se-lected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase
payment may be immediately invested in the Fund. A CDSC, however, will be
imposed on most Class B shares redeemed within six years after purchase. The
CDSC will be imposed on any redemption of shares if after such redemption the
aggregate current value of a Class B account with the Fund falls below the
aggregate amount of the investor's purchase payments for Class B shares made
during the six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) preceding the redemption. In addition, Class B
shares are subject to an annual 12b-1 fee of 1.0% of the lesser of: (a) the
average daily aggregate gross sales of the Fund's Class B shares since the
inception of the Fund (not including reinvestments of dividends or capital
gains distributions), less the average daily aggregate net asset value of the
Fund's Class B shares redeemed since the Fund's inception upon which a CDSC
has been imposed or waived, or (b) the average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may,
however, be subject to a CDSC which will be a percentage of the dollar amount
of shares redeemed and will be assessed on an amount equal to the lesser of
the current market value or the cost of the shares being redeemed. The size
of this percentage will depend upon how long the shares have been held, as
set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First...................... 5.0%
Second .................... 4.0%
Third ..................... 3.0%
Fourth .................... 2.0%
Fifth ..................... 2.0%
Sixth...................... 1.0%
Seventh and thereafter .... None
</TABLE>
In the case of Class B shares of the Fund purchased on or after July 28,
1997 by Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject
to any CDSC upon redemption. However, shares redeemed earlier than three
years after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First ..................... 2.0%
Second .................... 2.0%
Third ..................... 1.0%
Fourth and thereafter .... None
</TABLE>
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or,
in the case of shares held by certain Qualified Retirement Plans, three
years) preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
Qualified Retirement Plans, three years) prior to the redemption; and (iii)
the current net asset value of shares purchased through reinvestment of
dividends or distributions and/or shares acquired in exchange for shares of
FSC Funds or of other
25
<PAGE>
Morgan Stanley Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held
in a qualified corporate or self-employed retirement plan, Individual
Retirement Account ("IRA") or Custodial Account under Section 403(b)(7) of
the Internal Revenue Code ("403(b) Custodial Account"), provided in either
case that the redemption is requested within one year of the death or initial
determination of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified
corporate or self-employed retirement plan following retirement (or, in the
case of a "key employee" of a "top heavy" plan, following attainment of age
59 1/2); (B) distributions from an IRA or 403(b) Custodial Account following
attainment of age 59 1/2; or (C) a tax-free return of an excess contribution
to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, MSDW Services, as self-directed
investment alternatives and for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement ("Eligible Plan"), provided that either: (A)
the plan continues to be an Eligible Plan after the redemption; or (B) the
redemption is in connection with the complete termination of the plan
involving the distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to
engage in gainful employment. With reference to (2) above, the term
"distribution" does not encompass a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or trustee. All
waivers will be granted only following receipt by the Distributor of
confirmation of the shareholder's entitlement.
Conversion to Class A Shares. All shares of the Fund held prior to July
28, 1997 have been designated Class B shares. Shares held before May 1, 1997
will convert to Class A shares in May, 2007. In all other instances Class B
shares will convert automatically to Class A shares, based on the relative
net asset values of the shares of the two Classes on the conversion date,
which will be approximately ten (10) years after the date of the original
purchase. The ten year period is calculated from the last day of the month in
which the shares were purchased or, in the case of Class B shares acquired
through an exchange or a series of exchanges, from the last day of the month
in which the original Class B shares were purchased, provided that shares
originally purchased before May 1, 1997 will convert to Class A shares in
May, 2007. The conversion of shares purchased on or after May 1, 1997 will
take place in the month following the tenth anniversary of the purchase.
There will also be converted at that time such proportion of Class B shares
acquired through automatic reinvestment of dividends and distributions owned
by the shareholder as the total number of his or her Class B shares
converting at the time bears to the total number of outstanding Class B
shares purchased and owned by the shareholder. In the case of Class B shares
held by a Qualified Retirement Plan for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, the plan is treated as a single investor
and all Class B shares will convert to Class A shares on the conversion date
of the first shares of a Morgan Stanley Dean Witter Multi-Class Fund
purchased by that plan. In the case of Class B shares previously
26
<PAGE>
exchanged for shares of an "Exchange Fund" (see "Shareholder
Services--Exchange Privilege"), the period of time the shares were held in
the Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired) is excluded from the holding period for
conversion. If those shares are subsequently re-exchanged for Class B shares
of a Morgan Stanley Dean Witter Multi-Class Fund, the holding period resumes
on the last day of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior
to the date for conversion. Class B shares evidenced by share certificates
that are not received by the Transfer Agent at least one week prior to any
conversion date will be converted into Class A shares on the next scheduled
conversion date after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion
will have a basis equal to the shareholder's basis in the converted Class B
shares immediately prior to the conversion, and (iii) Class A shares received
on conversion will have a holding period that includes the holding period of
the converted Class B shares. The conversion feature may be suspended if the
ruling or opinion is no longer available. In such event, Class B shares would
continue to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions
made within one year after purchase (calculated from the last day of the
month in which the shares were purchased). The CDSC will be assessed on an
amount equal to the lesser of the current market value or the cost of the
shares being redeemed. The CDSC will not be imposed in the circumstances set
forth above in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case
of Class C shares. Class C shares are subject to an annual 12b-1 fee of up to
1.0% of the average daily net assets of the Class. Unlike Class B shares,
Class C shares have no conversion feature and, accordingly, an investor that
purchases Class C shares will be subject to 12b-1 fees applicable to Class C
shares for an indefinite period subject to annual approval by the Fund's
Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million ($25 million
for Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement) and the following categories of investors:
(i) investors participating in the MSDW Advisors mutual fund asset allocation
program pursuant to which such persons pay an asset based fee; (ii) persons
participating in a fee-based program approved by the Distributor, pursuant to
which such persons pay an asset based fee for services in the nature of
investment advisory, administrative and/or brokerage services (subject to all
of the terms and conditions of such programs referred to in (i) and (ii)
above, which may include termination fees, mandatory redemption upon
termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares); (iii) 401(k)
plans established by DWR and SPS Transaction Services, Inc. (an affiliate of
DWR) for their employees; (iv) certain Unit Investment Trusts sponsored by
DWR; (v) certain other open-end investment companies whose shares are
distributed by the Distributor; and (vi) other categories of investors, at
the discretion of the Board, as disclosed in the then current prospectus of
the
27
<PAGE>
Fund. Investors who require a $5 million (or $25 million) minimum initial
investment to qualify to purchase Class D shares may satisfy that requirement
by investing that amount in a single transaction in Class D shares of the
Fund and other Morgan Stanley Dean Witter Multi-Class Funds, subject to the
$1,000 minimum initial investment required for that Class of the Fund. In
addition, for the purpose of meeting the $5 million (or $25 million) minimum
investment amount, holdings of Class A shares in all Morgan Stanley Dean
Witter Multi-Class Funds, shares of FSC Funds and shares of Morgan Stanley
Dean Witter Funds for which such shares have been exchanged will be included
together with the current investment amount. If a shareholder redeems Class A
shares and purchases Class D shares, such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act with respect to the distribution of Class A, Class B and Class C
shares of the Fund. In the case of Class A and Class C shares, the Plan
provides that the Fund will reimburse the Distributor and others for the
expenses of certain activities and services incurred by them specifically on
behalf of those shares. Reimbursements for these expenses will be made in
monthly payments by the Fund to the Distributor, which will in no event
exceed amounts equal to payments at the annual rates of 0.25% and 1.0% of the
average daily net assets of Class A and Class C, respectively. In the case of
Class B shares, the Plan provides that the Fund will pay the Distributor a
fee, which is accrued daily and paid monthly, at the annual rate of 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's
Class B shares since the inception of the Fund (not including reinvestments
of dividends or capital gains distributions), less the average daily
aggregate net asset value of the Fund's Class B shares redeemed since the
Fund's inception upon which a CDSC has been imposed or waived, or (b) the
average daily net assets of Class B. The fee is treated by the Fund as an
expense in the year it is accrued. In the case of Class A shares, the entire
amount of the fee currently represents a service fee within the meaning of
the NASD guidelines. In the case of Class B and Class C shares, a portion of
the fee payable pursuant to the Plan, equal to 0.25% of the average daily net
assets of each of these Classes, is currently characterized as a service fee.
A service fee is a payment made for personal service and/or the maintenance
of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses
borne by the Distributor and others in the distribution of the shares of
those Classes, including the payment of commissions for sales of the shares
of those Classes and incentive compensation to and expenses of Morgan Stanley
Dean Witter Financial Advisors and others who engage in or support
distribution of shares or who service shareholder accounts, including
overhead and telephone expenses; printing and distribution of prospectuses
and reports used in connection with the offering of the Fund's shares to
other than current 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 May 31, 1998, Class B shares of the Fund accrued
payments under the Plan amounting to $5,693,336, which amount is equal to
1.0% of the average daily net assets of Class B for the fiscal year. The
payments accrued under the Plan were calculated pursuant to clause (b) of the
compensation formula under the Plan. All shares held prior to July 28, 1997
have been designated Class B shares. For the fiscal period July 28, 1997
through May 31, 1998, Class A and Class C shares of the Fund accrued payments
under the Plan amounting to $3,277 and $26,884, respectively, which amounts
on an annualized basis are equal to 0.25% and 1.0% of the average daily net
assets of Class A and Class C, respectively, for such period.
28
<PAGE>
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i)
the payments made by the Fund pursuant to the Plan, and (ii) the proceeds of
CDSCs paid by investors upon the redemption of Class B shares. For example,
if $1 million in expenses in distributing Class B shares of the Fund had been
incurred and $750,000 had been received as described in (i) and (ii) above,
the excess expense would amount to $250,000. The Distributor has advised the
Fund that such excess amounts, including the carrying charge described above,
totalled $14,280,349 at May 31, 1998, which was equal to 2.25% of the net
assets of Class B on such date. Because there is no requirement under the
Plan that the Distributor be reimbursed for all distribution expenses or any
requirement that the Plan be continued from year to year, such excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made
to the Distributor under the Plan, and the proceeds of CDSCs paid by
investors upon redemption of shares, if for any reason the Plan is terminated
the Trustees will consider at that time the manner in which to treat such
expenses. Any cumulative expenses incurred, but not yet recovered through
distribution fees or CDSCs, may or may not be recovered through future
distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses
representing a gross sales commission credited to Morgan Stanley Dean Witter
Financial Advisors and other Selected Broker-Dealer representatives at the
time of sale may be reimbursed in the subsequent calendar year. The
Distributor has advised the Fund that unreimbursed expenses representing a
gross sales commission credited to Morgan Stanley Dean Witter Financial
Advisors and other Selected Broker-Dealer representatives at the time of sale
totalled $27,986 in the case of Class C at December 31, 1997, which amount
was equal to 0.85% of the net assets of Class C on such date, and that there
were no such expenses that may be reimbursed in the subsequent year in the
case of Class A on such date. No interest or other financing charges will be
incurred on any Class A or Class C distribution expenses incurred by the
Distributor under the Plan or on any unreimbursed expenses due to the
Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), by taking the net assets of the Fund, dividing
by the number of shares outstanding and adjusting to the nearest cent. The
assets belonging to the Class A, Class B, Class C and Class D shares will be
invested together in a single portfolio. The net asset value of each Class,
however, will be determined separately by subtracting each Class's accrued
expenses and liabilities. The net asset value per share will not be
determined on Good Friday and on such other federal and non-federal holidays
as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange prior to the time assets are valued; if there were no sales that
day, the security is valued at the latest bid price (in cases where a
security is traded on more than one exchange, the security is valued on the
exchange designated as the primary market pursuant to procedures adopted by
the Trustees); (2) an option is valued at the mean between the latest bid and
asked prices; (3) a futures contract is valued at the latest sales price on
the commodities exchange on which it trades unless the Board determines that
such price does not reflect its market value, in which case it will be valued
at its fair value as determined by the Board of Trustees; (4) all other
portfolio
29
<PAGE>
securities for which over-the-counter market quotations are readily available
are valued at the latest bid price; (5) when market quotations are not
readily available, including circumstances under which it is determined by
the Investment Manager that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Fund's Trustees (valuation of debt securities for
which market quotations are not readily available may be based upon current
market prices of securities which are comparable in coupon, rating and
maturity or an appropriate matrix utilizing similar factors); (6) the value
of short-term debt securities which mature at a date less than sixty days
subsequent to valuation date will be determined on an amortized cost or
amortized value basis; and (7) the value of other assets will be determined
in good faith at fair value under procedures established by and under the
general supervision of the Fund's Trustees. For valuation purposes,
quotations of foreign portfolio securities, other assets and liabilities and
forward contracts stated in foreign currency 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. Interest income is accrued daily except when collection is uncertain.
Certain securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon
as the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining
what it believes is the fair valuation of the portfolio securities valued by
such pricing service.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Automatic Investment of Dividends and Distributions. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the
shareholder, in shares of any other open-end Morgan Stanley Dean Witter
Fund), unless the shareholder requests that they be paid in cash. Shares so
acquired are acquired at net asset value and are not subject to the
imposition of a front-end sales charge or a CDSC (see "Redemptions and
Repurchases").
Investment of Dividends or Distributions Received in Cash. Any
shareholder who receives a cash payment representing a dividend or capital
gains distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value next determined after receipt by the
Transfer Agent, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. Shares so acquired are acquired at
net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
EasyInvest (Service Mark). Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for
investment in shares of the Fund (see "Purchase of Fund Shares" and
"Redemptions and Repurchases--Involuntary Redemption").
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders 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 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
30
<PAGE>
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 Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative or the Transfer Agent
for further information about any of the above services.
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 Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer representative or the
Transfer Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Morgan Stanley Dean Witter Multi-Class Fund without the imposition of
any exchange fee. Shares may also be exchanged for shares of the following
funds: Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust, Morgan
Stanley Dean Witter Limited Term Municipal Trust, Morgan Stanley Dean Witter
Short-Term Bond Fund, Morgan Stanley Dean Witter Intermediate Term U.S.
Treasury Trust and five Morgan Stanley Dean Witter funds which are money
market funds (the "Exchange Funds"). Class A shares may also be exchanged for
shares of Morgan Stanley Dean Witter Multi-State Municipal Series Trust and
Morgan Stanley Dean Witter Hawaii Municipal Trust, which are Morgan Stanley
Dean Witter Funds sold with a front-end sales charge ("FSC Funds"). Class B
shares may also be exchanged for shares of Morgan Stanley Dean Witter Global
Short-Term Income Fund Inc. ("Global Short-Term"), which is a Morgan Stanley
Dean Witter Fund offered with a CDSC. Exchanges may be made after the shares
of the Fund acquired by purchase (not by exchange or dividend reinvestment)
have been held for thirty days. There is no waiting period for exchanges of
shares acquired by exchange or dividend reinvestment.
An exchange to another Morgan Stanley Dean Witter Multi-Class Fund, any
FSC Fund, Global Short-Term or any Exchange Fund that is not a money market
fund is on the basis of the next calculated net asset value per share of each
fund after the exchange order is received. When exchanging into a money
market fund from the Fund, shares of the Fund are redeemed out of the Fund at
their next calculated net asset value and the proceeds of the redemption are
used to purchase shares of the money market fund at their net asset value
determined the following day. Subsequent exchanges between any of the money
market funds and any of the Morgan Stanley Dean Witter Multi-Class Funds, FSC
Funds, Global Short-Term or any Exchange Fund that is not a money market fund
can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period
of time the shareholder remains in an Exchange Fund (calculated from the last
day of the month in which the Exchange Fund shares were acquired) the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If
those shares are subsequently re-exchanged for shares of a Morgan Stanley
Dean Witter Multi-Class Fund or shares of Global Short-Term, the holding
period previously frozen when the first exchange was made resumes on the last
day of the month in which shares of a Morgan Stanley Dean Witter Multi-Class
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<PAGE>
Fund or shares of Global Short-Term are reacquired. Thus, the CDSC is based
upon the time (calculated as described above) the shareholder was invested in
shares of a Morgan Stanley Dean Witter Multi-Class Fund or in shares of
Global Short-Term (see "Purchase of Fund Shares"). In the case of exchanges
of Class A shares which are subject to a CDSC, the holding period also
includes the time (calculated as described above) the shareholder was
invested in shares of a FSC Fund. In the case of shares exchanged into an
Exchange Fund on or after April 23, 1990, upon a redemption of shares which
results in a CDSC being imposed, a credit (not to exceed the amount of the
CDSC) will be given in an amount equal to the Exchange Fund 12b-1
distribution fees, if any, incurred on or after that date which are
attributable to those shares. (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.) Class B shares of the Fund
acquired in exchange for shares of Global Short-Term or Class B shares of
another Morgan Stanley Dean Witter Multi-Class Fund having a different CDSC
schedule than that of this Fund will be subject to the higher CDSC schedule,
even if such shares are subsequently re-exchanged for shares of the fund with
the lower CDSC schedule.
Additional Information Regarding Exchanges. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional
purchases and/or exchanges from the investor. Although the Fund does not have
any specific definition of what constitutes a pattern of frequent exchanges,
and will consider all relevant factors in determining whether a particular
situation is abusive and contrary to the best interests of the Fund and its
other shareholders, investors should be aware that the Fund and each of the
other Morgan Stanley Dean Witter Funds may in their discretion limit or
otherwise restrict the number of times this Exchange Privilege may be
exercised by any investor. Any such restriction will be made by the Fund on a
prospective basis only, upon notice to the shareholder not later than ten
days following such shareholder's most recent exchange. Also, the Exchange
Privilege may be terminated or revised at any time by the Fund and/or any of
such Morgan Stanley Dean Witter Funds for which shares of the Fund have been
exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another
Selected Broker-Dealer are referred to their Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer representative regarding
restrictions on exchange of shares of the Fund pledged in the margin account.
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 any 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.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Morgan
Stanley Dean Witter Funds (for which the Exchange Privilege is available)
pursuant to this Exchange Privilege by contacting their Morgan Stanley Dean
Witter Financial Advisor or other Selected Broker-Dealer represen-
32
<PAGE>
tative (no Exchange Privilege Authorization Form is required). Other
shareholders (and those shareholders who are clients of DWR or another
Selected Broker-Dealer but who wish to make exchanges directly by telephoning
the Transfer Agent) must complete and forward to the Transfer Agent an
Exchange Privilege Authorization Form, copies of which may be obtained from
the Transfer Agent, to initiate an exchange. If the Authorization Form is
used, exchanges may be made in writing or by contacting the Transfer Agent at
(800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name,
mailing address, social security or other tax identification number and DWR
or other Selected Broker-Dealer account number (if any). Telephone
instructions may also be recorded. If such procedures are not employed, the
Fund may be liable for any losses due to unauthorized or fraudulent
instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her Morgan
Stanley Dean Witter Financial Advisor or other Selected Broker-Dealer
representative, if appropriate, or make a written exchange request.
Shareholders are advised that during periods of drastic economic or market
changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Morgan
Stanley Dean Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisor or other
Selected Broker-Dealer representative or the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. Shares of each Class of the Fund can be redeemed for cash at
any time at the net asset value per share next determined less the amount of
any applicable CDSC in the case of Class A, Class B or Class C shares (see
"Purchase of Fund Shares"). If shares are held in a shareholder's account
without a share certificate, a written request for redemption sent to the
Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption, along
with any additional documentation required by the Transfer Agent.
Repurchase. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to
any of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the
net asset value per share next determined (see "Purchase of Fund Shares")
after such purchase order is received by DWR or other Selected Broker-Dealer,
reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed upon repurchase by the Fund
or the Distributor. The offer by DWR and other Selected Broker-Dealers to
repurchase shares may be suspended without notice by them at any time. In
that event, shareholders may redeem their shares through the Fund's Transfer
Agent as set forth above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemp-
33
<PAGE>
tion suspended under unusual circumstances, e.g., when normal trading is not
taking place on the New York Stock Exchange. If the shares to be redeemed
have recently been purchased by check, payment of the redemption proceeds may
be delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent). Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
Morgan Stanley Dean Witter Financial Advisor or other Selected Broker-Dealer
representative regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase
in shares of the Fund in the same Class from which such shares were redeemed
or repurchased, at 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, upon sixty days'
notice, to redeem, at their net asset value, the shares of any shareholder
(other than shares held in an Individual Retirement Account or Custodial
Account under Section 403(b)(7) of the Internal Revenue Code) whose shares
due to redemptions by the shareholder have a value of less than $100, or such
lesser amount as may be fixed by the Board of Trustees, or, in the case of an
account opened through EasyInvest (Service Mark), 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 sixty 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 distribute substantially all of its net
investment income and net realized short-term and 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 be paid in cash. Shares
acquired by dividend and distribution reinvestments will not be subject to
any front-end sales charge or CDSC. Class B shares acquired through dividend
and distribution reinvestments will become eligible for conversion to Class A
shares on a pro rata basis. Distributions paid on Class A and Class D shares
will be higher than for Class B and Class C shares because distribution fees
paid by Class B and Class C shares are higher. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions.")
Taxes. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise remain
qualified as a regulated investment company under Subchapter M of the
Internal Revenue Code, it is not expected that the Fund will be required to
pay any federal income tax. Shareholders who are required to pay taxes on
their income will normally have to pay federal income taxes, and any state
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
34
<PAGE>
short-term capital gains, are taxable to the shareholder as ordinary dividend
income regardless of whether the shareholder receives such distributions in
additional shares or in cash. Any dividends declared in the last quarter of
any calendar year which are paid in the following year prior to February 1
will be deemed, for tax purposes, to have been received by the shareholder in
the prior year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources would, in effect, represent a
return of a portion of each shareholder's investment. All, or a portion, of
such payments would not be taxable to shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes. Shareholders will also be notified of their proportionate share of
long-term capital gains distributions that are eligible for a reduced rate of
tax under the Taxpayer Relief Act of 1997. To avoid being subject to a 31%
federal backup withholding tax on taxable dividends, capital gains
distributions and the proceeds of redemptions and repurchases, shareholders'
taxpayer identification numbers must be furnished and certified as to their
accuracy.
Shareholders should consult their tax advisors as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. These figures are computed separately for Class A,
Class B, Class C and Class D shares. The total return of the Fund is based on
historical earnings and is not intended to indicate future performance. The
"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, or 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, 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,
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., the S&P Mid-Cap Index, NASDAQ Composite, Russell
Mid Cap Index, S&P 500 Index and the Wilshire Mid Cap Index.
35
<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. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by
the Shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Fund, requires that notice of such Fund obligations include such disclaimer,
and provides for indemnification out of the Fund's property for any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself would be
unable to meet its obligations. Given the above limitations on shareholder
personal liability, and the nature of the Fund's assets and operations, the
possibility of the Fund being unable to meet its obligations is remote and
thus, in the opinion of Massachusetts counsel to the Fund, the risk to Fund
shareholders of personal liability is remote.
Code of Ethics. Directors, officers and employees of MSDW Advisors, MSDW
Services and MSDW Distributors are subject to a strict Code of Ethics adopted
by those companies. The Code of Ethics is intended to ensure that the
interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's
employment activities and that actual and potential conflicts of interest are
avoided. To achieve these goals and comply with regulatory requirements, the
Code of Ethics requires, among other things, that personal securities
transactions by employees of the companies be subject to an advance clearance
process to monitor that no Morgan Stanley Dean Witter Fund is engaged at the
same time in a purchase or sale of the same security. The Code of Ethics bans
the purchase of securities in an initial public offering, and also prohibits
engaging in futures and options transactions and profiting on short-term
trading (that is, a purchase within sixty days of a sale or a sale within
sixty days of a pur chase) of a security. In addition, investment personnel
may not purchase or sell a security for their personal account within thirty
days before or after any transaction in any Morgan Stanley Dean Witter Fund
managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the 1994 report by the Investment Company Institute
Advisory Group on Personal Investing.
Master/Feeder Conversion. The Fund reserves the right to seek to achieve
its investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same
investment objective and policies and substantially the same investment
restrictions as those applicable to the Fund.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover
of this Prospectus.
36
<PAGE>
Morgan Stanley Dean Witter
Mid-Cap Growth Fund
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
Peter Hermann
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
MORGAN STANLEY
DEAN WITTER
MID-CAP
GROWTH FUND
PROSPECTUS-JULY 29, 1998
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND Two World Trade Center, New
LETTER TO THE SHAREHOLDERS May 31, 1998 York, New York 10048
DEAR SHAREHOLDER:
During the twelve-month period ended May 31, 1998, U.S. stocks continued to
post impressive gains. Bolstered by a strong economy and low inflation, the
Standard & Poor's 500 Composite Stock Price Index, a common measure of the U.S.
stock market, returned 30.67 percent. While stocks of larger companies were
responsible for much of the market's advance, smaller and mid-sized companies
also turned in solid results, with the S&P MidCap 400 Index gaining nearly 30
percent. Mid-cap and small-cap stocks, which had earlier been out of favor with
investors, performed particularly well in August and September 1997, as
investors began taking advantage of those sectors' attractive valuations.
In October, however, the market's advance came to an abrupt halt over
concerns about the economic crisis in Asia, which caused the Dow Jones
Industrial Average (DJIA) to drop more than 550 points in a single trading
day. Investor concerns resulted in a "flight to quality" that led to their
seeking out the relative stability and liquidity of large-cap companies.
Despite increased market volatility, U.S. stocks, again led by large-cap
issues and supported by the relative strength of the domestic economy,
recovered nicely as 1997 came to a close. In fact, by early April 1998 the
DJIA surpassed the 9000 mark before partially retreating in May. Once again
the catalyst was Asia, where high unemployment in Korea and a relatively
peaceful Indonesian revolution, as well as an attack on the Russian currency,
caused a renewal of the same fears that had led to the market's weakness last
October.
PERFORMANCE AND PORTFOLIO
For the twelve-month period ended May 31, 1998, the Fund's Class B shares
produced a total return of 24.68 percent, compared to 21.29 percent for the
Lipper Mid Cap Funds Index and 29.91 percent for the S&P MidCap 400 Index.
Since their inception on July 28, 1997, the Fund's Class A, C and D shares
had total returns of 12.77 percent, 12.01 percent and 12.89 percent,
respectively. The Fund's benchmarks, the Lipper Mid Cap
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
LETTER TO THE SHAREHOLDERS May 31, 1998
Funds Index and the S&P MidCap 400 Index, returned 8.74 percent and 14.97
percent, respectively. The performance of the Fund's four share classes
varies because of differing expenses.
While the Fund outperformed its peer group during the fiscal year, it did
underperform the S&P MidCap 400 Index. The Fund's underperformance relative
to the Index can be attributed primarily to the Fund's underweighting of
financial stocks, which performed strongly during the period. In addition,
the Fund held a substantial portion of its assets in technology stocks, which
were negatively affected by the Asian economic crisis.
The accompanying chart illustrates the growth of a hypothetical $10,000
investment in the Fund's Class B shares from inception (September 29, 1994)
through May 31, 1998, versus a similar investment in the issues that comprise
the S&P MidCap 400 Index and the Lipper Mid Cap Funds Index.
Over the course of the fiscal year, several important changes have been made
to the Fund's portfolio. The most apparent one has been to reduce the number
of securities held by the Fund. At the beginning of the current fiscal year
the Fund's portfolio consisted of nearly 150 different securities, compared
to under 100 securities at fiscal year-end on May 31, 1998. We believe that
holding larger positions in fewer securities will enable the Fund to better
seek its objective of long-term capital growth.
Despite holding fewer securities, the Fund remains fully diversified across
market sectors. At the end of the fiscal year the Fund had 24 percent of its
assets in technology, 19 percent in economically sensitive sectors, 15
percent in retail, 14 percent in health care and 8 percent in financial
services and interest-rate-sensitive stocks. Among the Fund's largest
holdings were Platinum Technology (computer software), Providian Financial
Corp. (financial - miscellaneous), Conseco, Inc. (life and health insurance),
Tyco International (manufacturing - diversified), U.S.A. Waste Services, Inc.
(pollution control) and Staples Inc. (retail - specialty).
LOOKING AHEAD
We remain positive about the long-term prospects for mid-capitalization
stocks in general and the Fund in particular. After a sustained period of
underperformance compared to large-cap stocks, mid-cap stocks currently offer
attractive relative valuations. We believe that as investors begin to realize
this, mid-cap stocks will once again resume their pattern of attractive
growth.
2
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
LETTER TO THE SHAREHOLDERS May 31, 1998
We appreciate your ongoing support of Morgan Stanley Dean Witter Mid-Cap
Growth Fund and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
3
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FUND PERFORMANCE May 31, 1998
GROWTH OF $10,000 CLASS B
Date TOTAL S&P MIDCAP IX LIPPER
---- ----- ------------- ------
September 29, 1994 $10,000 $10,000 $10,000
May 31, 1995 $10,826 $11,057 $10,894
May 31, 1996 $16,566 $14,204 $15,430
May 31, 1997 $17,563 $16,783 $16,156
May 31, 1998 $21,698 (3) $21,803 $19,597
-- Fund --- S&P MIDCAP IX (4) --- Lipper (5)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS
A, CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B
SHARES SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
AVERAGE ANNUAL TOTAL RETURNS*
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES**
- --------------------------------------------------
PERIOD ENDED 5/31/98
- ------------------------
<S> <C> <C>
1 Year 24.68%(1) 19.68%(2)
From Inception (9/29/94) 23.82%(1) 23.51%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++
- --------------------------------------------------
PERIOD ENDED 5/31/98
- ------------------------
<S> <C> <C>
FROM INCEPTION (7/28/97) 12.01%(1) 11.01%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES+
- -------------------------------------------------
PERIOD ENDED 5/31/98
- ------------------------
<S> <C> <C>
From Inception (7/28/97) 12.77%(1) 6.85%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES+
+
- --------------------------------------------------
PERIOD ENDED 5/31/98
- ------------------------
<S> <C> <C>
From Inception (7/28/97) 12.89%(1)
</TABLE>
- ------------
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable sales charge. See the Fund's current prospectus
for complete details on fees and sales charges.
(3) Closing value after the deduction of a 2% CDSC, assuming a complete
redemption on May 31, 1998.
(4) The S&P Midcap 400 Index is a market-value weighted index, the
performance of which is based on the average performance of 400 domestic
stocks chosen for market size, liquidity, and industry group
representation. The Index does not include any expenses, fees or charges.
The Index is unmanaged and should not be considered an investment.
(5) The Lipper Mid Cap Fund Index is an equally-weighted performance index of
the largest qualifying funds (based on net assets) in the Lipper Mid Cap
Funds objective. The Index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in
this Index.
* For periods of less than one year, the Fund quotes its total return on a
non-annualized basis.
** The maximum contingent deferred sales charge (CDSC) for Class B is 5%.
The CDSC declines to 0% after six years.
+ The maximum front-end sales charge for Class A is 5.25%.
++ The maximum contingent deferred sales charge for Class C shares is 1%
for shares redeemed within one year of purchase.
++ Class D shares have no sales charge.
4
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (95.1%)
Advertising (2.6%)
181,225 HA-LO Industries, Inc.* ......................................... $ 5,606,648
270,000 Snyder Communications, Inc.* .................................... 10,884,375
------------
16,491,023
------------
Apparel (3.8%)
140,000 Jones Apparel Group, Inc.* ...................................... 8,872,500
150,000 Tommy Hilfiger Corp.* ........................................... 10,087,500
140,000 Warnaco Group, Inc. (Class A) ................................... 5,775,000
------------
24,735,000
------------
Automotive -Replacement Parts (0.5%)
50,000 Magna International Inc. (Class A)(Canada) ..................... 3,525,000
------------
Biotechnology (2.5%)
320,000 BioChem Pharma, Inc. (Canada)* .................................. 8,360,000
200,000 Centocor, Inc.* ................................................. 7,800,000
------------
16,160,000
------------
Broadcast Media (0.7%)
100,000 Cox Radio, Inc. (Class A)* ...................................... 4,212,500
------------
Building Materials (1.7%)
170,000 Southdown, Inc. ................................................. 11,156,250
------------
Communications Equipment (2.1%)
200,000 CIENA Corp.* .................................................... 10,350,000
200,000 Pairgain Technologies, Inc.* .................................... 3,125,000
------------
13,475,000
------------
Computer Equipment (1.1%)
175,000 EMC Corp.* ...................................................... 7,251,562
------------
Computer Software (7.8%)
250,000 Cadence Design Systems, Inc.* ................................... 8,812,500
125,000 Compuware Corp.* ................................................ 5,734,375
170,000 Network Associates, Inc.* ....................................... 10,412,500
440,000 Platinum Technology, Inc.* ...................................... 11,990,000
275,000 Software AG Systems, Inc.* ...................................... 6,703,125
150,000 Synopsys, Inc.* ................................................. 6,440,625
------------
50,093,125
------------
Computer Software & Services (4.0%)
180,000 Citrix Systems, Inc.* ........................................... 9,382,500
350,000 Legato Systems, Inc.* ........................................... 9,975,000
140,000 Visio Corp.* .................................................... 6,545,000
------------
25,902,500
------------
Computers (1.9%)
100,000 FileNET Corp.* .................................................. $ 5,500,000
125,000 Lexmark International Group, Inc. (Class A)* .................... 6,937,500
------------
12,437,500
------------
Consumer Business Services (1.5%)
290,000 AccuStaff Inc.* ................................................. 9,551,875
------------
Consumer Products (1.3%)
200,000 Dominick's Supermarkets, Inc.* .................................. 8,625,000
------------
Drugs (3.2%)
240,000 ICN Pharmaceuticals, Inc. ....................................... 10,365,000
250,000 Medicis Pharmaceutical Corp. (Class A)* ......................... 10,156,250
------------
20,521,250
------------
Electronics (3.1%)
125,000 Avid Technology, Inc.* .......................................... 5,062,500
180,000 Jabil Circuit, Inc.* ............................................ 6,131,250
115,000 Sanmina Corp* ................................................... 8,941,250
------------
20,135,000
------------
Energy (7.6%)
50,000 Camco International Inc. ....................................... 3,487,500
200,000 Diamond Offshore Drilling, Inc. ................................. 9,562,500
150,000 Evi Weatherford Inc.* ........................................... 7,584,375
375,000 R&B Falcon Corp.* ............................................... 10,757,812
150,000 Rowan Companies, Inc.* .......................................... 3,834,375
150,000 Stolt Comex Seaway, S.A. (United Kingdom)* ...................... 4,734,375
350,000 Varco International, Inc.* ...................................... 9,121,875
------------
49,082,812
------------
Environmental Control (1.4%)
500,000 Newpark Resources, Inc.* ........................................ 9,093,750
------------
Financial -Miscellaneous (3.0%)
130,000 Newcourt Credit Group Inc. (Canada) ............................ 6,386,250
200,000 Providian Financial Corp. ....................................... 12,725,000
------------
19,111,250
------------
Healthcare Products & Services (7.0%)
12,500 Concentra Managed Care, Inc.* ................................... 292,188
72,000 Express Scripts, Inc. (Class A)* ................................ 5,508,000
225,000 Health Management Associates, Inc. (Class A)* ................... 6,707,813
300,000 HealthSouth Corp.* .............................................. 8,512,500
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1998, continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------
190,000 IDX Systems Corp.* ..............................................$ 7,956,250
160,000 Renal Care Group, Inc.* ......................................... 5,770,000
350,000 Total Renal Care Holdings, Inc.* ................................ 10,740,625
------------
45,487,376
------------
Home Entertainment (1.0%)
150,000 Electronic Arts Inc.* ........................................... 6,487,500
------------
Insurance (1.2%)
150,000 Hartford Life, Inc. (Class A) .................................. 7,725,000
------------
Internet (1.1%)
200,000 At Home Corp. (Series A)* ....................................... 6,925,000
------------
Life & Health Insurance (1.8%)
250,000 Conseco, Inc. .................................................. 11,656,250
------------
Manufacturing -Diversified (2.1%)
250,000 Tyco International Ltd. ........................................ 13,843,750
------------
Media Group (6.5%)
225,000 Chancellor Media Corp.* ......................................... 9,393,750
75,000 Clear Channel Communications, Inc.* ............................. 7,190,625
150,000 Jacor Communications, Inc.* ..................................... 7,912,500
300,000 Outdoor Systems, Inc.* .......................................... 9,000,000
235,000 Univision Communications, Inc. (Class A)* ....................... 8,166,250
------------
41,663,125
------------
Medical Products & Supplies (0.2%)
39,000 North American Scientific, Inc.* ................................ 1,126,125
------------
Pharmaceuticals (1.4%)
107,000 Shire Pharmaceuticals Group PLC (ADR)* (United Kingdom) ......... 2,046,375
160,000 Watson Pharmaceuticals, Inc.* ................................... 7,000,000
------------
9,046,375
------------
Pollution Control (6.1%)
400,000 Allied Waste Industries, Inc.* .................................. 10,550,000
275,000 Eastern Environmental Services, Inc.* ........................... 7,768,750
260,000 U.S. Filter Corp.* .............................................. 7,913,750
275,000 U.S.A. Waste Services, Inc.* .................................... 12,976,562
------------
39,209,062
------------
Restaurants (2.8%)
280,000 Showbiz Pizza Time, Inc.* .......................................$ 9,940,000
175,000 Starbucks Corp.* ................................................ 8,378,125
------------
18,318,125
------------
Retail (2.8%)
Abercrombie & Fitch Co.
165,000 (Class A)* ...................................................... 6,971,250
50,000 General Nutrition Companies, Inc.* .............................. 1,575,000
250,000 Proffitt's, Inc.* ............................................... 9,812,500
------------
18,358,750
------------
Retail -Department Stores (1.8%)
80,000 Dillard's, Inc. (Class A) ....................................... 3,365,000
225,000 Dollar General Corp. ............................................ 8,578,125
------------
11,943,125
------------
Retail -Specialty (4.2%)
190,000 Consolidated Stores Corp.* ...................................... 7,255,625
300,000 Finish Line, Inc. (Class A)* .................................... 7,087,500
500,000 Staples, Inc.* .................................................. 12,531,250
------------
26,874,375
------------
Retail -Specialty Apparel (1.4%)
190,000 Stage Stores, Inc.* ............................................. 8,858,750
------------
Telecommunications (2.2%)
190,000 Pacific Gateway Exchange, Inc.* ................................. 8,075,000
350,000 Vanguard Cellular Systems, Inc. (Class A)* ...................... 6,278,125
------------
14,353,125
------------
Utilities -Electric (1.7%)
225,000 AES Corp.* ...................................................... 10,701,563
------------
TOTAL COMMON STOCKS (Identified Cost $563,762,612) .............. 614,137,773
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (4.1%)
U.S. GOVERNMENT AGENCY (a) (1.6%)
$10,200 Federal Home Loan Mortgage Corp. 5.50% due 06/01/98 (Amortized
Cost $10,200,000) ............................................... 10,200,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT (2.5%)
$15,837 The Bank of New York 5.50% due 06/01/98 (dated 05/29/98;
proceeds $15,844,654)(b)
(Identified Cost $15,837,395) ................................... $15,837,395
--------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $26,037,395) ................................... 26,037,395
--------------
</TABLE>
<TABLE>
<CAPTION>
TOTAL INVESTMENTS
(Identified Cost $589,800,007)(c) . 99.2% 640,175,168
<S> <C> <C>
OTHER ASSETS IN EXCESS OF
LIABILITIES........................ 0.8 5,399,739
-------- -------------
NET ASSETS......................... 100.0% $645,574,907
======== =============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $15,105,582 U.S. Treasury Note 7.50% due 05/15/02
valued at $16,154,143.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$67,382,362 and the aggregate gross unrealized depreciation is
$17,007,201, resulting in net unrealized appreciation of
$50,375,161.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $589,800,007)............. $640,175,168
Receivable for:
Investments sold ......................... 19,972,517
Shares of beneficial interest sold ...... 1,689,528
Dividends ................................ 38,125
Deferred organizational expenses ........... 42,651
Prepaid expenses and other assets .......... 89,676
--------------
TOTAL ASSETS ............................. 662,007,665
--------------
LIABILITIES:
Payable for:
Investments purchased..................... 14,139,345
Shares of beneficial interest
repurchased.............................. 1,224,538
Plan of distribution fee.................. 569,716
Investment management fee................. 426,321
Accrued expenses and other payables ....... 72,838
--------------
TOTAL LIABILITIES ........................ 16,432,758
--------------
NET ASSETS................................ $645,574,907
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................. $506,745,908
Net unrealized appreciation ................ 50,375,161
Accumulated undistributed net realized
gain....................................... 88,453,838
--------------
NET ASSETS ............................... $645,574,907
==============
CLASS A SHARES:
Net Assets.................................. $2,875,594
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 166,357
NET ASSET VALUE PER SHARE ................ $17.29
==============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset
value) .................................. $18.25
==============
CLASS B SHARES:
Net Assets.................................. $635,816,029
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 37,034,486
NET ASSET VALUE PER SHARE ................ $17.17
==============
CLASS C SHARES:
Net Assets.................................. $5,802,131
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 337,906
NET ASSET VALUE PER SHARE ................ $17.17
==============
CLASS D SHARES:
Net Assets.................................. $1,081,153
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 62,443
NET ASSET VALUE PER SHARE ................ $17.31
==============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended May 31, 1998*
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $6,428 foreign withholding
tax) ....................................... $ 1,911,801
Interest .................................... 1,635,606
-------------
TOTAL INCOME .............................. 3,547,407
-------------
EXPENSES
Plan of distribution fee (Class A shares) ... 3,277
Plan of distribution fee (Class B shares) ... 5,693,336
Plan of distribution fee (Class C shares) ... 26,884
Investment management fee.................... 4,285,550
Transfer agent fees and expenses............. 682,082
Registration fees ........................... 180,094
Custodian fees............................... 51,400
Professional fees ........................... 50,182
Shareholder reports and notices ............. 39,674
Organizational expenses ..................... 30,229
Trustees' fees and expenses.................. 14,381
Other........................................ 7,524
-------------
TOTAL EXPENSES ............................ 11,064,613
-------------
NET INVESTMENT LOSS ....................... (7,517,206)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain............................ 120,508,014
Net change in unrealized appreciation ...... (3,609,267)
-------------
NET GAIN .................................. 116,898,747
-------------
NET INCREASE ................................ $109,381,541
=============
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 1998* MAY 31, 1997
- ------------------------------------------------------ --------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ................................... $ (7,517,206) $ (3,745,901)
Net realized gain...................................... 120,508,014 18,972,626
Net change in unrealized appreciation ................. (3,609,267) 10,689,644
--------------- --------------
NET INCREASE ........................................ 109,381,541 25,916,369
--------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares ........................................ (57,133) --
Class B shares ........................................ (38,691,036) (28,296,177)
Class C shares ........................................ (196,298) --
Class D shares ........................................ (20,585) --
--------------- --------------
TOTAL DISTRIBUTIONS ................................. (38,965,052) (28,296,177)
--------------- --------------
Net increase from transactions in shares of beneficial
interest.............................................. 156,406,489 111,860,026
--------------- --------------
NET INCREASE ........................................ 226,822,978 109,480,218
NET ASSETS:
Beginning of period.................................... 418,751,929 309,271,711
--------------- --------------
END OF PERIOD ....................................... $645,574,907 $418,751,929
=============== ==============
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Mid-Cap Growth Fund (the "Fund") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Fund's investment
objective is to seek long-term capital growth. The Fund seeks to achieve its
objective by investing primarily in domestic and foreign equity securities of
"mid-cap" companies. The Fund was organized as a Massachusetts business trust
on May 25, 1994 and commenced operations on September 29, 1994. On July 28,
1997, the Fund commenced offering three additional classes of shares, with
the then current shares designated as Class B shares.
Effective June 22, 1998, the following entities have changed their name:
<TABLE>
<CAPTION>
OLD NAME NEW NAME
------------------------------------ ------------------------------------------------
<S> <C>
Dean Witter Mid-Cap Growth Fund Morgan Stanley Dean Witter Mid-Cap Growth Fund
Dean Witter InterCapital Inc. Morgan Stanley Dean Witter Advisors Inc.
Dean Witter Distributors Inc. Morgan Stanley Dean Witter Distributors Inc.
</TABLE>
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a
sales charge. Additionally, Class A shares, Class B shares and Class C shares
incur distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where securities are traded on more than one exchange,
the security is valued on the exchange designated as the primary market
pursuant to procedures adopted by the Trustees); (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation;
(3) when market quotations are not readily available, including circumstances
under which it is determined by Morgan Stanley Dean Witter Advisors Inc. (the
10
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
"Investment Manager") that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the 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); and (4) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date except for certain dividends on foreign securities which are
recorded as soon as the Fund is informed after the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are
allocated to each class of shares based upon the relative net asset value on
the date such items are recognized. Distribution fees are charged directly to
the respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The 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.
11
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
F. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $156,000 which have been
reimbursed for the full amount thereof. Such expenses have been deferred and
are being amortized on the straight-line method over a period not to exceed
five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund as of the close of each
business day: 0.75% to the portion of net assets not exceeding $500 million
and 0.725% to the portion of the daily net assets exceeding $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund
has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under
the Act. The Plan provides that the Fund will pay the Distributor a fee which
is accrued daily and paid monthly at the following annual rates: (i) Class A
- - up to 0.25% of the average daily net assets of Class A; (ii) Class B - 1.0%
of the lesser of: (a) the average daily aggregate gross sales of the Class B
shares since the inception of the Fund (not including reinvestment of
dividend or capital gain distributions) less the average daily aggregate net
asset value of the Class B shares redeemed since the Fund's inception upon
which a contingent deferred sales charge has been imposed or waived; or (b)
the average daily net assets of Class B; and (iii) Class C - up to 1.0% of the
average daily net assets of Class C. In the case of Class A shares, amounts
paid under the Plan are paid to the Distributor for services provided. In the
case of Class B and Class C shares, amounts paid under the Plan are paid to
the Distributor for services provided and the expenses borne by it and others
in the distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter Financial Advisors Inc. and others
who engage in or support distribution of the shares or who service
shareholder accounts, including overhead
12
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
and telephone expenses; printing and distribution of prospectuses and reports
used in connection with the offering of these shares to other than current
shareholders; and preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan, in the case of Class B shares, to compensate Dean
Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor and other selected broker-dealers for their opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect,
any cumulative expenses incurred by the Distributor but not yet recovered may
be recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated, the Trustees will consider at that time the manner in
which to treat such expenses. The Distributor has advised the Fund that such
excess amounts, including carrying charges, totaled $14,280,349 at May 31,
1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant
to the Plan in any calendar year in excess of 0.25% or 1.0% of the average
daily net assets of Class A or Class C, respectively, will not be reimbursed
by the Fund through payments in any subsequent year, except that expenses
representing a gross sales credit to Morgan Stanley Dean Witter Financial
Advisors or other selected broker-dealer representatives may be reimbursed in
the subsequent calendar year. For the period ended May 31, 1998, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the period ended May 31, 1998,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $7,185, $800,755
and $2,004, respectively and received $59,087 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such
charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended May 31, 1998 aggregated
$1,012,812,830 and $920,667,492, respectively.
13
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
For the year ended May 31, 1998, the Fund incurred $91,976 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the
Fund. At May 31, 1998, the Fund's payable for investments purchased included
unsettled trades with DWR of $244,938.
For the year ended May 31, 1998, the Fund incurred $88,675 in brokerage
commissions with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager, for portfolio transactions executed on behalf of the Fund. At May
31, 1998 the Fund's payable for investments purchased included an unsettled
trade with Morgan Stanley & Co., Inc. of $620,730.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At May 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $2,500.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 1998 MAY 31, 1997
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold .......................... 223,859 $ 3,887,750 -- --
Reinvestment of distributions 3,525 57,133 -- --
Redeemed ...................... (61,027) (1,101,805) -- --
--------------- --------------- --------------- ---------------
Net increase -Class A ......... 166,357 2,843,078 -- --
--------------- --------------- --------------- ---------------
CLASS B SHARES
Sold .......................... 20,515,049 348,155,548 21,016,632 $ 298,480,486
Reinvestment of distributions 2,245,246 36,260,726 1,950,535 26,449,257
Redeemed ...................... (14,102,658) (237,680,244) (15,064,395) (213,069,717)
--------------- --------------- --------------- ---------------
Net increase -Class B ......... 8,657,637 146,736,030 7,902,772 111,860,026
--------------- --------------- --------------- ---------------
CLASS C SHARES*
Sold .......................... 388,549 6,774,774 -- --
Reinvestment of distributions 11,759 190,027 -- --
Redeemed ...................... (62,402) (1,095,646) -- --
--------------- --------------- --------------- ---------------
Net increase -Class C ......... 337,906 5,869,155 -- --
--------------- --------------- --------------- ---------------
CLASS D SHARES*
Sold .......................... 132,955 2,212,136 -- --
Reinvestment of distributions 495 8,020 -- --
Redeemed ...................... (71,007) (1,261,930) -- --
--------------- --------------- --------------- ---------------
Net increase -Class D ......... 62,443 958,226 -- --
--------------- --------------- --------------- ---------------
Net increase in Fund .......... 9,224,343 $ 156,406,489 7,902,772 $ 111,860,026
=============== =============== =============== ===============
</TABLE>
- ------------
* For the period July 28, 1997 (issue date) through May 31, 1998.
14
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
6. FEDERAL INCOME TAX STATUS
As of May 31, 1998, the Fund had temporary book/tax differences attributable
to capital loss deferrals on wash sales and permanent book/tax differences
attributable to a net operating loss. To reflect reclassifications arising
from the permanent differences, accumulated undistributed net realized gain
was charged and net investment loss was credited $7,517,206.
15
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP 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 MAY 31, SEPTEMBER 29, 1994*
---------------------------------------------- THROUGH
1998**++ 1997 1996 MAY 31, 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $14.76 $15.11 $10.81 $10.00
-------------- -------------- -------------- -------------------
Net investment loss ....................... (0.22) (0.13) (0.10) (0.01)
Net realized and unrealized gain .......... 3.79 0.94 5.60 0.84
-------------- -------------- -------------- -------------------
Total from investment operations .......... 3.57 0.81 5.50 0.83
-------------- -------------- -------------- -------------------
Less distributions from net realized gain (1.16) (1.16) (1.20) (0.02)
-------------- -------------- -------------- -------------------
Net asset value, end of period ............ $17.17 $14.76 $15.11 $10.81
============== ============== ============== ===================
TOTAL INVESTMENT RETURN+ .................. 24.68 % 6.01 % 53.02 % 8.26 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.93 % 1.99 % 2.05 % 2.21 %(2)
Net investment loss ....................... (1.31)% (1.06)% (1.05)% (0.16)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $635,816 $418,752 $309,272 $115,126
Portfolio turnover rate ................... 169 % 209 % 328 % 199 %(1)
Average commission rate paid .............. $0.0579 $0.0592 $0.0582 --
</TABLE>
- ------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B
shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MAY 31, 1998++
- ------------------------------------------ --------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 16.43
--------------
Net investment loss ....................... (0.10)
Net realized and unrealized gain .......... 2.12
--------------
Total from investment operations .......... 2.02
--------------
Less distributions from net realized gain (1.16)
--------------
Net asset value, end of period ............ $ 17.29
==============
TOTAL INVESTMENT RETURN+ .................. 12.77 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.19 %(2)
Net investment loss ....................... (0.70)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 2,876
Portfolio turnover rate ................... 169 %
Average commission rate paid .............. $ 0.0579
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 16.43
--------------
Net investment loss ....................... (0.20)
Net realized and unrealized gain .......... 2.10
--------------
Total from investment operations .......... 1.90
--------------
Less distributions from net realized gain (1.16)
--------------
Net asset value, end of period ............ $ 17.17
==============
TOTAL INVESTMENT RETURN+ .................. 12.01 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.94 %(2)
Net investment loss ....................... (1.40)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 5,802
Portfolio turnover rate ................... 169 %
Average commission rate paid .............. $ 0.0579
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MAY 31, 1998++
- ------------------------------------------ --------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... 16.43
--------------
Net investment loss ....................... (0.06)
Net realized and unrealized gain .......... 2.10
--------------
Total from investment operations .......... 2.04
--------------
Less distributions from net realized gain (1.16)
--------------
Net asset value, end of period ............ $17.31
==============
TOTAL INVESTMENT RETURN+ .................. 12.89 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 0.93 %(2)
Net investment loss ....................... (0.41)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 1,081
Portfolio turnover rate ................... 169 %
Average commission rate paid .............. $0.0579
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER MID-CAP 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 Morgan Stanley
Dean Witter Mid-Cap Growth Fund (the "Fund"), formerly Dean Witter Mid-Cap
Growth Fund, at May 31, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at May 31, 1998 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
July 6, 1998
1998 Federal Tax Notice (unaudited)
During the year ended May 31, 1998, the Fund paid to its shareholders
$0.26 per share from long-term capital gains. Of this $0.26
distribution, $0.15 is taxable as 28% rate gain and $0.11 is taxable as
20% rate gain. For such period, 8.16% of the income paid qualified for
the dividends received deduction available to corporations.
19
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Peter Hermann
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of the
Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
MORGAN STANLEY
DEAN WITTER
MID-CAP
GROWTH FUND
ANNUAL REPORT
MAY 31, 1998
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund Two World Trade Center New York,
New York 10048
Letter to the Shareholders November 30, 1998
DEAR SHAREHOLDER:
Many of the world's equity markets experienced record levels of volatility in
late summer 1998. Persistent financial woes in Asia, Russia's default and
devaluation and the near-collapse of a multibillion-dollar hedge fund prompted
significant declines in stock prices as investors worried about the threat of
recession. To keep a global credit crunch and recession at bay the Federal
Reserve Board sharply lowered interest rates, as did many central banks around
the world. The stock market rallied in response, recouping nearly all of its
losses by the end of November.
PERFORMANCE
For the six-month period ended November 30, 1998, Morgan Stanley Dean Witter
Mid-Cap Growth Fund's Class B shares produced a total return of -9.73 percent,
while the Fund's Class A shares returned -9.37 percent, Class C shares returned
- -9.73 percent and Class D shares returned -9.47 percent. During the same
period, the Standard & Poor's MidCap 400 Index and the Lipper Mid Cap Fund
Index registered total returns of -1.56 percent and -4.72 percent,
respectively. The performance of the Fund's four share classes varies because
each class has different expenses.
Much of the Fund's unfavorable relative performance can be attributed to the
portfolio's diversification into the smaller and mid-sized end of the mid-cap
arena, which worked so admirably in fiscal year 1997, but failed to produce
returns commensurate with those of large-cap stocks over the past six months.
Similar to what occurred in large-cap stocks, where the "nifty fifty" names
carried the S&P 500 higher, the same situation prevailed within the mid-cap
arena, with the largest mid-cap stocks outperforming the average mid-sized
issue.
THE PORTFOLIO
Over the past six months, the Fund was heavily weighted in the technology,
financial services and retail sectors, which witnessed disparate price declines
over the period, although each of these areas
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Letter to the Shareholders November 30, 1998, continued
eventually rebounded strongly. As of November 30, 1998, the Fund had 16 percent
of its net assets invested in financial/interest-rate-sensitive stocks, 32
percent in technology/capital goods, 26 percent in the
consumer/consumer-related sector and 21 percent in health care.
The Fund's largest holdings at the end of November included Medicis
Pharmaceutical Corp. (pharmaceuticals), Total Renal Care Holdings, Inc.
(medical/nursing services), Ascend Communications, Inc.
(computers/communications), Capital One Financial Corp. (diversified financial
services) and America Online, Inc. (Internet-related).
LOOKING AHEAD
Going forward, we are optimistic about the Fund's prospects. We believe that
many of the mid- and small-capitalization issues in which the Fund invests are
attractive on valuation and fundamental bases, and are poised for improved
performance in the second half of the Fund's fiscal year.
We appreciate your ongoing support of Morgan Stanley Dean Witter Mid-Cap Growth
Fund and look forward to continuing to serve your investment needs.
Very truly yours,
CHARLES A. FIUMEFREDDO signature
CHARLES A. FIUMEFREDDO
Chairman of the Board
2
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Portfolio of Investments November 30, 1998 (unaudited)
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
COMMON STOCKS (98.8%)
Accident & Health Insurance (2.2%)
180,000 AFLAC, Inc. ................. $ 6,637,500
100,000 UNUM Corp. .................. 5,387,500
------------
12,025,000
------------
Advertising (3.1%)
375,000 Outdoor Systems, Inc.* ...... 10,125,000
180,000 Snyder Communications,
Inc.*....................... 6,401,250
------------
16,526,250
------------
Auto Parts (1.0%)
100,000 Federal Mogul Corp. ......... 5,675,000
------------
Banking (0.4%)
95,000 Banco Santander Puerto
Rico*....................... 2,185,000
------------
Biotechnology (4.0%)
115,000 Biogen, Inc.*................ 8,725,625
300,000 Chiron Corp.*................ 6,787,500
65,000 Immunex Corp.*............... 5,984,062
------------
21,497,187
------------
Broadcast Media (1.3%)
125,000 Jacor Communications,
Inc.*....................... 7,273,437
------------
Building Materials (1.5%)
140,000 Southdown, Inc. ............. 8,155,000
------------
Business Services (0.8%)
110,000 Metzler Group, Inc. (The)*... 4,565,000
------------
Clothing/Shoe/Accessory Stores (1.6%)
150,000 Abercrombie & Fitch Co.
(Class A)*.................. 8,400,000
50,000 Pier 1 Imports, Inc. ........ 537,500
------------
<PAGE>
8,937,500
------------
Computer Software (8.0%)
250,000 CheckFree Holdings Corp.*.... 4,062,500
116,000 Citrix Systems, Inc.*........ 9,628,000
175,000 Compuware Corp.*............. 10,893,750
175,000 Learning Company, Inc.
(The)*...................... 5,085,937
115,000 Legato Systems, Inc.*........ 5,491,250
157,000 Network Associates, Inc.*.... 7,987,375
------------
43,148,812
------------
Computer/Video Chains (1.7%)
100,000 Gateway 2000, Inc.*.......... $ 5,612,500
75,000 Synopsis, Inc.*.............. 3,543,750
------------
9,156,250
------------
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
Computer - Equipment (1.3%)
175,000 American Power Conversion
Corp.*...................... $ 7,229,687
------------
Computers - Services (1.0%)
150,000 NCR Corp.*................... 5,587,500
------------
Computers Communications (3.1%)
200,000 Ascend Communications,
Inc.*....................... 11,225,000
75,000 Sun Microsystems, Inc.*...... 5,545,312
------------
16,770,312
------------
Computers Software & Services (4.7%)
150,000 At Home Corp. (Series A)*.... 8,718,750
325,000 General Instrument Corp.*.... 9,140,625
325,000 Rational Software Corp.*..... 7,373,437
------------
25,232,812
------------
Contract Drilling (0.6%)
550,000 Global Industries, Ltd.*..... 3,128,125
------------
<PAGE>
Diversified Commercial Services (0.6%)
100,000 HA-LO Industries, Inc.*...... 3,193,750
------------
Diversified Financial Services (5.1%)
100,000 Capital One Financial
Corp. ...................... 11,000,000
110,000 FINOVA Group, Inc. .......... 5,809,375
115,000 Providian Financial Corp. ... 10,558,438
------------
27,367,813
------------
Drug Store Chains (2.9%)
190,000 Duane Reade, Inc.*........... 7,623,750
150,000 Express Scripts, Inc. (Class
A)*......................... 8,250,000
------------
15,873,750
------------
Electronic Data Processing (1.6%)
140,000 Gemstar International Group
Ltd. (Virgin Islands)*...... 8,505,000
------------
Electronics - Semiconductors/
Components (1.8%)
350,000 Advanced Micro Devices,
Inc.*....................... 9,690,625
------------
Finance (1.6%)
200,000 MGIC Investment Corp. ....... 8,787,500
------------
See Notes to Financial Statements
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Portfolio of Investments November 30, 1998 (unaudited) continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
Food Chains (1.2%)
125,000 Fred Meyer, Inc.*............ $ 6,359,375
------------
Generic Drugs (6.6%)
175,000 ALZA Corp.*.................. 9,143,750
175,000 Forest Laboratories, Inc.*... 8,159,375
325,000 Mylan Laboratories, Inc. .... 10,785,938
140,000 Watson Pharmaceuticals,
Inc.*....................... 7,542,500
------------
35,631,563
------------
Health Care Diversified
(0.7%)
75,000 Universal Health Services,
Inc. (Class B)*............. 4,021,875
------------
Home Building (1.0%)
225,000 Kaufman & Broad Home Corp. .. 5,667,188
------------
Housewares (1.9%)
175,000 Best Buy Co., Inc.*.......... 10,084,375
------------
Internet (7.4%)
125,000 America Online, Inc.*........ 10,945,313
80,000 CSG Systems
International, Inc.*........ 5,020,000
150,000 Earthlink Network, Inc.*..... 9,112,500
125,000 Infoseek Corp.*.............. 4,242,188
60,000 MindSpring Enterprises,
Inc.*....................... 3,855,000
35,000 Yahoo! Inc.*................. 6,717,812
------------
39,892,813
------------
Investment Bankers/Brokers/
Services (2.2%)
85,000 Bear Stearns Companies,
Inc. ....................... 3,570,000
200,000 Paine Webber Group, Inc. .... 8,175,000
------------
11,745,000
------------
<PAGE>
Major U.S. Telecommunications (0.9%)
175,000 Winstar Communications,
Inc.*....................... 4,867,188
------------
Medical Specialties (0.5%)
100,000 IDEXX Laboratories, Inc.*.... 2,575,000
------------
Medical/Nursing Services (4.0%)
375,000 Renal Care Group, Inc.*...... 10,078,125
435,000 Total Renal Care Holdings,
Inc.*....................... 11,554,688
------------
21,632,813
------------
Mid-Sized Banks (1.4%)
100,000 Firstar Corp. ............... 7,325,000
------------
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
Multi-Line Insurance (1.9%)
225,000 American Bankers Insurance
Group, Inc. ................ $ 10,209,375
------------
Office Equipment/Supplies (3.6%)
130,000 Lexmark International Group,
Inc. (Class A)*............. 9,928,750
300,000 Office Depot, Inc.*.......... 9,750,000
------------
19,678,750
------------
Other Pharmaceuticals (2.3%)
200,000 Medicis Pharmaceutical Corp.
(Class A)*.................. 12,600,000
------------
Other Specialty Stores (1.5%)
225,000 Staples, Inc.*............... 7,846,875
------------
Railroad Equipment (1.4%)
200,000 Trinity Industries, Inc. .... 7,737,500
------------
Restaurants (2.6%)
225,000 Outback Steakhouse, Inc.*.... 7,987,500
140,000 Papa John's International,
Inc.*....................... 5,871,250
------------
13,858,750
------------
<PAGE>
Retail (1.4%)
40,000 Amazon.com, Inc.*............ 7,680,000
------------
Retail - Specialty (1.0%)
200,000 Eagle Hardware & Garden,
Inc.*....................... 5,637,500
------------
Semiconductors (1.6%)
70,000 Broadcom Corp. (Class A)*.... 6,251,875
60,000 Veeco Instruments, Inc.*..... 2,190,000
------------
8,441,875
------------
Services to the Health Industry (1.4%)
160,000 Bard (C.R.), Inc. ........... 7,330,000
------------
Specialty Foods/Candy (0.7%)
175,000 Fresh Del Monte Produce
Inc.*....................... 3,850,000
------------
Utilities - Electric (1.7%)
200,000 AES Corp.*................... 9,150,000
------------
TOTAL COMMON STOCKS
(Identified Cost
$462,970,642)................ 534,334,125
------------
See Notes to Financial Statements
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Portfolio of Investments November 30, 1998 (unaudited) continued
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------
SHORT-TERM INVESTMENT (1.4%)
REPURCHASE AGREEMENT
$ 7,510 The Bank of New York 4.625%
due 12/01/98 (dated
11/30/98; proceeds
$7,511,629) (a)
(Identified Cost
$7,510,664)................. $ 7,510,664
------------
TOTAL INVESTMENTS
(Identified Cost $470,481,306)
(b)............................. 100.2% 541,844,789
OTHER LIABILITIES IN
EXCESS OF ASSETS................ (0.2) (1,297,835)
------- ------------
NET ASSETS...................... 100.0% $540,546,954
======= ============
- ---------------------
* Non-income producing security.
(a) Collateralized by $4,980,438 Federal Home Loan Banks 6.615% due 03/05/08
valued at $5,059,638 and $2,560,846 Federal Home Loan Banks 6.55% due
08/27/08 valued at $2,602,741.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $77,858,116 and the
aggregate gross unrealized depreciation is $6,494,633, resulting in net
unrealized appreciation of $71,363,483.
See Notes to Financial Statements
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1998 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $470,481,306)............................. $541,844,789
Receivable for:
Investments sold........................................ 14,182,824
Shares of beneficial interest sold...................... 626,416
Dividends............................................... 62,250
Deferred organizational expenses............................ 27,495
Prepaid expenses and other assets........................... 95,569
------------
TOTAL ASSETS............................................ 556,839,343
------------
LIABILITIES:
Payable for:
Investments purchased................................... 12,492,255
Shares of beneficial interest repurchased............... 2,971,809
Plan of distribution fee................................ 445,441
Investment management fee............................... 336,110
Accrued expenses and other payables......................... 46,774
------------
TOTAL LIABILITIES....................................... 16,292,389
------------
NET ASSETS.............................................. $540,546,954
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $466,822,686
Net unrealized appreciation................................. 71,363,483
Net investment loss......................................... (4,572,306)
Accumulated undistributed net realized gain................. 6,933,091
------------
NET ASSETS.............................................. $540,546,954
============
CLASS A SHARES:
Net Assets.................................................. $3,403,534
Shares Outstanding (unlimited authorized, $.01 par value)... 217,299
NET ASSET VALUE PER SHARE............................... $15.66
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $16.53
============
CLASS B SHARES:
Net Assets.................................................. $529,655,893
Shares Outstanding (unlimited authorized, $.01 par value)... 34,175,785
NET ASSET VALUE PER SHARE............................... $15.50
============
CLASS C SHARES:
Net Assets.................................................. $6,328,424
Shares Outstanding (unlimited authorized, $.01 par value)... 408,280
NET ASSET VALUE PER SHARE............................... $15.50
============
<PAGE>
CLASS D SHARES:
Net Assets.................................................. $1,159,103
Shares Outstanding (unlimited authorized, $.01 par value)... 73,937
NET ASSET VALUE PER SHARE............................... $15.68
============
See Notes to Financial Statements
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Financial Statements, continued
STATEMENT OF OPERATIONS
For the six months ended November 30, 1998 (unaudited)
NET INVESTMENT LOSS:
INCOME
Interest.................................................... $ 574,310
Dividends (net of $8,001 foreign withholding tax)........... 429,897
------------
TOTAL INCOME............................................ 1,004,207
------------
EXPENSES
Plan of distribution fee (Class A shares)................... 3,948
Plan of distribution fee (Class B shares)................... 2,814,048
Plan of distribution fee (Class C shares)................... 30,126
Investment management fee................................... 2,137,384
Transfer agent fees and expenses............................ 405,144
Registration fees........................................... 55,408
Shareholder reports and notices............................. 35,399
Professional fees........................................... 33,208
Custodian fees.............................................. 29,829
Organizational expenses..................................... 15,156
Trustees' fees and expenses................................. 6,635
Other....................................................... 10,228
------------
TOTAL EXPENSES.......................................... 5,576,513
------------
NET INVESTMENT LOSS..................................... (4,572,306)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (81,520,747)
Net change in unrealized appreciation....................... 20,988,322
------------
NET LOSS................................................ (60,532,425)
------------
NET DECREASE................................................ $(65,104,731)
============
See Notes to Financial Statements
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Financial Statements, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR
FOR THE SIX ENDED
MONTHS ENDED MAY 31,
NOVEMBER 30, 1998 1998*
- ---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss.................................. $ (4,572,306) $ (7,517,206)
Net realized gain (loss)............................. (81,520,747) 120,508,014
Net change in unrealized appreciation................ 20,988,322 (3,609,267)
------------ ------------
NET INCREASE (DECREASE).......................... (65,104,731) 109,381,541
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares....................................... -- (57,133)
Class B shares....................................... -- (38,691,036)
Class C shares....................................... -- (196,298)
Class D shares....................................... -- (20,585)
------------ ------------
TOTAL DISTRIBUTIONS.............................. -- (38,965,052)
------------ ------------
Net increase (decrease) from transactions in shares
of beneficial interest.............................. (39,923,222) 156,406,489
------------ ------------
<PAGE>
NET INCREASE (DECREASE).......................... (105,027,953) 226,822,978
NET ASSETS:
Beginning of period.................................. 645,574,907 418,751,929
------------ ------------
END OF PERIOD
(Including a net investment loss of
$4,572,306 and $0, respectively)................. $540,546,954 $645,574,907
============ ============
- ---------------------
</TABLE>
* Class A, Class C and Class D shares were issued July 28, 1997.
See Notes to Financial Statements
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Notes to Financial Statements November 30, 1998 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Mid-Cap Growth Fund (the "Fund"), is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Fund's investment
objective is to seek long-term capital growth. The Fund seeks to achieve its
objective by investing primarily in domestic and foreign equity securities of
"mid-cap" companies. The Fund was organized as a Massachusetts business trust
on May 25, 1994 and commenced operations on September 29, 1994. On July 28,
1997, the Fund commenced offering three additional classes of shares, with the
then current shares designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price
(in cases where securities are traded on more than one exchange, the security
is valued on the exchange designated as the primary market by the Trustees);
(2) all other portfolio securities for which over-the-counter market quotations
are readily available are valued at the latest available bid price prior to the
time of valuation; (3) when market quotations are not readily available,
including circumstances under which it is determined by Morgan Stanley Dean
Witter Advisors Inc. (the "Investment Manager"), 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); and
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Notes to Financial Statements November 30, 1998 (unaudited) continued
(4) short-term debt securities having a maturity date of more than sixty days
at time of purchase are valued on a mark-to-market basis until sixty days prior
to maturity and thereafter at amortized cost based on their value on the 61st
day. Short-term debt securities having a maturity date of sixty days or less at
the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends on foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. Discounts are accreted over
the life of the respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date
such items are recognized. Distribution fees are charged directly to the
respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The 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.
F. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $156,000 which have been
reimbursed for the full amount thereof. Such
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Notes to Financial Statements November 30, 1998 (unaudited) continued
expenses have been deferred and are being amortized on the straight-line method
over a period not to exceed five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund as of the close of each
business day: 0.75% to the portion of net assets not exceeding $500 million and
0.725% to the portion of the daily net assets exceeding $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Class B
shares since the inception of the Fund (not including reinvestment of dividend
or capital gain distributions) less the average daily aggregate net asset value
of the Class B shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or waived; or (b) the average
daily net assets of Class B; and (iii) Class C -- up to 1.0% of the average
daily net assets of Class C. In the case of Class A shares, amounts paid under
the Plan are paid to the Distributor for services provided. In the case of
Class B and Class C shares, amounts paid under the Plan are paid to the
Distributor for (1) services provided and the expenses borne by it and others
in the distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter Financial Advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; (2) printing and
distribution of
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Notes to Financial Statements November 30, 1998 (unaudited) continued
prospectuses and reports used in connection with the offering of these shares
to other than current shareholders; and (3) preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan, in the case of Class B
shares, to compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the Distributor
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. The Distributor has advised the Fund that such excess amounts,
including carrying charges, totaled $13,830,116 at November 30, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the six months ended November 30, 1998, the distribution fee
was accrued for Class A shares and Class C shares at the annual rate of 0.25%
and 1.0%, respectively.
The Distributor has informed the Fund that for the six months ended November
30, 1998, it received contingent deferred sales charges from certain
redemptions of the Fund's Class B shares and Class C shares of $520,989 and
$4,210, respectively and received approximately $14,241 in front-end sales
charges from sales of the Fund's Class A shares. The respective shareholders
pay such charges which are not an expense of the Fund.
4. FEDERAL INCOME TAX STATUS
As of May 31, 1998, the Fund had temporary book/tax differences attributable to
capital loss deferrals on wash sales.
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Notes to Financial Statements November 30, 1998 (unaudited) continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
NOVEMBER 30, 1998 MAY 31, 1998*
-------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold....................................................... 117,956 $ 1,815,033 223,859 $ 3,887,750
Reinvestment of distributions.............................. -- -- 3,525 57,133
Redeemed................................................... (67,014) (1,000,514) (61,027) (1,101,805)
---------- ------------- ----------- -------------
Net increase -- Class A.................................... 50,942 814,519 166,357 2,843,078
---------- ------------- ----------- -------------
CLASS B SHARES
Sold....................................................... 4,314,088 68,146,572 20,515,049 348,155,548
Reinvestment of distributions.............................. -- -- 2,245,246 36,260,726
Redeemed................................................... (7,172,789) (110,071,822) (14,102,658) (237,680,244)
---------- ------------- ----------- -------------
Net increase (decrease) -- Class B......................... (2,858,701) (41,925,250) 8,657,637 146,736,030
---------- ------------- ----------- -------------
CLASS C SHARES
Sold....................................................... 145,037 2,369,763 388,549 6,774,774
Reinvestment of distributions.............................. -- -- 11,759 190,027
Redeemed................................................... (74,663) (1,170,192) (62,402) (1,095,646)
---------- ------------- ----------- -------------
Net increase -- Class C.................................... 70,374 1,199,571 337,906 5,869,155
---------- ------------- ----------- -------------
CLASS D SHARES
Sold....................................................... 791,299 11,590,905 132,955 2,212,136
Reinvestment of distributions.............................. -- -- 495 8,020
Redeemed................................................... (779,805) (11,602,967) (71,007) (1,261,930)
---------- ------------- ----------- -------------
Net increase (decrease) -- Class D......................... 11,494 (12,062) 62,443 958,226
---------- ------------- ----------- -------------
Net increase (decrease) in Fund............................ (2,725,891) $ (39,923,222) 9,224,343 $ 156,406,489
========== ============= =========== =============
</TABLE>
- ---------------------
* For Class A, C and D shares, for the period July 28, 1997 (issue date)
through May 31, 1998.
6. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the six months ended November 30, 1998
aggregated $1,032,646,536 and $1,051,922,418, respectively.
For the six months ended November 30, 1998, the Fund incurred $60,123 in
brokerage commissions with DWR for portfolio transactions executed on behalf of
the Fund. At November 30, 1998, the Fund's
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Notes to Financial Statements November 30, 1998 (unaudited) continued
receivable for investments sold and payable for investments purchased included
unsettled trades with DWR of $791,051 and $3,212,876, respectively.
For the six months ended November 30, 1998, the Fund incurred $202,845 in
brokerage commissions with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager and Distributor, for portfolio transactions executed on
behalf of the Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At November 30, 1998, the Fund
had transfer agent fees and expenses payable of approximately $1,100.
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Financial Highlights
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED MAY 31 SEPTEMBER 29, 1994*
MONTHS ENDED ---------------------------------- THROUGH
NOVEMBER 30, 1998++ 1998**++ 1997 1996 MAY 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA
Net asset value, beginning of period............ $17.17 $14.76 $15.11 $10.81 $10.00
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss............................ (0.13) (0.22) (0.13) (0.10) (0.01)
Net realized and unrealized gain (loss)........ (1.54) 3.79 0.94 5.60 0.84
------ ------ ------ ------ ------
Total income (loss) from investment operations.. (1.67) 3.57 0.81 5.50 0.83
------ ------ ------ ------ ------
Less distributions from net realized gain....... -- (1.16) (1.16) (1.20) (0.02)
------ ------ ------ ------ ------
Net asset value, end of period.................. $15.50 $17.17 $14.76 $15.11 $10.81
====== ====== ====== ====== ======
TOTAL RETURN+................................... 8.26 %(1) (9.73)%(1) 24.68 % 6.01 % 53.02 %
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................ 1.96 %(2)(3) 1.93 % 1.99 % 2.05 % 2.21 %(2)
Net investment loss............................. (0.16)%(2) (1.61)%(2)(3) (1.31)% (1.06)% (1.05)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands......... $529,656 $635,816 $418,752 $309,272 $115,126
Portfolio turnover rate......................... 188 %(1) 169 % 209 % 328 % 199 %(1)
</TABLE>
- ---------------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
NOVEMBER 30, 1998 MAY 31, 1998
- ----------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA
Net asset value, beginning of period........................ $17.29 $16.43
------ ------
Income (loss) from investment operations:
Net investment loss........................................ (0.07) (0.10)
Net realized and unrealized gain (loss).................... (1.56) 2.12
------ ------
Total income (loss) from investment operations.............. (1.63) 2.02
------ ------
Less distributions from net realized gain................... -- (1.16)
------ ------
Net asset value, end of period.............................. $15.66 $17.29
====== ======
TOTAL RETURN+............................................... (9.37)%(1) 12.77%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.21 %(2)(3) 1.19 %(2)
Net investment loss......................................... (0.86)%(2)(3) (0.70)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $3,404 $2,876
Portfolio turnover rate..................................... 188 % 169 %
<PAGE>
CLASS C SHARES++
SELECTED PER SHARE DATA
Net asset value, beginning of period........................ $17.17 $16.43
------ ------
Income (loss) from investment operations:
Net investment loss........................................ (0.13) (0.20)
Net realized and unrealized gain (loss).................... (1.54) 2.10
------ ------
Total income (loss) from investment operations.............. (1.67) 1.90
------ ------
Less distributions from net realized gain................... -- (1.16)
------ ------
Net asset value, end of period.............................. $15.50 $17.17
====== ======
TOTAL RETURN+............................................... (9.73)%(1) 12.01%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.96 %(2)(3) 1.94 %(2)
Net investment loss......................................... (1.61)%(2)(3) (1.40)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $6,328 $5,802
Portfolio turnover rate..................................... 188 % 169 %
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
NOVEMBER 30, 1998 MAY 31, 1998
- ----------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA
Net asset value, beginning of period........................ $17.31 $16.43
------ ------
Income (loss) from investment operations:
Net investment loss........................................ (0.05) (0.06)
Net realized and unrealized gain (loss).................... (1.58) 2.10
------ ------
Total income (loss) from investment operations.............. (1.63) 2.04
------ ------
Less distributions from net realized gain................... -- (1.16)
------ ------
Net asset value, end of period.............................. $15.68 $17.31
====== ======
TOTAL RETURN+............................................... (9.47)%(1) 12.89%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.96 %(2)(3) 0.93 %(2)
<PAGE>
Net investment loss......................................... (0.61)%(2)(3) (0.41)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $1,159 $1,081
Portfolio turnover rate..................................... 188 % 169 %
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
<PAGE>
(This Page Intentionally Left Blank)
<PAGE>
(This Page Intentionally Left Blank)
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Peter Hermann
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in
the Fund unless preceded or accompanied by an effective prospectus.
MORGAN STANLEY
DEAN WITTER
MID-CAP
GROWTH FUND
SEMIANNUAL REPORT
NOVEMBER 30, 1998
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the shares of TCW/DW
Mid-Cap Equity Trust ("TCW/DW Mid-Cap") to be issued pursuant to an Agreement
and Plan of Reorganization, dated February 25, 1999, between TCW/DW Mid-Cap
and Morgan Stanley Dean Witter Mid-Cap Growth Fund ("MSDW Mid-Cap"), in
connection with the acquisition by TCW/DW Mid-Cap of substantially all of the
assets, subject to stated liabilities, of MSDW Mid-Cap. This Statement of
Additional Information does not constitute a prospectus. This Statement of
Additional Information does not include all information that a shareholder
should consider before voting on the proposals contained in the Proxy
Statement and Prospectus, and, therefore, should be read in conjunction with
the related Proxy Statement and Prospectus, dated April , 1999. A copy of
the Proxy Statement and Prospectus may be obtained without charge by mailing
a written request to TCW/DW Mid-Cap at Two World Trade Center, New York, New
York 10048 or by calling Morgan Stanley Dean Witter Trust FSB at (800)
869-NEWS (TOLL FREE). Please retain this document for future reference.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS APRIL , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INTRODUCTION .................................... B-3
ADDITIONAL INFORMATION ABOUT TCW/DW MID-CAP .... B-3
FINANCIAL STATEMENTS ............................ B-4
</TABLE>
B-2
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in the Proxy Statement and Prospectus dated April ,
1999 (the "Proxy Statement and Prospectus"). The Proxy Statement and
Prospectus has been sent to MSDW Mid-Cap shareholders in connection with the
solicitation of proxies by the Board of Trustees of MSDW Mid-Cap to be voted
at the Special Meeting of Shareholders of MSDW Mid-Cap to be held on June 8,
1999. This Statement of Additional Information incorporates by reference the
Statement of Additional Information of TCW/DW Mid-Cap dated March , 1999 and
the Statement of Additional Information of MSDW Mid-Cap dated July 29, 1998.
ADDITIONAL INFORMATION ABOUT TCW/DW MID-CAP
INVESTMENT OBJECTIVES AND POLICIES
For additional information about TCW/DW Mid-Cap's investment objectives
and policies, see "Description of the Fund and its Investments and Risks" in
TCW/DW Mid-Cap's Statement of Additional Information.
MANAGEMENT
For additional information about the Board of Trustees, officers and
management personnel of TCW/DW Mid-Cap, see "Management of the Fund" in
TCW/DW Mid-Cap's Statement of Additional Information.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about TCW/DW Mid-Cap's investment manager, see
"Management, Investment Advice and Other Services" in TCW/DW Mid-Cap's
Statement of Additional Information. For additional information about TCW/DW
Mid-Cap's independent auditors, see "Management, Investment Advice and Other
Services" in TCW/DW Mid-Cap's Statement of Additional Information. For
additional information about other services provided to TCW/DW Mid-Cap, see
"Management, Investment Advice and Other Services" and "Shareholder Services"
in TCW/DW Mid-Cap's Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
For additional information about brokerage allocation practices, see
"Brokerage Allocation and Other Practices" in TCW/DW Mid-Cap's Statement of
Additional Information.
DESCRIPTION OF FUND SHARES
For additional information about the voting rights and other
characteristics of the shares of TCW/DW Mid-Cap, see "Capital Stock and Other
Securities" in TCW/DW Mid-Cap's Statement of Additional Information.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about the purchase and redemption of TCW/DW
Mid-Cap's shares and the determination of net asset value, see "Purchase,
Redemption and Pricing of Shares" in TCW/DW Mid-Cap's Statement of Additional
Information.
B-3
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
For additional information about TCW/DW Mid-Cap's policies regarding
dividends and distributions and tax matters affecting TCW/DW Mid-Cap and its
shareholders, see "Taxation of the Fund and Shareholders" in TCW/DW Mid-Cap's
Statement of Additional Information.
DISTRIBUTION OF SHARES
For additional information about TCW/DW Mid-Cap's distributor and the
distribution agreement between TCW/DW Mid-Cap and its distributor, see
"Management, Investment Advice and Other Services" and "Underwriters" in
TCW/DW Mid-Cap's Statement of Additional Information.
PERFORMANCE DATA
For additional information about TCW/DW Mid-Cap's performance data, see
"Calculation of Performance Data" in TCW/DW Mid-Cap's Statement of Additional
Information.
FINANCIAL STATEMENTS
TCW/DW Mid-Cap's most recent audited financial statements are set forth in
TCW/DW Mid-Cap's Annual Report for the fiscal year ended November 30, 1998, a
copy of which is incorporated by reference in the Proxy Statement and
Prospectus. MSDW Mid-Cap's most recent audited financial statements are set
forth in MSDW Mid-Cap's Annual Report for the period ended May 31, 1998,
which is incorporated by reference to the Proxy Statement and Prospectus.
B-4
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF NOVEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
TCW/DW MID-CAP MORGAN STANLEY DEAN WITTER
EQUITY TRUST MID-CAP GROWTH FUND COMBINED
--------------------------- --------------------------- ---------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- -------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS (98.7%)
ACCIDENT & HEALTH INSURANCE (2.2%)
AFLAC, Inc. .......................... -- -- 180,000 $ 6,637,500 180,000 $ 6,637,500
Hartford Life, Inc. (Class A) ......... 78,200 $ 4,286,337 -- -- 78,200 4,286,337
UNUM Corp. ........................... -- -- 100,000 5,387,500 100,000 5,387,500
-------------- -------------- --------------
4,286,337 12,025,000 16,311,337
-------------- -------------- --------------
ADVERTISING (3.1%)
Outdoor Systems, Inc.* ............... 253,712 6,850,224 375,000 10,125,000 628,712 16,975,224
Snyder Communications, Inc.* ......... -- -- 180,000 6,401,250 180,000 6,401,250
-------------- -------------- --------------
6,850,224 16,526,250 23,376,474
-------------- -------------- --------------
AUTO PARTS (0.8%)
Federal Mogul Corp. .................. -- -- 100,000 5,675,000 100,000 5,675,000
-------------- -------------- --------------
BANKING (0.3%)
Banco Santander Puerto Rico* ......... -- -- 95,000 2,185,000 95,000 2,185,000
-------------- -------------- --------------
BIOTECHNOLOGY (3.2%)
Biogen, Inc.* ........................ 34,400 2,610,100 115,000 8,725,625 149,400 11,335,725
Chiron Corp.* ........................ -- -- 300,000 6,787,500 300,000 6,787,500
Immunex Corp.* ....................... -- -- 65,000 5,984,062 65,000 5,984,062
-------------- -------------- --------------
2,610,100 21,497,187 24,107,287
-------------- -------------- --------------
BUILDING MATERIALS (1.1%)
Southdown, Inc. ...................... -- -- 140,000 8,155,000 140,000 8,155,000
-------------- -------------- --------------
BUSINESS SERVICES (0.6%)
Metzler Group, Inc. (The)* ........... -- -- 110,000 4,565,000 110,000 4,565,000
-------------- -------------- --------------
BOOKS/MAGAZINE (0.1%)
Playboy Enterprises, Inc. (Class B)* . 39,000 602,062 -- -- 39,000 602,062
-------------- -------------- --------------
BROADCAST MEDIA (3.8%)
Cablevision Systems Corp. (Class A)* . 152,000 6,289,000 -- -- 152,000 6,289,000
Clear Channel Communications, Inc.* .. 171,800 8,031,650 -- -- 171,800 8,031,650
Jacor Communications, Inc.* .......... -- -- 125,000 7,273,437 125,000 7,273,437
TCA Cable TV, Inc. ................... 130,000 3,705,000 -- -- 130,000 3,705,000
Westwood One, Inc.* .................. 119,600 3,139,500 -- -- 119,600 3,139,500
-------------- -------------- --------------
21,165,150 7,273,437 28,438,587
-------------- -------------- --------------
CABLE & TELECOMMUNICATIONS (0.8%)
Global Crossing Ltd.* ................ 82,900 3,139,837 -- -- 82,900 3,139,837
MetroNet Communications Corp.
(Class B)(Canada)* .................. 114,100 3,016,519 -- -- 114,100 3,016,519
-------------- -------------- --------------
6,156,356 -- 6,156,356
-------------- -------------- --------------
CASINO/GAMBLING (0.3%)
Mirage Resorts, Inc.* ................ 139,800 2,079,525 -- -- 139,800 2,079,525
-------------- -------------- --------------
CLOTHING/SHOE/ACCESSORY STORES (1.2%)
Abercrombie & Fitch Co. (Class A)* ... -- -- 150,000 8,400,000 150,000 8,400,000
Pier 1 Imports, Inc. ................. -- -- 50,000 537,500 50,000 537,500
-------------- -------------- --------------
-- 8,937,500 8,937,500
-------------- -------------- --------------
1
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF NOVEMBER 30, 1998
(UNAUDITED)
TCW/DW MID-CAP MORGAN STANLEY DEAN WITTER
EQUITY TRUST MID-CAP GROWTH FUND COMBINED
--------------------------- --------------------------- ---------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- -------------- ----------- -------------- ----------- --------------
COMPUTER SOFTWARE (6.2%)
Cerner Corp.* ........................ 149,400 $ 3,921,750 -- -- 149,400 $ 3,921,750
CheckFree Holdings Corp.* ............ -- -- 250,000 $ 4,062,500 250,000 4,062,500
Citrix Systems, Inc.* ................ -- -- 116,000 9,628,000 116,000 9,628,000
Compuware Corp.* ..................... -- -- 175,000 10,893,750 175,000 10,893,750
Learning Company, Inc. (The)* ........ -- -- 175,000 5,085,937 175,000 5,085,937
Legato Systems, Inc.* ................ -- -- 115,000 5,491,250 115,000 5,491,250
Network Associates, Inc.* ............ -- -- 157,000 7,987,375 157,000 7,987,375
-------------- -------------- --------------
3,921,750 43,148,812 47,070,562
-------------- -------------- --------------
COMPUTERS SOFTWARE & SERVICES (2.5%)
Documentum, Inc.* .................... 55,200 2,318,400 -- -- 55,200 2,318,400
FORE Systems, Inc.* .................. 178,300 2,696,787 -- -- 178,300 2,696,787
National Techteam, Inc.* ............. 106,200 716,850 -- -- 106,200 716,850
Rational Software Corp.* ............. 56,300 1,277,306 -- -- 56,300 1,277,306
Siebel Systems, Inc.* ................ 333,600 8,048,100 -- -- 333,600 8,048,100
VeriSign, Inc.* ...................... 86,400 3,434,400 -- -- 86,400 3,434,400
-------------- -------------- --------------
18,491,843 -- 18,491,843
-------------- --------------
COMPUTER/VIDEO CHAINS (1.2%)
Gateway 2000, Inc.* .................. -- -- 100,000 5,612,500 100,000 5,612,500
Synopsis, Inc.* ...................... -- -- 75,000 3,543,750 75,000 3,543,750
-------------- -------------- --------------
-- 9,156,250 9,156,250
-------------- -------------- --------------
COMPUTER -EQUIPMENT (1.0%)
American Power Conversion Corp.* ..... -- -- 175,000 7,229,687 175,000 7,229,687
-------------- -------------- --------------
COMPUTERS -SERVICES (0.7%)
NCR Corp.* ........................... -- -- 150,000 5,587,500 150,000 5,587,500
-------------- -------------- --------------
COMPUTERS COMMUNICATIONS (2.2%)
Ascend Communications, Inc.* ......... -- -- 200,000 11,225,000 200,000 11,225,000
Sun Microsystems, Inc.* .............. -- -- 75,000 5,545,312 75,000 5,545,312
-------------- -------------- --------------
-- 16,770,312 16,770,312
-------------- -------------- --------------
COMPUTERS SOFTWARE & SERVICES (3.3%)
At Home Corp. (Series A)* ............ -- -- 150,000 8,718,750 150,000 8,718,750
General Instrument Corp.* ............ -- -- 325,000 9,140,625 325,000 9,140,625
Rational Software Corp.* ............. -- -- 325,000 7,373,437 325,000 7,373,437
-------------- -------------- --------------
-- 25,232,812 25,232,812
-------------- -------------- --------------
CONTRACT DRILLING (0.4%)
Global Industries, Ltd.* ............. -- -- 550,000 3,128,125 550,000 3,128,125
-------------- -------------- --------------
DIVERSIFIED COMMERCIAL SERVICES (3.5%)
Apollo Group, Inc. (Class A)* ........ 68,287 2,202,256 -- -- 68,287 2,202,256
HA-LO Industries, Inc.* .............. -- -- 100,000 3,193,750 100,000 3,193,750
Paychex, Inc. ........................ 121,250 6,032,187 -- -- 121,250 6,032,187
Robert Half International, Inc.* ..... 133,800 6,288,600 -- -- 133,800 6,288,600
Romac International, Inc.* ........... 275,500 3,839,781 -- -- 275,500 3,839,781
Whittman-Hart, Inc.* ................. 209,700 4,613,400 -- -- 209,700 4,613,400
-------------- -------------- --------------
22,976,224 3,193,750 26,169,974
-------------- -------------- --------------
2
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF NOVEMBER 30, 1998
(UNAUDITED)
TCW/DW MID-CAP MORGAN STANLEY DEAN WITTER
EQUITY TRUST MID-CAP GROWTH FUND COMBINED
--------------------------- --------------------------- ---------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- -------------- ----------- -------------- ----------- --------------
DIVERSIFIED FINANCIAL SERVICES (4.1%)
Capital One Financial Corp. .......... -- -- 100,000 $11,000,000 100,000 $11,000,000
FINOVA Group, Inc. ................... -- -- 110,000 5,809,375 110,000 5,809,375
Price (T. Rowe) Associates, Inc. ..... 93,000 $ 3,324,750 -- -- 93,000 3,324,750
Providian Financial Corp. ............ -- -- 115,000 10,558,438 115,000 10,558,438
-------------- -------------- --------------
3,324,750 27,367,813 30,692,563
-------------- -------------- --------------
DRUG STORE CHAINS (2.1%)
Duane Reade, Inc.* ................... -- -- 190,000 7,623,750 190,000 7,623,750
Express Scripts, Inc. (Class A)* ..... -- -- 150,000 8,250,000 150,000 8,250,000
-------------- -------------- --------------
-- 15,873,750 15,873,750
-------------- -------------- --------------
ELECTRONIC COMPONENTS (0.7%)
Xilinx, Inc.* ........................ 103,300 5,242,475 -- -- 103,300 5,242,475
-------------- -------------- --------------
ELECTRONIC DATA PROCESSING (1.1%)
Gemstar International Group Ltd.
(Virgin Islands)* ................... -- -- 140,000 8,505,000 140,000 8,505,000
-------------- -------------- --------------
ELECTRONICS -SEMICONDUCTORS/
COMPONENTS (2.9%)
Advanced Micro Devices, Inc.* ........ -- -- 350,000 9,690,625 350,000 9,690,625
Altera Corp.* ........................ 87,800 4,307,688 -- -- 87,800 4,307,688
Maxim Integrated Products, Inc.* ..... 147,600 5,793,300 -- -- 147,600 5,793,300
Microchip Technology, Inc.* .......... 66,600 2,318,513 -- -- 66,600 2,318,513
-------------- -------------- --------------
12,419,501 9,690,625 22,110,126
-------------- -------------- --------------
FINANCE (1.2%)
MGIC Investment Corp. ................ -- -- 200,000 8,787,500 200,000 8,787,500
-------------- -------------- --------------
FOOD CHAINS (0.8%)
Fred Meyer, Inc.* .................... -- -- 125,000 6,359,375 125,000 6,359,375
-------------- -------------- --------------
GENERIC DRUGS (4.7%)
ALZA Corp.* .......................... -- -- 175,000 9,143,750 175,000 9,143,750
Forest Laboratories, Inc.* ........... -- -- 175,000 8,159,375 175,000 8,159,375
Mylan Laboratories, Inc. ............. -- -- 325,000 10,785,938 325,000 10,785,938
Watson Pharmaceuticals, Inc.* ........ -- -- 140,000 7,542,500 140,000 7,542,500
-------------- -------------- --------------
-- 35,631,563 35,631,563
-------------- -------------- --------------
HEALTH CARE DIVERSIFIED (0.5%)
Universal Health Services, Inc. (Class
B)* ................................. -- -- 75,000 4,021,875 75,000 4,021,875
-------------- -------------- --------------
HOME BUILDING (0.8%)
Kaufman & Broad Home Corp. ........... -- -- 225,000 5,667,188 225,000 5,667,188
-------------- -------------- --------------
HOSPITAL/NURSING MANAGEMENT (0.7%)
Health Management Associates, Inc.
(Class A)* .......................... 230,287 4,994,349 -- -- 230,287 4,994,349
-------------- -------------- --------------
HOUSEHOLD FURNISHINGS &
APPLIANCES (0.5%)
Restoration Hardware, Inc.* .......... 123,900 3,407,250 -- -- 123,900 3,407,250
-------------- -------------- --------------
HOUSEWARES (1.3%)
Best Buy Co., Inc.* .................. -- -- 175,000 10,084,375 175,000 10,084,375
-------------- -------------- --------------
3
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF NOVEMBER 30, 1998
(UNAUDITED)
TCW/DW MID-CAP MORGAN STANLEY DEAN WITTER
EQUITY TRUST MID-CAP GROWTH FUND COMBINED
--------------------------- --------------------------- ---------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- -------------- ----------- -------------- ----------- --------------
INTERNET (11.0%)
America Online, Inc.* ................ -- -- 125,000 $10,945,313 125,000 $10,945,313
At Home Corp. (Series A)* ............ 104,800 $ 6,091,500 -- -- 104,800 6,091,500
Broadcast.com Inc.* .................. 53,300 3,517,800 -- -- 53,300 3,517,800
CSG Systems International, Inc.* ..... -- -- 80,000 5,020,000 80,000 5,020,000
Earthlink Network, Inc.* ............. -- -- 150,000 9,112,500 150,000 9,112,500
E*TRADE Group, Inc.* ................. 141,200 3,812,400 -- -- 141,200 3,812,400
eBay Inc.* ........................... 56,500 11,158,750 -- -- 56,500 11,158,750
GeoCities* ........................... 3,200 96,200 -- -- 3,200 96,200
Infoseek Corp.* ...................... -- -- 125,000 4,242,188 125,000 4,242,188
MindSpring Enterprises, Inc.* ........ -- -- 60,000 3,855,000 60,000 3,855,000
Yahoo! Inc.* ......................... 97,500 18,713,906 35,000 6,717,812 132,500 25,431,718
-------------- -------------- --------------
43,390,556 39,892,813 83,283,369
-------------- -------------- --------------
LIFE INSURANCE (0.1%)
Mony Group Inc.* ..................... 32,300 999,281 -- -- 32,300 999,281
-------------- -------------- --------------
INVESTMENT BANKERS/BROKERS/SERVICES
(1.6%)
Bear Stearns Companies, Inc. ......... -- -- 85,000 3,570,000 85,000 3,570,000
Paine Webber Group, Inc. ............. -- -- 200,000 8,175,000 200,000 8,175,000
-------------- -------------- --------------
-- 11,745,000 11,745,000
-------------- -------------- --------------
MAJOR U.S. TELECOMMUNICATIONS (0.6%)
Winstar Communications, Inc.* ........ -- -- 175,000 4,867,188 175,000 4,867,188
-------------- -------------- --------------
MEDICAL SPECIALTIES (0.7%)
IDEXX Laboratories, Inc.* ............ -- -- 100,000 2,575,000 100,000 2,575,000
Safeskin Corp.* ...................... 151,300 2,865,244 -- -- 151,300 2,865,244
-------------- -------------- --------------
2,865,244 2,575,000 5,440,244
-------------- -------------- --------------
MEDICAL/NURSING SERVICES (2.9%)
Renal Care Group, Inc.* .............. -- -- 375,000 10,078,125 375,000 10,078,125
Total Renal Care Holdings, Inc.* ..... -- -- 435,000 11,554,688 435,000 11,554,688
-------------- -------------- --------------
-- 21,632,813 21,632,813
-------------- -------------- --------------
MID-SIZED BANKS (1.0%)
Firstar Corp. ........................ -- -- 100,000 7,325,000 100,000 7,325,000
-------------- -------------- --------------
MULTI-LINE INSURANCE (1.4%)
American Bankers Insurance Group, Inc. -- -- 225,000 10,209,375 225,000 10,209,375
-------------- -------------- --------------
OFFICE EQUIPMENT/SUPPLIES (2.6%)
Lexmark International Group, Inc.
(Class A)* .......................... -- -- 130,000 9,928,750 130,000 9,928,750
Office Depot, Inc.* .................. -- -- 300,000 9,750,000 300,000 9,750,000
-------------- -------------- --------------
-- 19,678,750 19,678,750
-------------- -------------- --------------
OIL & GAS DRILLING (0.3%)
Precision Drilling Corp. (Canada)* ... 174,700 1,888,944 -- -- 174,700 1,888,944
-------------- -------------- --------------
OTHER PHARMACEUTICALS (1.7%)
Medicis Pharmaceutical Corp. (Class
A)* ................................. -- -- 200,000 12,600,000 200,000 12,600,000
-------------- -------------- --------------
OTHER SPECIALTY STORES (1.0%)
Staples, Inc.* ....................... -- -- 225,000 7,846,875 225,000 7,846,875
-------------- -------------- --------------
4
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF NOVEMBER 30, 1998
(UNAUDITED)
TCW/DW MID-CAP MORGAN STANLEY DEAN WITTER
EQUITY TRUST MID-CAP GROWTH FUND COMBINED
--------------------------- --------------------------- ---------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- -------------- ----------- -------------- ----------- --------------
RAILROAD EQUIPMENT (1.0%)
Trinity Industries, Inc. ............. -- -- 200,000 $ 7,737,500 200,000 $ 7,737,500
-------------- -------------- --------------
REAL ESTATE (0.1%)
CB Richard Ellis Services, Inc.* ..... 48,000 $ 852,000 -- -- 48,000 852,000
-------------- -------------- --------------
RESTAURANTS (1.8%)
Outback Steakhouse, Inc.* ............ -- -- 225,000 7,987,500 225,000 7,987,500
Papa John's International, Inc.* ..... -- -- 140,000 5,871,250 140,000 5,871,250
-------------- -------------- --------------
-- 13,858,750 13,858,750
-------------- -------------- --------------
RETAIL (2.8%)
Amazon.com, Inc.* .................... 72,100 13,843,200 40,000 7,680,000 112,100 21,523,200
-------------- -------------- --------------
RETAIL -SPECIALTY (3.4%)
Bed Bath & Beyond, Inc.* ............. 155,600 4,852,775 -- -- 155,600 4,852,775
Best Buy Co., Inc.* .................. 141,200 8,136,650 -- -- 141,200 8,136,650
Corporate Express, Inc.* ............. 140,300 806,725 -- -- 140,300 806,725
Eagle Hardware & Garden, Inc.* ....... -- -- 200,000 5,637,500 200,000 5,637,500
Just For Feet, Inc.* ................. 167,500 3,789,688 -- -- 167,500 3,789,688
PetSmart, Inc.* ...................... 358,200 3,067,088 -- -- 358,200 3,067,088
-------------- -------------- --------------
20,652,926 5,637,500 26,290,426
-------------- -------------- --------------
RETAIL -SPECIALTY APPAREL (0.4%)
Talbot's, Inc. (The) .................. 104,800 2,672,400 -- -- 104,800 2,672,400
-------------- -------------- --------------
SEMICONDUCTORS (1.1%)
Broadcom Corp. (Class A)* ............ -- -- 70,000 6,251,875 70,000 6,251,875
Veeco Instruments, Inc.* ............. -- -- 60,000 2,190,000 60,000 2,190,000
-------------- -------------- --------------
-- 8,441,875 8,441,875
-------------- -------------- --------------
SERVICES TO THE HEALTH INDUSTRY (1.0%)
Bard (C.R.), Inc. .................... -- -- 160,000 7,330,000 160,000 7,330,000
-------------- -------------- --------------
SPECIALTY FOODS/CANDY (0.5%)
Fresh Del Monte Produce Inc.* ........ -- -- 175,000 3,850,000 175,000 3,850,000
-------------- -------------- --------------
UTILITIES -ELECTRIC (1.2%)
AES Corp.* ........................... -- -- 200,000 9,150,000 200,000 9,150,000
-------------- -------------- --------------
WIRELESS COMMUNICATION (0.6%)
American Tower Corp. (Class A)* ...... 207,300 4,793,813 -- -- 207,300 4,793,813
-------------- -------------- --------------
TOTAL COMMON STOCKS
(Identified Cost $123,840,678,
$462,970,642 and
$586,811,320, respectively) ......... 210,486,260 534,334,125 744,820,385
-------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
COUPON MATURITY AMOUNT AMOUNT AMOUNT
RATE DATE (IN THOUSANDS) VALUE (IN THOUSANDS) VALUE (IN THOUSANDS) VALUE
-------- ---------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (1.5%)
REPURCHASE AGREEMENTS
The Bank of New York
(dated 11/30/98; proceeds
$3,398,551, $7,511,629,
and 10,910,180
respectively)(a)(Identified
Cost $3,398,114, $7,510,664
(and $10,908,778,
respectively) .............. 4.625% 12/01/98 $3,398 3,398,114 $7,511 7,510,664 $10,909 10,908,778
----------- ----------- -----------
</TABLE>
5
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF NOVEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
TCW/DW MID-CAP MORGAN STANLEY DEAN WITTER
EQUITY TRUST MID-CAP GROWTH FUND COMBINED
-------------- -------------------------- ------------------------
VALUE VALUE VALUE
-------------- -------------------------- --------------
<S> <C> <C> <C> <C>
TOTAL INVESTMENTS
(Identified Cost
$127,238,792,
$470,481,306 and
$597,720,098,
respectively)(b) ............. $213,884,374 $541,844,789 100.2% $755,729,163
LIABILITIES IN EXCESS OF
OTHER ASSETS ................. (7,569) (1,297,835) (0.2) (1,305,404)
-------------- -------------------------- -------- --------------
NET ASSETS .................... $213,876,805 $540,546,954 100.0% $754,423,759
============== ========================== ======== ==============
</TABLE>
- ------------
Note: Percentages indicated paranthetically represent the percentage of net
assets of the combined fund.
* Non-income producing security.
(a) Collateralized by $1,052,812 Student Loan Marketing Assoc. 5.057% due
12/17/98 valued at $1,052,580, $1,740,000 U.S. Treasury Note 4.00%
due 10/31/00 valued at $1,726,623, and $655,872 U.S. Treasury Note
6.25% due 10/31/01 valued at $687,554; and $4,980,438 Federal Home
Loan Bank 6.615% due 03/05/08 valued at $5,059,638 and $2,560,846
Federal Home Loan Bank 6.55% due 08/27/08 valued at $2,602,741.
(c) The aggregate cost for federal income tax purposes approximates
identified cost.
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
-------------- -------------- --------------
<S> <C> <C> <C>
TCW/DW Mid-Cap Equity Trust................... $ 95,811,768 $ 9,166,186 $ 86,645,582
============== ============== ==============
Morgan Stanley Dean Witter Mid-Cap Growth
Fund......................................... $ 77,858,116 $ 6,494,633 $ 71,363,483
============== ============== ==============
Combined...................................... $173,669,884 $15,660,819 $158,009,065
============== ============== ==============
</TABLE>
See Notes to Pro Forma Financial Statements
6
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY
TCW/DW DEAN WITTER PRO FORMA
MID-CAP EQUITY TRUST MID-CAP GROWTH FUND ADJUSTMENTS COMBINED
-------------------- ------------------- ------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value
(identified cost $127,238,792,
$470,481,306 and $597,720,098,
respectively) ............................. $213,884,374 $541,844,789 $ 755,729,163
Receivable for:
Investments sold........................... 325,774 14,182,824 14,508,598
Shares of beneficial interest sold ........ 185,611 626,416 812,027
Dividends.................................. 18,566 62,250 80,816
Deferred organizational expenses............ 74,115 27,495 (27,495)(1) 74,115
Prepaid expenses and other assets .......... 40,983 95,569 136,552
Receivable from affiliate................... -- -- 27,495 (1) 27,495
-------------------- ------------------- --------------
TOTAL ASSETS............................... 214,529,423 556,839,343 771,368,766
-------------------- ------------------- --------------
LIABILITIES:
Payable for:
Investments purchased...................... 24,750 12,492,255 12,517,005
Shares of beneficial interest purchased ... 271,355 2,971,809 3,243,164
Plan of distribution fee................... 140,902 445,441 586,343
Management fee............................. 102,036 -- 102,036
Investment management/advisory fee ........ 68,024 336,110 404,134
Accrued expenses and other payables ....... 45,551 46,774 92,325
-------------------- ------------------- --------------
TOTAL LIABILITIES.......................... 652,618 16,292,389 16,945,007
-------------------- ------------------- --------------
NET ASSETS................................. $213,876,805 $540,546,954 $ 754,423,759
==================== =================== ==============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................. $130,533,669 $466,822,686 $ 597,356,355
Net unrealized appreciation................. 86,645,582 71,363,483 158,009,065
Net investment loss......................... -- (4,572,306) (4,572,306)
Accumulated undistributed net realized gain
(loss)..................................... (3,302,446) 6,933,091 3,630,645
-------------------- ------------------- --------------
NET ASSETS................................. $213,876,805 $540,546,954 $ 754,423,759
==================== =================== ==============
CLASS A SHARES:
Net Assets.................................. $ 1,107,296 $ 3,403,534 $4,510,830
Shares Outstanding (unlimited authorized,
$.01 par value)............................ 70,981 217,299 876 (2) 289,156
NET ASSET VALUE PER SHARE.................. $ 15.60 $ 15.66 $15.60
==================== =================== ==============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset
value).................................... $ 16.46 $ 16.53 $16.46
==================== =================== ==============
CLASS B SHARES:
Net Assets.................................. $212,042,718 $529,655,893 $741,698,611
Shares Outstanding (unlimited
authorized,$.01 par value)................. 13,717,791 34,175,785 83,975 (2) 47,977,551
NET ASSET VALUE PER SHARE.................. $ 15.46 $ 15.50 $15.46
==================== =================== ==============
CLASS C SHARES:
Net Assets.................................. $ 712,341 $ 6,328,424 $7,040,765
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 46,118 408,280 1,327 (2) 455,725
NET ASSET VALUE PER SHARE.................. $ 15.45 $ 15.50 $15.45
==================== =================== ==============
CLASS D SHARES:
Net Assets.................................. $ 14,450 $ 1,159,103 $1,173,553
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 923 73,937 80 (2) 74,940
NET ASSET VALUE PER SHARE.................. $ 15.66 $ 15.68 $15.66
==================== =================== ==============
</TABLE>
- ------------
(1) Reflects reclassification of unamortized organizational expenses which
will be reimbursed by Morgan Stanley Dean Witter Advisors Inc.
(2) Represents the difference between total additional shares to be issued
(see Note 2) and current Morgan Stanley Dean Witter Mid-Cap Growth Fund
shares outstanding.
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS
7
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED NOVEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY
TCW/DW DEAN WITTER PRO FORMA
MID-CAP MID-CAP ADJUSTMENTS
EQUITY TRUST GROWTH FUND (NOTE 3) COMBINED
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET INVESTMENT LOSS:
INCOME
Interest.................................. $ 102,687 $ 1,383,316 -- $ 1,486,003
Dividends................................. 176,224 1,308,715 -- 1,484,939
-------------- -------------- -------------- --------------
TOTAL INCOME............................. 278,911 2,692,031 -- 2,970,942
-------------- -------------- -------------- --------------
EXPENSES
Plan of distribution fee (Class A
shares).................................. 1,092 6,727 -- 7,819
Plan of distribution fee (Class B
shares).................................. 1,616,961 5,953,532 185,062 (1) 7,755,555
Plan of distribution fee (Class C
shares).................................. 2,906 52,137 -- 55,043
Investment management/advisory fee ....... 723,788 4,505,889 588,848 (1) 5,818,525
Management fee............................ 1,085,682 -- (1,085,682) (1) --
Transfer agent fees and expenses.......... 242,766 805,104 80,000 (4) 1,127,870
Registration fees......................... 84,733 172,332 -- 257,065
Professional fees......................... 51,628 57,108 (57,108) (2)
42,000 (4) 93,628
Shareholder reports and notices........... 59,459 41,341 (29,580) (2)
100,000 (4) 171,220
Organizational expenses................... 33,032 30,229 (30,229) (3) 33,032
Custodian fees............................ 32,366 63,390 -- 95,756
Trustees' fees and expenses............... 31,640 13,964 (31,640) (2) 13,964
Other..................................... 11,845 14,277 -- 26,122
-------------- -------------- -------------- --------------
TOTAL EXPENSES........................... 3,977,898 11,716,030 (238,329) 15,455,599
-------------- -------------- -------------- --------------
NET INVESTMENT LOSS...................... (3,698,987) (9,023,999) 238,329 (12,484,657)
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss).................. 31,236,102 2,375,553 -- 33,611,655
Net change in unrealized
appreciation/depreciation ............... 37,809,903 (13,978,221) -- 23,831,682
-------------- -------------- -------------- --------------
NET GAIN (LOSS).......................... 69,046,005 (11,602,668) -- 57,443,337
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE)................... $65,347,018 $(20,626,667) $ 238,329 $ 44,958,680
============== ============== ============== ==============
</TABLE>
- ------------
(1) Reflects adjustment to investment management fees and plan of
distribution fees based on the surviving Fund's revised fee schedule.
(2) Reflects elimination of duplicate services or fees.
(3) Prepaid organizational expenses of the acquired Fund will not be
assumed by the surviving Fund.
(4) Solicitation costs in connection with the reorganization, which will be
borne by Morgan Stanley Dean Witter Mid-Cap Growth Fund, approximate
$222,000.
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS
8
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF COMBINATION --The Pro Forma Statement of Assets and Liabilities,
including the Portfolio of Investments, at November 30, 1998 and the related
Statement of Operations ("Pro Forma Statements") for the twelve months ended
November 30, 1998, reflect the accounts of TCW/DW Mid-Cap Equity Trust ("TCW
Mid-Cap") and Morgan Stanley Dean Witter Mid-Cap Growth Fund ("MSDW
Mid-Cap").
The Pro Forma Statements give effect to the proposed transfer of all assets
and liabilities of MSDW Mid-Cap in exchange for shares in TCW Mid-Cap. The
Pro Forma Statements should be read in conjunction with the historical
financial statements of each Fund included in its Statement of Additional
Information.
2. SHARES OF BENEFICIAL INTEREST -- The pro forma net asset value per share
assumes the issuance of additional shares of TCW Mid-Cap which would have
been issued on November 30, 1998 in connection with the proposed
reorganization. Shareholders of MSDW Mid-Cap would become shareholders of TCW
Mid-Cap receiving shares of the corresponding class of TCW Mid-Cap equal to
the value of their holdings in MSDW Mid-Cap. The amount of additional shares
assumed to be issued was calculated based on the November 30, 1998 net assets
of MSDW Mid-Cap and the net asset value per share of TCW Mid-Cap as follows:
<TABLE>
<CAPTION>
CLASS A B C D
- ------------------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Additional Shares Issued 218,175 34,259,760 409,607 74,017
Net Assets 11/30/98 MSDW
Mid-Cap.................. $3,403,534 $529,655,893 $6,328,424 $1,159,103
Net Asset Value Per Share
TCW Mid-Cap Equity....... $15.60 $15.46 $15.45 $15.66
</TABLE>
3. PRO FORMA OPERATIONS -- The Pro Forma Statement of Operations assumes
similar rates of gross investment income for the investments of each Fund.
Accordingly, the combined gross investment income is equal to the sum of each
Fund's gross investment income. Certain expenses have been adjusted to
reflect the expected expenses of the combined entity. The pro-forma
investment management fees of the combined Fund are based on the fee schedule
in effect for Mid-Cap Growth at the combined level of average net assets for
the twelve months ended November 30, 1998. The Pro Forma Statement of
Operations does not include the effect of any realized gains or losses, or
transaction fees incurred in connection with the realignment of the
portfolio.
9
<PAGE>
CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of the TCW Mid-Cap
Equity Trust and Morgan Stanley Dean Witter Mid-Cap Growth Fund as of January
31, 1999 and on a pro forma combined basis as if the Reorganization had
occurred on that date:
<TABLE>
<CAPTION>
NET ASSET
SHARES VALUE
CLASS A NET ASSETS OUTSTANDING PER SHARE
- ----------------------------------------------- -------------- ------------- -----------
<S> <C> <C> <C>
Morgan Stanley Dean Witter Mid-Cap Growth Fund $ 3,691,926 237,855 $15.52
TCW Mid-Cap Equity Trust........................ $ 1,819,820 82,745 $21.99
Combined Fund (pro forma)....................... $ 5,511,746 250,636 $21.99
CLASS B
- -----------------------------------------------
Morgan Stanley Dean Witter Mid-Cap Growth Fund . $593,724,555 38,788,794 $15.31
TCW Mid-Cap Equity Trust........................ $292,052,348 13,410,653 $21.78
Combined Fund (pro forma)....................... $885,776,903 40,670,734 $21.78
CLASS C
- -----------------------------------------------
Morgan Stanley Dean Witter Mid-Cap Growth Fund . $ 7,271,751 475,001 $15.31
TCW Mid-Cap Equity Trust........................ $ 1,726,233 79,367 $21.75
Combined Fund (pro forma)....................... $ 8,997,984 413,700 $21.75
CLASS D
- -----------------------------------------------
Morgan Stanley Dean Witter Mid-Cap Growth Fund . $ 2,673,104 171,936 $15.55
TCW Mid-Cap Equity Trust........................ $ 20,378 923 $22.08
Combined Fund (pro forma)....................... $ 2,693,482 121,987 $22.08
</TABLE>
10
<PAGE>
[SAI - TCW/DW MID CAP EQUITY TRUST TO BE DATED MARCH 1999]
[TO BE FILED BY AMENDMENT]
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JULY 29, 1998
MORGAN STANLEY
DEAN WITTER
MID-CAP GROWTH
FUND
- -----------------------------------------------------------------------------
Morgan Stanley Dean Witter Mid-Cap Growth Fund (the "Fund") is an
open-end, diversified management investment company whose investment
objective is long-term capital growth. The Fund invests principally in equity
securities of "mid-cap" companies. (See "Investment Practices and Policies.")
A Prospectus for the Fund dated July 29, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at its address or telephone numbers listed below
or from the Fund's Distributor, Morgan Stanley Dean Witter Distributors Inc.,
or from Dean Witter Reynolds Inc. at any of its branch offices. This
Statement of Additional Information is not a Prospectus. It contains
information in addition to and more detailed than that set forth in the
Prospectus. It is intended to provide additional information regarding the
activities and operations of the Fund, and should be read in conjunction with
the Prospectus.
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
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TABLE OF CONTENTS
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The Fund and its Management.............. 3
Trustees and Officers.................... 7
Investment Practices and Policies ....... 13
Investment Restrictions.................. 26
Portfolio Transactions and Brokerage .... 27
The Distributor.......................... 29
Determination of Net Asset Value ........ 33
Purchase of Fund Shares.................. 33
Shareholder Services..................... 36
Redemptions and Repurchases.............. 41
Dividends, Distributions and Taxes ...... 42
Performance Information.................. 44
Description of Shares of the Fund ....... 45
Custodian and Transfer Agent ............ 45
Independent Accountants.................. 46
Reports to Shareholders.................. 46
Legal Counsel............................ 46
Experts ................................. 46
Registration Statement................... 46
Financial Statements--May 31, 1998 ...... 47
Report of Independent Accountants ....... 61
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THE FUND AND ITS MANAGEMENT
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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 May 25, 1994 under the name Dean Witter Mid-Cap Growth Fund.
On June 22, 1998, the Trustees of the Fund adopted an Amendment to the
Declaration of Trust of the Fund changing the name of the Fund to Morgan
Stanley Dean Witter Mid-Cap Growth Fund.
THE INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc. (the "Investment Manager" or
"MSDW Advisors"), a Delaware corporation, whose address is Two World Trade
Center, New York, New York 10048, is the Fund's Investment Manager. MSDW
Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
("MSDW"), a Delaware corporation. The daily management of the Fund and
research relating to the Fund's portfolio are conducted by or under the
direction of officers of the Fund and of the Investment Manager, subject to
review by the Fund's Board of Trustees. Information as to these Trustees and
officers is contained under the caption "Trustees and Officers."
MSDW Advisors is the investment manager or investment advisor of the
following investment companies, which are collectively referred to as the
"Morgan Stanley Dean Witter Funds":
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OPEN-END FUNDS
1 Active Assets California Tax-Free Trust
2 Active Assets Government Securities Trust
3 Active Assets Money Trust
4 Active Assets Tax-Free Trust
5 Morgan Stanley Dean Witter American Value Fund
6 Morgan Stanley Dean Witter Balanced Growth Fund
7 Morgan Stanley Dean Witter Balanced Income Fund
8 Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
9 Morgan Stanley Dean Witter California Tax-Free Income Fund
10 Morgan Stanley Dean Witter Capital Appreciation Fund
11 Morgan Stanley Dean Witter Capital Growth Securities
12 Morgan Stanley Dean Witter Competitive Edge Fund, "Best Ideas" Portfolio
13 Morgan Stanley Dean Witter Convertible Securities Trust
14 Morgan Stanley Dean Witter Developing Growth Securities Trust
15 Morgan Stanley Dean Witter Diversified Income Trust
16 Morgan Stanley Dean Witter Dividend Growth Securities Inc.
17 Morgan Stanley Dean Witter Equity Fund
18 Morgan Stanley Dean Witter European Growth Fund Inc.
19 Morgan Stanley Dean Witter Federal Securities Trust
20 Morgan Stanley Dean Witter Financial Services Trust
21 Morgan Stanley Dean Witter Fund of Funds
22 Dean Witter Global Asset Allocation Fund
23 Morgan Stanley Dean Witter Global Dividend Growth Securities
24 Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
25 Morgan Stanley Dean Witter Global Utilities Fund
26 Morgan Stanley Dean Witter Growth Fund
27 Morgan Stanley Dean Witter Hawaii Municipal Trust
28 Morgan Stanley Dean Witter Health Sciences Trust
29 Morgan Stanley Dean Witter High Yield Securities Inc.
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30 Morgan Stanley Dean Witter Income Builder Fund
31 Morgan Stanley Dean Witter Information Fund
32 Morgan Stanley Dean Witter Intermediate Income Securities
33 Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
34 Morgan Stanley Dean Witter International SmallCap Fund
35 Morgan Stanley Dean Witter Japan Fund
36 Morgan Stanley Dean Witter Limited Term Municipal Trust
37 Morgan Stanley Dean Witter Liquid Asset Fund Inc.
38 Morgan Stanley Dean Witter Market Leader Trust
39 Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
40 Morgan Stanley Dean Witter Mid-Cap Growth Fund
41 Morgan Stanley Dean Witter Multi-State Municipal Series Trust
42 Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
43 Morgan Stanley Dean Witter New York Municipal Money Market Trust
44 Morgan Stanley Dean Witter New York Tax-Free Income Fund
45 Morgan Stanley Dean Witter Pacific Growth Fund Inc.
46 Morgan Stanley Dean Witter Precious Metals and Minerals Trust
47 Dean Witter Retirement Series
48 Morgan Stanley Dean Witter Select Dimensions Investment Series
49 Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
50 Morgan Stanley Dean Witter Short-Term Bond Fund
51 Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
52 Morgan Stanley Dean Witter Special Value Fund
53 Morgan Stanley Dean Witter S&P 500 Index Fund
54 Morgan Stanley Dean Witter Strategist Fund
55 Morgan Stanley Dean Witter Tax-Exempt Securities Trust
56 Morgan Stanley Dean Witter Tax-Free Daily Income Trust
57 Morgan Stanley Dean Witter U.S. Government Money Market Trust
58 Morgan Stanley Dean Witter U.S. Government Securities Trust
59 Morgan Stanley Dean Witter Utilities Fund
60 Morgan Stanley Dean Witter Value-Added Market Series
61 Morgan Stanley Dean Witter Variable Investment Series
62 Morgan Stanley Dean Witter World Wide Income Trust
CLOSED-END FUNDS
1 InterCapital California Insured Municipal Income Trust
2 InterCapital California Quality Municipal Securities
3 Dean Witter Government Income Trust
4 High Income Advantage Trust
5 High Income Advantage Trust II
6 High Income Advantage Trust III
7 InterCapital Income Securities Inc.
8 InterCapital Insured California Municipal Securities
9 InterCapital Insured Municipal Bond Trust
10 InterCapital Insured Municipal Income Trust
11 InterCapital Insured Municipal Securities
12 InterCapital Insured Municipal Trust
13 Municipal Income Opportunities Trust
14 Municipal Income Opportunities Trust II
15 Municipal Income Opportunities Trust III
16 Municipal Income Trust
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17 Municipal Income Trust II
18 Municipal Income Trust III
19 Municipal Premium Income Trust
20 InterCapital New York Quality Municipal Securities
21 Morgan Stanley Dean Witter Prime Income Trust
22 InterCapital Quality Municipal Income Trust
23 InterCapital Quality Municipal Investment Trust
24 InterCapital Quality Municipal Securities
</TABLE>
In addition, Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services"), a wholly-owned subsidiary of MSDW Advisors, serves as manager for
the following investment companies for which TCW Funds Management, Inc. is
the investment advisor (the "TCW/DW Funds"):
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OPEN-END FUNDS
1 TCW/DW Emerging Markets Opportunities Trust
2 TCW/DW Global Telecom Trust
3 TCW/DW Income and Growth Fund
4 TCW/DW Latin American Growth Fund
5 TCW/DW Mid-Cap Equity Trust
6 TCW/DW North American Government Income Trust
7 TCW/DW Small Cap Growth Fund
8 TCW/DW Total Return Trust
CLOSED-END FUNDS
1 TCW/DW Term Trust 2000
2 TCW/DW Term Trust 2002
3 TCW/DW Term Trust 2003
</TABLE>
MSDW Advisors also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company; (ii) sub-administrator of
Templeton Global Governments Income Trust, a closed-end investment company;
and (iii) investment advisor of Offshore Dividend Growth Fund and Offshore
Money Market Fund, mutual funds established under the laws of the Cayman
Islands and available only to investors who are participants in the
International Active Assets Account program and are neither citizens nor
residents of the United States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage
the investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help and bookkeeping and legal services as the Fund may
reasonably require in the conduct of its business, including the preparation
of prospectuses, statements of additional information, proxy statements and
reports required to be filed with federal and state securities commissions
(except insofar as the participation or assistance of independent accountants
and attorneys is, in the opinion of the Investment Manager, necessary or
desirable). In addition, the Investment Manager pays the salaries of all
personnel, including officers of the Fund, who are employees of the
Investment Manager. The Investment Manager also bears the cost of telephone
service, heat, light, power and other utilities provided to the Fund. The
Investment Manager has retained MSDW Services to provide its administrative
services under the Agreement.
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Expenses not expressly assumed by the Investment Manager under the
Agreement or by Morgan Stanley Dean Witter Distributiors Inc., the
Distributor of the Fund's shares ("MSDW Distributors" or "the Distributor")
(see "The Distributor"), will be paid by the Fund. These expenses will be
allocated among the four classes of shares of the Fund (each, a "Class") pro
rata based on the net assets of the Fund attributable to each Class, except
as described below. Such expenses include, but are not limited to: expenses
of the Plan of Distribution pursuant to Rule 12b-1 (the "12b-1 fee") (see
"The Distributor"); charges and expenses of any registrar; custodian, stock
transfer and dividend disbursing agent; brokerage commissions; taxes;
engraving and printing of share certificates; registration costs of the Fund
and its shares under federal and state securities laws; the cost and expense
of printing, including typesetting, and distributing Prospectuses and
Statements of Additional Information of the Fund and supplements thereto to
the Fund's shareholders; all expenses of shareholders' and Trustees' meetings
and of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Trustees or members of any advisory
board or committee who are not employees of the Investment Manager or any
corporate affiliate of the Investment Manager; all expenses incident to any
dividend, withdrawal or redemption options; charges and expenses of any
outside service used for pricing of the Fund's shares; fees and expenses of
legal counsel, including counsel to the Trustees who are not interested
persons of the Fund or of the Investment Manager (not including compensation
or expenses of attorneys who are employees of the Investment Manager) and
independent accountants; membership dues of industry associations; interest
on Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Trustees) of the Fund which inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto);
and all other costs of the Fund's operation. The 12b-1 fees relating to a
particular Class will be allocated directly to that Class. In addition, other
expenses associated with a particular Class (except advisory or custodial
fees) may be allocated directly to that Class, provided that such expenses
are reasonably identified as specifically attributable to that Class and the
direct allocation to that Class is approved by the Trustees.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
following annual rates to the Fund's daily net assets: 0.75% of the portion
of daily net assets not exceeding $500 million; and 0.725% of the portion of
daily net assets exceeding $500 million. The management fee is allocated
among the Classes pro rata based on the net assets of the Fund attributable
to each Class. For the fiscal years ended May 31, 1996, 1997 and 1998, the
Fund accrued to the Investment Manager total compensation of $1,468,816,
$2,644,558 and $4,285,550, respectively.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors. The Agreement in no way restricts the Investment
Manager from acting as investment manager or adviser to others.
The Investment Manager paid the organizational expenses of the Fund,
approximately $156,000, incurred prior to the offering of the Fund's shares.
The Fund has reimbursed the Investment Manager for such expenses. Such
expenses have been deferred and are being amortized by the straight line
method over a period not to exceed five years from the date of commencement
of the Fund's operations.
The Agreement was initially approved by the Trustees of the Fund on
February 21, 1997 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on May 21, 1997. The Agreement is substantially identical
to a prior investment management agreement which was initially approved by
the Board of Trustees on July 14, 1994 and by MSDW Advisors as the then sole
shareholder on July 15, 1994, as such agreement had been amended by the Board
of Trustees at their meeting held on April 24, 1997 to provide a breakpoint
in the management fee that reduced the compensation received by the
Investment Manager under the agreement on assets exceeding $500 million. The
Agreement took effect on May 31, 1997 upon the consummation of the merger of
Dean Witter, Discover & Co. with Morgan Stanley Group Inc. The Agreement may
be terminated at any time, without penalty, on thirty days' notice
6
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by the Board of Trustees of the Fund, by the holders of a majority of the
outstanding shares of the Fund, as defined in the Investment Company Act of
1940, as amended (the "Act"), or by the Investment Manager. The Agreement
will automatically terminate in the event of its assignment (as defined in
the Act).
Under its terms, the Agreement has an initial term ending April 30, 1999
and will continue in effect from year to year thereafter, provided
continuance of the Agreement is approved at least annually by the vote of the
holders of a majority of the outstanding shares of the Fund, as defined in
the Act, or by the Trustees of the Fund; provided that in either event such
continuance is approved annually by the vote of a majority of the Trustees of
the Fund who are not parties to the Agreement or "interested persons" (as
defined in the Act) of any such party (the "Independent Trustees"), which
vote must be cast in person at a meeting called for the purpose of voting on
such approval.
The following owned 5% or more of the outstanding shares of Class A on
July 7, 1998: MSDW Trust TTEE Art Soune Inc. 401(k) Plan, P.O. Box 957,
Jersey City, NJ 07311; Beatus Pension Trust U/A dtd 3/1/71 B.L. Beatus MD
TTEE, 55 Humphreys Center, Suite 300, Memphis, TN 38120; DWR Cust. for
Michael F. Gentile IRA STD/Rollover dtd 10/1/93, 4708 Johnson Avenue, Western
Springs, IL 60558; and MSDW Trust, Trustee, Del Campo Baking Company Inc.
Salary Reduction Profit Sharing Plan, P.O. Box 957, Jersey City, NJ 07303.
The following owned 5% or more of the outstanding shares of Class D on July
7, 1998: Carrington Williams, 3543 Half Moon Circle, Falls Church, VA 22044;
Dale R. Anderson, M.D. and Jeanette G. Anderson TTEES Dale R. Anderson, M.D.
Retirement Trust 6/25/90, 1401 Tompkins, Rapid City, SD 57701; DWR Cust. for
Charles E. Steinberg IRA SEP Dated 3/3/88, 215 South Federal Highway #101,
Stuart, FL 34994; Meyer Gallery of New Mexico Inc., 225 Canyon Road, Santa
Fe, NM 87501; DWR Cust. for Marion Pluymers IRA Std. Rollover 1/8/82, 19
Wexford Drive, Mendham, NJ 07945; MSDW Advisors Inc., Attn.: Maurice
Bendrihem, Two World Trade Center, 73rd Floor, New York, NY 10048; and Robert
S. Nycum, 77 Blackburn Place, Summit NJ 07901.
The Fund has acknowledged that the name "Morgan Stanley Dean Witter" is a
property right of MSDW. The Fund has agreed that MSDW, or any corporate
affiliate of MSDW, may use, or at any time permit others to use, the name
"Morgan Stanley Dean Witter." The Fund has also agreed that in the event the
Agreement is terminated, or if the affiliation between MSDW Advisors and its
parent company is terminated, the Fund will eliminate the name "Morgan
Stanley Dean Witter" from its name if MSDW, or any corporate affiliate of
MSDW, shall so request.
TRUSTEES AND OFFICERS
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The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
MSDW Advisors, and with the 86 Morgan Stanley Dean Witter Funds and the 11
TCW/DW Funds, are shown below:
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NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
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Michael Bozic (57).......................... Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee
c/o Levitz Furniture Corporation of the Morgan Stanley Dean Witter Funds; formerly
7887 N. Federal Highway President and Chief Executive Officer of Hills
Boca Raton, Florida Department Stores (May, 1991-July, 1995); formerly
variously Chairman, Chief Executive Officer, President
and Chief Operating Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck and Co.; Director of
Eaglemark Financial Services, Inc. and Weirton Steel
Corporation.
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NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
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Charles A. Fiumefreddo* (65) ................ Chairman, Director or Trustee, President and Chief
Chairman, President, Executive Officer of the Morgan Stanley Dean Witter
Chief Executive Officer and Trustee Funds; Chairman, Chief Executive Officer and Trustee of
Two World Trade Center the TCW/DW Funds; formerly Chairman, Chief Executive
New York, New York Officer and Director of MSDW Advisors, MSDW Distributors
and MSDW Services, Executive Vice President and Director
of Dean Witter Reynolds Inc. ("DWR"), Chairman and
Director of Morgan Stanley Dean Witter Trust FSB ("MSDW
Trust"), and Director and/or officer of various MSDW
subsidiaries (until June, 1998).
Edwin J. Garn (65) ......................... Director or Trustee of the Morgan Stanley Dean Witter
Trustee Funds; formerly United States Senator
c/o Huntsman Corporation (R-Utah)(1974-1992) and Chairman, Senate Banking
500 Huntsman Way Committee (1980-1986); formerly Mayor of Salt Lake City,
Salt Lake City, Utah Utah (1972-1974); formerly Astronaut, Space Shuttle
Discovery (April 12-19, 1985); Vice Chairman, Huntsman
Corporation (since January, 1993); Director of Franklin
Covey (time management systems), John Alden Financial
Corp. (health insurance), United Space Alliance (joint
venture between Lockheed Martin and the Boeing Company)
and Nuskin Asia Pacific (multilevel marketing); member
of the board of various civic and charitable
organizations.
John R. Haire (73) ......................... Chairman of the Audit Committee and Director or Trustee
Trustee of the Morgan Stanley Dean Witter Funds; Chairman of the
Two World Trade Center Audit Committee and Trustee of the TCW/DW Funds;
New York, New York formerly Chairman of the Independent Directors or
Trustees of the Morgan Stanley Dean Witter Funds and the
TCW/DW Funds (until June, 1998); formerly President,
Council for Aid to Education (1978-1989) and Chairman
and Chief Executive Officer of Anchor Corporation, an
Investment Adviser (1964-1978).
Wayne E. Hedien (64)........................ Retired; Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; Director of The PMI Group, Inc. (private
c/o Gordon Altman Butowsky mortgage insurance); Trustee and Vice Chairman of The
Weitzen Shalov & Wein Field Museum of Natural History; formerly associated
Counsel to the Independent Trustees with the Allstate Companies (1966-1994), most recently
114 West 47th Street as Chairman of The Allstate Corporation (March,
New York, New York 1993-December, 1994) and Chairman and Chief Executive
Officer of its wholly-owned subsidiary, Allstate
Insurance Company (July, 1989-December, 1994); director
of various other business and charitable organizations.
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NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
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Dr. Manuel H. Johnson (49) ................. Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group
c/o Johnson Smick International, Inc. of Seven Council (G7C), an international economic
1133 Connecticut Avenue, N.W. commission; Director or Trustee of the Morgan Stanley
Washington, DC Dean Witter Funds; Trustee of the TCW/DW Funds; Director
of NASDAQ (since June, 1995); Director of Greenwich
Capital Markets, Inc. (broker-dealer) and NVR, Inc.
(home construction); Chairman and Trustee of the
Financial Accounting Foundation (oversight organization
of the Financial Accounting Standards Board); formerly
Vice Chairman of the Board of Governors of the Federal
Reserve System (1986-1990) and Assistant Secretary of
the U.S. Treasury (1982-1986).
Michael E. Nugent (62) ..................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Director or Trustee of the
Triumph Capital, L.P. Morgan Stanley Dean Witter Funds; Trustee of the TCW/DW
237 Park Avenue Funds; formerly Vice President, Bankers Trust Company
New York, New York and BT Capital Corporation (1984-1988); Director of
various business organizations.
Philip J. Purcell* (54) .................... Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDW, DWR and Novus Credit Services Inc.;
1585 Broadway Director of MSDW Distributors; Director or Trustee of
New York, New York the Morgan Stanley Dean Witter Funds; Director and/or
officer of various MSDW subsidiaries.
John L. Schroeder (67) ..................... Retired; Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; Trustee of the TCW/DW Funds; Director of
c/o Gordon Altman Butowsky Weitzen Citizens Utilities Company; formerly Executive Vice
Shalov & Wein President and Chief Investment Officer of the Home
Counsel to the Independent Trustees Insurance Company (August, 1991-September, 1995).
114 West 47th Street
New York, New York
Barry Fink (43) Senior Vice President (since March, 1997), Secretary and
Vice President, Secretary General Counsel (since February, 1997) and Director
and General Counsel (since July, 1998) of MSDW Advisors and MSDW Services;
Two World Trade Center Senior Vice President (since March, 1997) and Assistant
New York, New York Secretary and Assistant General Counsel (since February,
1997) of MSDW Distributors; Assistant Secretary of DWR
(since August, 1996); Vice President, Secretary and
General Counsel of the Morgan Stanley Dean Witter Funds
and the TCW/DW Funds (since February, 1997); previously
First Vice President (June, 1993-February, 1997), Vice
President (until June, 1993) and Assistant Secretary and
Assistant General Counsel of MSDW Advisors and MSDW
Services and Assistant Secretary of the Morgan Stanley
Dean Witter Funds and the TCW/DW Funds.
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NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
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Peter Hermann (38) ......................... Vice President of MSDW Advisors (since May, 1995) and
Vice President portfolio manager with MSDW Advisors (since March,
Two World Trade Center 1994); Vice President of various Morgan Stanley Dean
New York, New York Witter Funds; previously portfolio manager with The Bank
of New York (August, 1987-February, 1994).
Thomas F. Caloia (52) ...................... First Vice President and Assistant Treasurer of MSDW
Treasurer Advisors and MSDW Services; Treasurer of the Morgan
Two World Trade Center Stanley Dean Witter Funds and the TCW/DW Funds.
</TABLE>
New York, New York
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* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
In addition, Mitchell M. Merin, President, Chief Executive Officer and
Director of MSDW Advisors and MSDW Services, Chairman and Director of MSDW
Distributors and MSDW Trust, Executive Vice President and Director of DWR,
and Director of SPS Transaction Services, Inc. and various other MSDW
subsidiaries, Robert M. Scanlan, President, Chief Operating Officer and
Director of MSDW Advisors and MSDW Services, Executive Vice President of MSDW
Distributors and MSDW Trust and Director of MSDW Trust, Robert S. Giambrone,
Senior Vice President of MSDW Advisors, MSDW Services, MSDW Distributors and
MSDW Trust and Director of MSDW Trust, Joseph J. McAlinden, Executive Vice
President and Chief Investment Officer of MSDW Advisors and Director of MSDW
Trust, and Kenton J. Hinchliffe, Anita H. Kolleeny, Ira N. Ross and Paul D.
Vance, Senior Vice Presidents of MSDW Advisors, are Vice Presidents of the
Fund, and Marilyn K. Cranney and Carsten Otto, First Vice Presidents and
Assistant General Counsels of MSDW Advisors and MSDW Services, Frank
Bruttomesso, LouAnne D. McInnis and Ruth Rossi, Vice Presidents and Assistant
General Counsels of MSDW Advisors and MSDW Services, and Todd Lebo, a staff
attorney with MSDW Advisors, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same
individuals also serve as directors or trustees for all of the Morgan Stanley
Dean Witter Funds, and are referred to in this section as Trustees. As of the
date of this Statement of Additional Information, there are a total of 86
Morgan Stanley Dean Witter Funds, comprised of 132 portfolios. As of June 30,
1998, the Morgan Stanley Dean Witter Funds had total net assets of
approximately $106.8 billion and more than six million shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with MSDW Advisors or any of its affiliated persons and do not own
any stock or other securities issued by MSDW Advisors' parent company, MSDW.
These are the "disinterested" or "independent" Trustees. Four of the seven
independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Morgan Stanley Dean Witter Funds seek as
Independent Trustees individuals of distinction and experience in business
and finance, government service or academia; these are people whose advice
and counsel are in demand by others and for whom there is often competition.
To accept a position on the Funds' Boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their
time. Indeed, by serving on the Funds' Boards, certain Trustees who would
otherwise be qualified and in demand to serve on bank boards would be
prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee.
Three of them also serve as members of the Derivatives Committee. During the
calendar year ended December 31, 1997, the Audit Committee, the Derivatives
Committee and the Independent Trustees held a combined total of seventeen
meetings.
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The Independent Trustees are charged with recommending to the full Board
approval of management, advisory and administration contracts, Rule 12b-1
plans and distribution and underwriting agreements; continually reviewing
Fund performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage
and allocations, as well as other matters that arise from time to time. The
Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule
12b-1 plan of distribution. Most of the Morgan Stanley Dean Witter Funds have
such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing
engagement; approving professional services provided by the independent
accountants and other accounting firms prior to the performance of such
services; and reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of
the Fund's system of internal controls.
Finally, the Board of each Fund has formed a Derivatives Committee to
approve parameters for and monitor the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Morgan Stanley Dean Witter Funds
avoids the duplication of effort that would arise from having different
groups of individuals serving as Independent Trustees for each of the Funds
or even of sub-groups of Funds. They believe that having the same individuals
serve as Independent Trustees of all the Funds tends to increase their
knowledge and expertise regarding matters which affect the Fund complex
generally and enhances their ability to negotiate on behalf of each Fund with
the Fund's service providers. This arrangement also precludes the possibility
of separate groups of Independent Trustees arriving at conflicting decisions
regarding operations and management of the Funds and avoids the cost and
confusion that would likely ensue. Finally, having the same Independent
Trustees serve on all Fund Boards enhances the ability of each Fund to
obtain, at modest cost to each separate Fund, the services of Independent
Trustees of the caliber, experience and business acumen of the individuals
who serve as Independent Trustees of the Morgan Stanley Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of
$750). If a Board meeting and a meeting of the Independent Trustees or a
Committee meeting, or a meeting of the Independent Trustees and/or more than
one Committee meeting, take place on a single day, the Trustees are paid a
single meeting fee by the Fund. The Fund also reimburses such Trustees for
travel and other out-of-pocket expenses incurred by them in connection with
attending such meetings. Trustees and officers of the Fund who are or have
been employed by the Investment Manager or an affiliated company receive no
compensation or expense reimbursement from the Fund for their services as
Trustee. Mr. Haire currently serves as Chairman of the Audit Committee. Prior
to June 1, 1998, Mr. Haire also served as Chairman of the Independent
Trustees, for which services the Fund paid him an additional annual fee of
$1,200.
11
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended May 31, 1998.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME OF INDEPENDENT COMPENSATION
TRUSTEE FROM THE FUND
- -------------------------- ---------------
<S> <C>
Michael Bozic ............. $1,650
Edwin J. Garn ............. 1,800
John R. Haire ............. 3,650
Wayne E. Hedien............ 1,332
Dr. Manuel H. Johnson .... 1,750
Michael E. Nugent.......... 1,800
John L. Schroeder.......... 1,800
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for
services to the 84 Morgan Stanley Dean Witter Funds and, in the case of
Messrs. Haire, Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were
in operation at December 31, 1997. Mr. Haire serves as Chairman of the Audit
Committee of each Morgan Stanley Dean Witter Fund and each TCW/DW Fund and,
prior to June 1, 1998, also served as Chairman of the Independent Directors
or Trustees of those Funds. With respect to Messrs. Haire, Johnson, Nugent
and Schroeder, the TCW/DW Funds are included solely because of a limited
exchange privilege between those Funds and five Morgan Stanley Dean Witter
Money Market Funds. Mr. Hedien's term as Director or Trustee of each Morgan
Stanley Dean Witter Fund commenced on September 1, 1997.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF
FOR SERVICE INDEPENDENT FOR SERVICE AS TOTAL CASH
AS DIRECTOR OR FOR SERVICE DIRECTORS/ CHAIRMAN OF COMPENSATION
TRUSTEE AND AS TRUSTEE AND TRUSTEES AND INDEPENDENT FOR SERVICES TO
COMMITTEE COMMITTEE AUDIT TRUSTEES 84 MORGAN STANLEY
MEMBER OF MEMBER OF COMMITTEES OF 84 AND AUDIT DEAN WITTER
NAME OF 84 MORGAN STANLEY 14 TCW/DW MORGAN STANLEY COMMITTEES OF 14 FUNDS AND 14
INDEPENDENT TRUSTEE DEAN WITTER FUNDS FUNDS DEAN WITTER FUNDS TCW/DW FUNDS TCW/DW FUNDS
- --------------------- ----------------- -------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Michael Bozic ........ $133,602 -- -- -- $133,602
Edwin J. Garn ........ 149,702 -- -- -- 149,702
John R. Haire ........ 149,702 $73,725 $157,463 $25,350 406,240
Wayne E. Hedien....... 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson 145,702 71,125 -- -- 216,827
Michael E. Nugent ... 149,702 73,725 -- -- 223,427
John L. Schroeder .... 149,702 73,725 -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the
Morgan Stanley Dean Witter Funds, not including the Fund, have adopted a
retirement program under which an Independent Trustee who retires after
serving for at least five years (or such lesser period as may be determined
by the Board) as an Independent Director or Trustee of any Morgan Stanley
Dean Witter Fund that has adopted the retirement program (each such Fund
referred to as an "Adopting Fund" and each such Trustee referred to as an
"Eligible Trustee") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments
are based upon length of service. Currently, upon retirement, each Eligible
Trustee is entitled to receive from the Adopting Fund, commencing as of his
or her retirement date and continuing for the remainder of his or her life,
an annual retirement benefit (the "Regular Benefit") equal to 29.41% of his
or her Eligible Compensation plus 0.4901667% of such Eligible
12
<PAGE>
Compensation for each full month of service as an Independent Director or
Trustee of any Adopting Fund in excess of five years up to a maximum of
58.82% after ten years of service. The foregoing percentages may be changed
by the Board.(1) "Eligible Compensation" is one-fifth of the total
compensation earned by such Eligible Trustee for service to the Adopting Fund
in the five year period prior to the date of the Eligible Trustee's
retirement. Benefits under the retirement program are not secured or funded
by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 57 Morgan Stanley Dean Witter Funds (not
including the Fund) for the year ended December 31, 1997, and the estimated
retirement benefits for the Fund's Independent Trustees, to commence upon
their retirement, from the 57 Morgan Stanley Dean Witter Funds as of December
31, 1997.
RETIREMENT BENEFITS FROM ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
ESTIMATED BENEFITS BENEFITS
CREDITED ACCRUED AS UPON
YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
NAME OF INDEPENDENT RETIREMENT ELIGIBLE ADOPTING ADOPTING
TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- -------------------------- --------------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Michael Bozic ............. 10 58.82% $ 20,499 $ 55,026
Edwin J. Garn ............. 10 58.82 30,878 55,026
John R. Haire ............. 10 58.82 (19,823) (3) 132,002
Wayne E. Hedien............ 9 50.00 0 46,772
Dr. Manuel H. Johnson .... 10 58.82 12,832 55,026
Michael E. Nugent ......... 10 58.82 22,546 55,026
John L. Schroeder.......... 8 49.02 39,350 46,123
</TABLE>
(1) An Eligible Trustee may elect alternate payments of his or her
retirement benefits based upon the combined life expectancy of such
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. The amount estimated to be payable under this
method, through the remainder of the later of the lives of such
Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit. In addition, the Eligible Trustee may elect that the
surviving spouse's periodic payment of benefits will be equal to either
50% or 100% of the previous periodic amount, an election that,
respectively, increases or decreases the previous periodic amount so
that the resulting payments will be the actuarial equivalent of the
Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until May 1, 1999.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers investors an opportunity
to participate in a diversified portfolio of securities, consisting
principally of common stocks. The portfolio reflects an investment
decision-making process developed by the Fund's Investment Manager.
INDUSTRY AND STOCK SELECTION APPROACH
As stated in the Prospectus, in managing the Fund's portfolio the
Investment Manager generally seeks to identify industries, rather than
individual companies, as prospects for capital appreciation. This approach is
designed to capitalize on four basic assumptions: (1) industry trends are a
primary force governing company earnings; (2) conventional forecasts by
security analysts of company earnings do not fully reflect underlying
industry conditions or changing economic cycles; (3) the market's perception
13
<PAGE>
of industry trends is often transitory or exaggerated; and (4) distortions in
relative valuations beyond their normal ranges provide significant buying or
selling opportunities.
The Investment Manager will invest principally in those mid-cap companies
that have above-average relative growth potential. Mid-cap companies
typically have a better growth potential than their large-cap counterparts
because they are still in the early and more dynamic period of their
corporate existences. Often mid-size companies and the industries in which
they are focused are still evolving as opposed to the more mature industries
served by large-cap companies. Moreover, mid-cap companies are not considered
"emerging" stocks, nor are they as volatile as small-cap firms. This is due
to the fact that mid-cap companies have increased liquidity, attributable to
their larger market capitalization as well as longer and more established
track records, and a stronger market presence and dominance than small-cap
firms. Consequently, because of the better growth inherent in these companies
and their industries, mid-cap companies offer superior return potential to
large-cap companies, yet owing to their relatively larger size and better
recognition in the investment community, they have a reduced risk profile
compared to smaller, emerging or micro-cap companies.
The Investment Manager may use models which employ economic indicators or
other financial variables to evaluate the relative attractiveness of
industries. Considerations may pertain to an assessment of the stage of the
economic cycle, the anticipated direction or movement of interest rates, or a
judgment as to which industries and common stocks may show relative
outperformance based on the following: (1) economic indicators that may be
specific to particular industries; and (2) financial variables which could
include an analysis of cash flow, asset value, historical or projected
earnings, absolute or relative price/earnings ratios, dividend discount
models, or other factors.
The Investment Manager will use an industry approach that seeks to
diversify the assets of the Fund in approximately 18 to 35 industries. The
Fund will hold less than 5% of its net assets in any one security and will
hold less than 10% of its net assets in any one industry. Companies will be
selected based on at least three-year track records, and purchases will be
primarily focused on companies that: (1) have the potential for above-average
relative earnings growth; (2) are focused in industries that are rapidly
expanding or have the potential to see increasing sales or earnings; (3)
historically have had well-defined and recurring revenues; or (4) are
attractive based on an assessment of private market or franchise values.
Asset Allocation. Common stocks, particularly those sought for possible
capital appreciation, have historically experienced a great amount of price
fluctuation. The Investment Manager believes it is desirable to attempt to
reduce the risks of extreme price fluctuations even if such an attempt
results, as it likely will at times, in reducing the probabilities of
obtaining greater capital appreciation. Accordingly, the Investment Manager's
investment process incorporates elements which may reduce, although certainly
not eliminate, the volatility of a portfolio. The Fund may hold a portion of
its portfolio in fixed-income securities in an effort to moderate extremes of
price fluctuation. The determination of the appropriate asset allocation as
between equity and fixed-income investments will be made by the Investment
Manager in its discretion, based upon its evaluation of economic and market
conditions.
SECURITY LOANS
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 100% of 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.
14
<PAGE>
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.
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. The creditworthiness of firms to which the Fund lends
its portfolio securities will be monitored on an ongoing basis. During the
fiscal year ended May 31, 1998, the Fund did not loan any of its portfolio
securities.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities and stock
indexes and purchase options of the same securities to effect closing
transactions, and may hedge against potential changes in the market value of
investments (or anticipated investments) by purchasing put and call options
on portfolio (or eligible portfolio) securities and engaging in transactions
involving futures contracts and options on such contracts. Call and put
options on U.S. Treasury notes, bonds and bills and equity securities are
listed on Exchanges and are written in over-the-counter transactions ("OTC
options"). Listed options are issued by the Options Clearing Corporation
("OCC"). Ownership of a listed call option gives the Fund the right to buy
from the OCC the underlying security covered by the option at the stated
exercise price (the price per unit of the underlying security) 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 the
underlying security 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 at the stated exercise price. Upon notice of exercise of
the put option, the writer of the put would have the obligation to purchase
the underlying security from the OCC at the exercise price.
Options on Treasury Bonds and Notes. Because trading in options written
on Treasury bonds and notes tends to center on the most recently auctioned
issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each issue of
bonds or notes will thus be phased out as new options are listed on more
recent issues, and options representing a full range of expirations will not
ordinarily be available for every issue on which options are traded.
Options on Treasury Bills. Because a deliverable Treasury bill changes
from week to week, writers of Treasury bill calls cannot provide in advance
for their potential exercise settlement obligations by acquiring and holding
the underlying security. However, if the Fund holds a long position in
Treasury bills with a principal amount of the securities deliverable upon
exercise of the option, the position may be hedged from a risk standpoint by
the writing of a call option. For so long as the call option is outstanding,
the Fund will hold the Treasury bills in a segregated account with its
Custodian, so that they will be treated as being covered.
OTC Options. Exchange-listed options are issued by the OCC 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
15
<PAGE>
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 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 primary U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities 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 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 not later than that of the securities 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 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 high grade debt obligations 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 achieve a greater total return than
would be realized from holding the underlying securities alone. Moreover, the
premium received will offset a portion of the potential loss incurred by the
Fund if the securities underlying the option are ultimately sold by the Fund
at a loss. The premium received will fluctuate with varying economic market
conditions. If the market value of the portfolio securities upon which call
options have been written increases, the Fund may receive less total return
from the portion of its portfolio upon which calls have been written than it
would have had such call not been written.
During the option period, the Fund may be required, at any time, to
deliver the underlying security against payment of the exercise price on any
calls it has written (exercise of certain listed 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 from being
called, to permit the sale of an underlying security or to enable the Fund to
write another call option on the underlying security with either a different
exercise price or expiration date or both. Also, effecting a closing purchase
transaction will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments by the
Fund. 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. 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.
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 during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security equal to the
difference between the purchase price of the underlying security and the
proceeds of the sale of the security plus the premium received on the option
less the commission paid.
Options written by a Fund normally have expiration dates of from up to
nine months (equity securities) to eighteen months (fixed-income securities)
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.
16
<PAGE>
Covered Put Writing. 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 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 high grade debt obligations 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 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 mark to market difference is
maintained by the Fund in cash, U.S. Government securities or other high
grade debt obligations 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 decline below the
exercise price of the option (any loss being decreased by the receipt of the
premium on the option written). 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. 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 two purposes: (1) to receive the
income derived from the premiums paid by purchasers; and (2) when the
Investment Manager wishes to purchase the security 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.
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 difference between the exercise price of the option
and the current market price of the underlying securities when the put is
exercised, offset by the premium received (less the commissions paid on the
transaction).
Purchasing Call and Put Options. As stated in the Prospectus, the Fund
may purchase listed and OTC call and put options on securities and stock
indexes in amounts equalling up to 10% of its total assets, with a maximum of
5% of the Fund's assets invested in stock index options. The Fund may
purchase call options only in order to close out a covered call position (see
"Covered Call Writing" above). The purchase of a call option to effect a
closing transaction on a call written over-the-counter may be a listed or OTC
option. In either case, the call purchased is likely to be on the same
securities 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 which it holds (or has the
right to acquire) in its portfolio only to protect itself against a decline
in the value of the security. If the value of the underlying security 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. The
Fund may also purchase put options to close out written put positions in a
manner similar to call options closing purchase transactions. In addi-tion,
the Fund may sell a put option which it has previously purchased prior to the
sale of the securities 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. 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 increase, but has retained the risk of loss should
the price of the underlying security decline. The secured put writer also
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option less the premium received on
the sale of the option. In both cases, 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.
17
<PAGE>
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, 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 would continue to bear the risk of decline in the market price of
the underlying security until the option expires or is exercised. In
addition, a secured put writer would be unable to utilize the amount held in
cash or U.S. government or other high grade debt obligations as security for
the put option for other investment purposes until the exercise or expiration
of the option.
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. 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 Investment Manager.
Each of the Exchanges has established limitations governing the maximum
number of call or put 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.
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
18
<PAGE>
trading for a stock option. It determines the total dollar value per contract
of each point in the difference between the exercise price of an option and
the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indexes may have
different multipliers. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount. Unlike stock options,
all settlements are in cash and a gain or loss depends on price movements in
the stock market generally (or in a particular segment of the market) rather
than the price movements in individual stocks. Currently, options are traded
on the S&P 100 Index and the S&P 500 Index on the Chicago Board Options
Exchange, the Major Market Index and the Computer Technology Index, Oil Index
and Institutional Index on the American Stock Exchange and the NYSE Index and
NYSE Beta Index on the New York Stock Exchange, The Financial News Composite
Index on the Pacific Stock Exchange and the Value Line Index, National O-T-C
Index and Utilities Index on the Philadelphia Stock Exchange, each of which
and any similar index on which options are traded in the future which include
stocks that are not limited to any particular industry or segment of the
market is referred to as a "broadly based stock market index." The Fund will
invest only in broadly based indexes. Options on broad-based stock indexes
provide the Fund with a means of protecting the Fund against the risk of
market wide price movements. If the Investment Manager 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 Investment Manager 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 Investment
Manager 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 high grade debt
obligations 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 had been assigned until the next business day, at the earliest.
The time lag between exercise and notice of assignment poses no risk for the
writer of a covered call on a specific underlying security, such as a common
stock, because there the writer's obligation is to deliver the underlying
security, not to pay its value as of a fixed time in the past. So long as the
writer already owns the underlying security, it can satisfy its settlement
obligations by simply delivering it, and the risk that its value may have
declined since the exercise date is borne by the exercising holder. In
contrast, even if the writer of an index call holds stocks that exactly match
the composition of the underlying index, it will not be able to satisfy its
assignment obligations by delivering those stocks against payment of the
exercise price. Instead, it will be required to pay cash in an amount based
on the closing index value on the exercise date; and by the time it learns
that it has been assigned, the index may have declined, with a corresponding
decrease in the value of its stock portfolio. This "timing risk" is an
inherent limitation on the ability of index call writers to cover their risk
exposure by holding stock positions.
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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 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, bills and GNMA Certificates ("interest rate"
futures) and such indexes as the S&P 500 Index, the Moody's Investment-Grade
Corporate Bond Index and the New York Stock Exchange Composite Index ("index"
futures).
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of
the underlying obligation at a specified time in return for an agreed upon
price.
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) securities against changes in prevailing interest
rates. If the Investment Manager anticipates that interest rates may rise
and, concomitantly, the price of fixed-income securities falls, the Fund may
sell an interest rate futures contract or a bond index 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
U.S. Government securities the Fund intends to purchase. Subsequently,
appropriate fixed-income 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 stock index futures contracts for the
purpose of hedging its equity portfolio (or anticipated portfolio) securities
against changes in their prices. If the Investment Manager anticipates that
the prices of stock held by the Fund may fall, the Fund may sell a stock
index futures contract. Conversely, if the Investment Manager wishes to hedge
against anticipated price rises in those stocks which the Fund intends to
purchase, the Fund may purchase stock index futures contracts. In addition,
interest rate and stock index futures contracts will be bought or sold in
order to close out a short or long position 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. Stock index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open
or close of the last trading day of the contract and the futures contract
price. A futures contract sale is closed out by effecting a futures contract
purchase for the same aggregate amount of the specific type of equity
security and the same delivery date. If the sales 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 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 high grade
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short-term obligations equal to approximately 2% of the contract amount.
Initial margin requirements are established by the Exchanges on which futures
contracts trade and may, from time to time, change. In addition, brokers may
establish margin deposit requirements in excess of those required by the
Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a broker's 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 of cash
or U.S. Government securities called "variation margin", with the Fund's
futures contract clearing broker, which are reflective of price fluctuations
in the futures contract. Currently, interest rate futures contracts can be
purchased on debt securities such as U.S. Treasury Bills and Bonds, U.S.
Treasury Notes with Maturities between 6 1/2 and 10 years, GNMA Certificates
and Bank Certificates of Deposit.
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. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. 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 a gain.
Currently, index futures contracts can be purchased or sold with respect
to, among others, the Standard & Poor's 500 Stock Price Index and the
Standard & Poor's 100 Stock Price Index on the Chicago Mercantile Exchange,
the New York Stock Exchange Composite Index on the New York Futures Exchange,
the Major Market Index on the American Stock Exchange, the Value Line Stock
Index on the Kansas City Board of Trade and the Moody's Investment-Grade
Corporate Bond Index on the Chicago Board of Trade.
Options on Futures Contracts. The Fund may purchase and write call and
put options on futures contracts 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), and the writer the obligation, 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 the 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
Investment Manager wished to protect against an increase in interest rates
and the resulting negative impact on the value of a portion of its
fixed-income
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<PAGE>
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 Investment Manager seeks to hedge. Any premiums received in the writing
of options on futures contracts may, of course, augment the total return of
the Fund and thereby provide a further hedge against losses resulting from
price declines in portions of the Fund's portfolio.
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.
Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid
for premiums for unexpired options on futures contracts exceeds 5% of the
value of the Fund's total assets, after taking into account unrealized gains
and unrealized losses on such contracts it has entered into, provided,
however, that in the case of an option that is in-the-money (the exercise
price of the call (put) option is less (more) than the market price of the
underlying security) at the time of purchase, the in-the-money amount may be
excluded in calculating the 5%. However, there is no overall limitation on
the percentage of the Fund's assets which may be subject to a hedge position.
In addition, in accordance with the regulations of the Commodity Futures
Trading Commission ("CFTC") under which the Fund is exempted from
registration as a commodity pool operator, the Fund may only enter into
futures contracts and options on futures contracts transactions for purposes
of hedging a part or all of its portfolio. If the CFTC changes its
regulations so that the Fund would be permitted to write options on futures
contracts for purposes other than hedging the Fund's investments without CFTC
registration, the Fund may engage in such transactions for those purposes.
Except as described above, there are no other limitations on the use of
futures and options thereon by the Fund.
Risks of Transactions in Futures Contracts and Related Options. The Fund
may sell a futures contract to protect against the decline in the value of
securities held by the Fund. However, it is possible that the futures market
may advance and the value of securities 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, and the value of such securities
decreases, then the Investment Manager 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 maintains a short position in a futures contract or has sold a
call option in 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 high grade debt obligations equal in value (when added to
any initial or variation margin on deposit) to the market value of the
securities underlying the futures contract or the exercise price of the
option. Such a position may also be covered by owning the securities
underlying the futures contract (in the case of a stock index futures
contract a portfolio of securities substantially replicating the relevant
index), 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 or
has sold a put option on a futures contract, it will hold cash, U.S.
Government securities or other high grade debt obligations equal to the
purchase price of the contract or the exercise price of the put option (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
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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.
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. Transactions are entered into by the Fund only with brokers or
financial institutions deemed creditworthy by the Investment Manager.
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 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 securities 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 stock
price or interest rate trends by the Investment Manager may still not result
in a successful hedging transaction.
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 at a time when it may be
disadvantageous to do so.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss
to the Fund notwithstanding that the purchase or sale of a futures contract
would not result in a loss, as in the instance where there is no movement in
the prices of the futures contract or underlying securities.
FOREIGN SECURITIES
As stated in the Prospectus, the Fund may invest in securities issued by
foreign issuers. Investors should carefully consider the risks of investing
in securities of foreign issuers and securities denominated in non-U.S.
currencies. Fluctuations in the relative rates of exchange between the
currencies of different nations will affect the value of the Fund's
investments. 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.
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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 Fund trades effected in such
markets. Inability to dispose of portfolio securities due to settlement
delays could result in losses to the Fund due to subsequent declines in value
of such securities and the inability of the Fund to make intended security
purchases due to settlement problems could result in a failure of the Fund to
make potentially advantageous investments.
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.
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
Investment Manager subject to procedures established by the Board of Trustees
of the Fund. In addition, as described above, the value of the collateral
underlying the repurchase agreement will be at least equal to the repurchase
price, including any accrued interest earned on the repurchase agreement. In
the event of a default or bankruptcy by a selling financial institution, the
Fund will seek to liquidate such collateral. However, the exercising of the
Fund's right to liquidate such collateral could involve certain costs or
delays and, to the extent that proceeds from any sale upon a default of the
obligation to repurchase were less than the repurchase price, the Fund could
suffer a loss. It is the current policy of the Fund not to invest in
repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the Fund, amounts
to more than 15% of its total assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
From time to time the Fund may purchase securities on a when-issued or
delayed delivery basis or may purchase or sell securities on a forward
commitment basis. When such transactions are negotiated, the price is fixed
at the time of the commitment, but delivery and payment can take place a
month or more after the date of commitment. While the Fund will only purchase
securities on a when-issued, delayed
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delivery or forward commitment basis with the intention of acquiring the
securities, the Fund may sell the securities before the settlement date, if
it is deemed advisable. The securities so purchased or sold are subject to
market fluctuation and no interest or dividends accrue to the purchaser prior
to the settlement date. At the time the Fund makes the commitment to purchase
or sell securities on a when-issued, delayed delivery or forward commitment
basis, it will record the transaction and thereafter reflect the value, each
day, of such security purchased, or if a sale, the proceeds to be received,
in determining its net asset value. At the time of delivery of the
securities, their value may be more or less than the purchase or sale price.
The Fund will also establish a segregated account with its custodian bank in
which it will continually maintain cash or cash equivalents or other liquid
portfolio securities equal in value to commitments to purchase securities on
a when-issued, delayed delivery or forward commitment basis. Subject to the
foregoing restrictions, the Fund may purchase securities on such basis
without limit.
WHEN, AS AND IF ISSUED SECURITIES
The Fund may purchase securities on a "when, as and if issued" basis under
which the issuance of the security depends upon the occurrence of a
subsequent event, such as approval of a merger, corporate reorganization or
debt restructuring. The commitment for the purchase of any such security will
not be recognized in the portfolio of the Fund until the Investment Manager
determines that issuance of the security is probable. At such time, the Fund
will record the transaction and, in determining its net asset value, will
reflect the value of the security daily. At such time, the Fund will also
establish a segregated account with its custodian bank in which it will
maintain cash or cash equivalents or other high grade debt portfolio
securities equal in value to recognized commitments for such securities. The
value of the Fund's commitments to purchase the securities of any one issuer,
together with the value of all securities of such issuer owned by the Fund,
may not exceed 5% of the value of the Fund's total assets at the time the
initial commitment to purchase such securities is made (see "Investment
Restrictions"). Subject to the foregoing restrictions, 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 Fund
may also sell securities on a "when, as and if issued" basis provided that
the issuance of the security will result automatically from the exchange or
conversion of a security owned by the Fund at the time of sale.
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 of 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 Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by
the Fund. The procedures require that the following factors be taken into
account in making a liquidity determination: (1) the frequency of trades and
price quotes for the security; (2) the number of dealers and other potential
purchasers who have issued quotes on the security; (3) any dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (the time needed to dispose
of the security, the method of soliciting offers, and the mechanics of
transfer). If a restricted security is determined to be "liquid," such
security will not be included within the category "illiquid securities,"
which under current policy may not exceed 15% of the Fund's net assets.
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INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at
a meeting of Shareholders, if the holders of 50% of the outstanding shares of
the Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund. For purposes of the following restrictions:
(i) all percentage limitations apply immediately after a purchase or initial
investment; and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets
does not require elimination of any security from the portfolio.
The Fund may not:
1. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or trustee/director of the Fund or of the Investment Manager
owns more than 1/2 of 1% of the outstanding securities of such issuer, and
such officers and trustees/directors who own more than 1/2 of 1% own in
the aggregate more than 5% of the outstanding securities of such issuer.
2. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities secured by
real estate or interests therein.
3. Purchase or sell commodities except that the Fund may purchase or sell
(write) futures contracts and related options.
4. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest in
the securities of companies which operate, invest in, or sponsor such
programs.
5. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
6. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).
7. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(6). For the purpose of this restriction, collateral arrangements with
respect to the writing of options and collateral arrangements with respect
to initial or variation margin for futures are not deemed to be pledges of
assets.
8. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase agreement; (b) borrowing money in accordance
with restrictions described above; or (c) lending portfolio securities.
9. Make loans of money or securities, except: (a) by the purchase of debt
obligations in which the Fund may invest consistent with its investment
objective and policies; (b) by investment in repurchase agreements; or (c)
by lending its portfolio securities.
10. Make short sales of securities.
11. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the
purchase of a security on margin.
12. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
13. Invest for the purpose of exercising control or management of any
other issuer.
26
<PAGE>
In addition, the Fund, as a non-fundamental policy, will not invest more
than 5% of the value of its net assets in warrants, including not more than
2% of such assets in warrants not listed on the New York or American Stock
Exchange. However, the acquisition of warrants attached to other securities
is not subject to this restriction.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially
all of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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Subject to the general supervision of the Board of Trustees, the
Investment Manager is responsible for decisions to buy and sell securities
for the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. The Fund also
expects that securities will be purchased at times in underwritten offerings
where the price includes a fixed amount of compensation, generally referred
to as the underwriter's concession or discount. Options and futures
transactions will usually be effected through a broker and a commission will
be charged. On occasion, the Fund may also purchase certain money market
instruments directly from an issuer, in which case no commissions or
discounts are paid. During the fiscal years ended May 31, 1996, 1997 and
1998, the Fund paid a total of $964,704, $1,114,491 and $1,679,879,
respectively, in brokerage commissions.
The Investment Manager currently serves as investment manager or adviser
to a number of clients, including other investment companies, and may in the
future act as investment manager or adviser to others. It is the practice of
the Investment Manager to cause purchase and sale transactions to be
allocated among the Fund and others whose assets it manages in such manner as
it deems equitable. In making such allocations among the Fund and other
client accounts, various factors may be considered, including the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client
accounts. In the case of certain initial and secondary public offerings, the
Investment Manager utilizes a pro rata allocation process based on the size
of the Morgan Stanley Dean Witter Funds involved and the number of shares
available from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange,
the Fund's policy is to pay commissions which are considered fair and
reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a
requirement always to seek the lowest possible commission cost could impede
effective portfolio management and preclude the Fund and the Investment
Manager from obtaining a high quality of brokerage and research services. In
seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Investment Manager relies upon its experience and knowledge
regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily
subjective and imprecise, as in most cases an exact dollar value for those
services is not ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on foreign securities exchanges. Fixed
commissions on such transactions are generally higher than negotiated
commissions on domestic transactions. There is also generally less government
supervision and regulation of foreign securities exchanges and brokers than
in the United States.
27
<PAGE>
In seeking to implement the Fund's policies, the Investment Manager
effects transactions with those brokers and dealers who the Investment
Manager believes provide the most favorable prices and are capable of
providing efficient executions. If the Investment Manager believes such
prices and executions are obtainable from more than one broker or dealer, it
may give consideration to placing portfolio transactions with those brokers
and dealers who also furnish research and other services to the Fund or the
Investment Manager. Such services may include, but are not limited to, any
one or more of the following: information as to the availability of
securities for purchase or sale; statistical or factual information or
opinions pertaining to investment; wire services; and appraisals or
evaluations of portfolio securities.
The information and services received by the Investment Manager from
brokers and dealers may be of benefit to the Investment Manager in the
management of accounts of some of its other clients and may not in all cases
benefit the Fund directly. While the receipt of such information and services
is useful in varying degrees and would generally reduce the amount of
research or services otherwise performed by the Investment Manager and
thereby reduce its expenses, it is of indeterminable value and the management
fee paid to the Investment Manager is not reduced by any amount that may be
attributable to the value of such services. During the fiscal year ended May
31, 1998, the Fund paid $1,465,288 in brokerage commissions in connection
with transactions in the aggregate amount of $931,998,235 to brokers because
of research services provided.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR, Morgan Stanley & Co. Incorporated ("MS & Co.") and
other affiliated brokers and dealers. In order for an affiliated broker or
dealer to effect any portfolio transactions for the Fund, the commissions,
fees or other remuneration received by the affiliated broker or dealer must
be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold on an exchange during a
comparable period of time. This standard would allow the affiliated broker or
dealer to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Board of Trustees of the Fund, including a
majority of the Trustees who are not "interested" persons of the Fund, as
defined in the Act, have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to an
affiliated broker or dealer are consistent with the foregoing standard. The
Fund does not reduce the management fee it pays to the Investment Manager by
any amount of the brokerage commissions it may pay to an affiliated broker or
dealer. During the fiscal years ended May 31, 1996, 1997 and 1998, the Fund
paid a total of $114,915, $64,885 and $91,976, respectively, in brokerage
commissions to DWR. During the fiscal year ended May 31, 1998, the brokerage
commissions paid to DWR represented approximately 5.48% of the total
brokerage commissions paid by the Fund during the year and were paid on
account of transactions having an aggregate dollar value equal to
approximately 6.80% of the aggregate dollar value of all portfolio
transactions of the Fund during the year for which commissions were paid.
During the period June 1, 1997 through May 31, 1998, the Fund paid a total of
$88,675 in brokerage commissions to MS & Co., which broker-dealer became an
affiliate of the Investment Manager on May 31, 1997 upon consummation of the
merger of Dean Witter, Discover & Co. with Morgan Stanley Group Inc. The
brokerage commissions paid to MS & Co. represented approximately 5.28% of the
total brokerage commissions paid by the Fund during the period and were paid
on account of transactions having an aggregate dollar value equal to
approximately 6.43% of the aggregate dollar value of all portfolio
transactions of the Fund during the period for which commissions were paid.
Pursuant to an order of the Securities and Exchange Commission, the Fund
may effect principal transactions in certain money market instruments with
DWR. The Fund will limit its transactions with DWR to U.S. Government and
Government Agency Securities, Bank Money Instruments (i.e., Certificates of
Deposit and Bankers' Acceptances) and Commercial Paper. Such transactions
will be effected with DWR only when the price available from DWR is better
than that available from other dealers. During the fiscal years ended May 31,
1996, 1997 and 1998, the Fund did not effect any principal transactions with
DWR.
28
<PAGE>
During the fiscal year ended May 31, 1998, the Fund purchased common stock
issued by Bear Stearns Companies, Inc. and Lehman Brothers Holdings, Inc.,
which issuers were among the ten brokers or the ten dealers which executed
transactions for or with the Fund in the largest dollar amounts during the
year. At May 31, 1998, the Fund did not hold any securities of such brokers
or dealers.
THE DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by
Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"). The
Distributor has entered into a selected dealer agreement with DWR, which
through its own sales organization sells shares of the Fund. In addition, the
Distributor may enter into selected dealer agreements with other selected
broker-dealers. The Distributor, a Delaware corporation, is a wholly-owned
subsidiary of MSDW. The Trustees of the Fund, including a majority of the
Trustees who are not, and were not at the time they voted, interested persons
of the Fund, as defined in the Act (the "Independent Trustees"), approved, at
their meeting held on June 30, 1997, the current Distribution Agreement
appointing the Distributor as exclusive distributor of the Fund's shares and
providing for the Distributor to bear distribution expenses not borne by the
Fund. By its terms, the Distribution Agreement had an initial term ending
April 30, 1998 and will remain in effect from year to year thereafter if
approved by the Board. At their meeting held on April 30, 1998, the Trustees
of the Fund, including a majority of the Independent Trustees, approved the
continuation of the Distribution Agreement until April 30, 1999.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to
Morgan Stanley Dean Witter Financial Advisors and other selected
broker-dealer representatives. The Distributor also pays certain expenses in
connection with the distribution of the Fund's shares, including the costs of
preparing, printing and distributing advertising or promotional materials,
and the costs of printing and distributing prospectuses and supplements
thereto used in connection with the offering and sale of the Fund's shares.
The Fund bears the costs of initial typesetting, printing and distribution of
prospectuses and supplements thereto to shareholders. The Fund also bears the
costs of registering the Fund and its shares under federal securities laws
and pays filing fees in accordance with state securities laws. The Fund and
the Distributor have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. Under the Distribution Agreement, the Distributor uses its best
efforts in rendering services to the Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations, the Distributor is not liable to the Fund or any of its
shareholders for any error of judgment or mistake of law or for any act or
omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan") pursuant to which each Class, other than Class D, pays
the Distributor compensation accrued daily and payable monthly at the
following annual rates: 0.25% and 1.0% of the average daily net assets of
Class A and Class C, respectively, and, with respect to Class B, 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Fund's Class B
shares since the inception of the Fund (not including reinvestments of
dividends or capital gains distributions), less the average daily aggregate
net asset value of the Fund's Class B shares redeemed since the Fund's
inception upon which a contingent deferred sales charge has been imposed or
upon which such charge has been waived; or (b) the average daily net assets
of Class B. The Distributor receives the proceeds of front-end sales charges
and of contingent deferred sales charges imposed on certain redemptions of
shares, which are separate and apart from payments made pursuant to the Plan
(see "Purchase of Fund Shares" in the Prospectus). The Distributor has
informed the Fund that it and/or DWR received (a) approximately $490,000,
$730,000 and $800,000 in contingent deferred sales charges from Class B for
the fiscal years ended May 31, 1996, 1997 and 1998, respectively, (b)
approximately $7,185 and $2,004 in contingent deferred sales charges from
Class A and Class C, respectively, for the fiscal year ended May 31, 1998,
and (c) approximately $59,000 in front-end sales charges from Class A for the
fiscal year ended May 31, 1998, none of which was retained by the
Distributor.
29
<PAGE>
The Distributor has informed the Fund that the entire fee payable by Class
A and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan of Distribution equal to 0.25% of such Class's average
daily net assets are currently each characterized as a "service fee" under
the Rules of the Association of the National Association of Securities
Dealers, Inc. (of which the Distributor is a member). The "service fee" is a
payment made for personal service and/or the maintenance of shareholder
accounts. The remaining portion of the Plan fees payable by a Class, if any,
is characterized as an "asset-based sales charge" as such is defined by the
aforementioned Rules of the Association.
The Plan was originally adopted by a majority vote of the Board of
Trustees, including all of the Independent Trustees (none of whom had or have
any 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, at their Meeting held on July 14, 1994, and by
MSDW Advisors, the then sole shareholder of the Fund, on July 15, 1994. At
their meeting held on October 26, 1995, the Trustees of the Fund, including
all of the Independent 12b-1 Trustees, approved an amendment to the Plan to
permit payments to be made under the Plan with respect to certain
distribution expenses incurred in connection with the distribution of shares,
including personal services to shareholders with respect to holdings of such
shares, of an investment company whose assets are acquired by the Fund in a
tax-free reorganization. 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 calendar quarter a written report
provided by the Distributor of the amounts expended by the Distributor under
the Plan and the purpose for which such expenditures were made. Class B
shares of the Fund accrued amounts payable to the Distributor under the Plan,
for the fiscal year ended May 31, 1998, of $5,693,336. This amount is equal
to 1.0% of the average daily net assets of Class B for the fiscal year and
was calculated pursuant to clause (b) of the compensation formula under the
Plan. This amount is treated by the Fund as an expense in the year it is
accrued. For the fiscal period July 28, 1997 through May 31, 1998, Class A
and Class C shares of the Fund accrued payments under the Plan amounting to
$3,277 and $26,884, respectively, which amounts are equal to 0.25% and 1.0%
of the average daily net assets of Class A and Class C, respectively, for
such period.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set
forth in the Prospectus.
With respect to Class A shares, DWR compensates its Financial Advisors by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value
of the respective accounts for which they are the Financial Advisors or
dealers of record in all cases. On orders of $1 million or more (for which no
sales charge was paid) or net asset value purchases by employer-sponsored
401(k) and other plans qualified under Section 401(a) of the Internal Revenue
Code ("Qualified Retirement Plans") for which Morgan Stanley Dean Witter
Trust FSB ("MSDW Trust") serves as Trustee or DWR's Retirement Plan Services
serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement, the Investment Manager compensates DWR's Financial Advisors by
paying them, from its own funds, a gross sales credit of 1.0% of the amount
sold.
With respect to Class B shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission,
currently a residual of up to 0.25% of the current value (not including
reinvested dividends or distributions) of the amount sold in all cases. In
the case of Class B shares purchased on or after July 28, 1997 by Qualified
Retirement Plans for which MSDW Trust serves as Trustee or DWR's Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement, DWR compensates its Financial Advisors by paying them,
from its own funds, a gross sales credit of 3.0% of the amount sold.
30
<PAGE>
With respect to Class C shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value
of the respective accounts for which they are the Financial Advisors of
record.
With respect to Class D shares other than shares held by participants in
the MSDW Advisors mutual fund asset allocation program, the Investment
Manager compensates DWR's Financial Advisors by paying them, from its own
funds, commissions for the sale of Class D shares, currently a gross sales
credit of up to 1.0% of the amount sold. There is a chargeback of 100% of the
amount paid if the Class D shares are redeemed in the first year and a
chargeback of 50% of the amount paid if the Class D shares are redeemed in
the second year after purchase. The Investment Manager also compensates DWR's
Financial Advisors by paying them, from its own funds, an annual residual
commission, currently a residual of up to 0.10% of the current value of the
respective accounts for which they are the Financial Advisors of record (not
including accounts of participants in the MSDW Advisors mutual fund asset
allocation program).
The gross sales credit is a charge which reflects commissions paid by DWR
to its Financial Advisors 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 on behalf of the Fund and, in the case
of Class B shares, opportunity costs, such as the gross sales credit and an
assumed interest charge thereon ("carrying charge"). In the Distributor's
reporting of the distribution expenses to the Fund, in the case of Class B
shares, such assumed interest (computed at the "broker's call rate") has been
calculated on the gross sales credit as it is reduced by amounts received by
the Distributor under the Plan and any contingent deferred sales charges
received by the Distributor upon redemption of shares of the Fund. No other
interest charge is included as a distribution expense in the Distributor's
calculation of its distribution costs for this purpose. The broker's call
rate is the interest rate charged to securities brokers on loans secured by
exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments
at the end of each month. The amount of each monthly payment may in no event
exceed an amount equal to a payment at the annual rate of 0.25%, in the case
of Class A, and 1.0%, in the case of Class C, of the average net assets of
the respective Class during the month. No interest or other financing
charges, if any, incurred on any distribution expenses on behalf of Class A
and Class C will be reimbursable under the Plan. With respect to Class A, in
the case of all expenses other than expenses representing the service fee,
and, with respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to Morgan Stanley Dean Witter
Financial Advisors and other selected broker-dealer representatives, such
amounts shall be determined at the beginning of each calendar quarter by the
Trustees, including, a majority of the Independent 12b-1 Trustees. Expenses
representing the service fee (for Class A) or a gross sales credit or a
residual to Morgan Stanley Dean Witter Financial Advisors and other selected
broker-dealer representatives (for Class C) may be reimbursed without prior
determination. In the event that the Distributor proposes that monies shall
be reimbursed for other than such expenses, then in making quarterly
determinations of the amounts that may be reimbursed by the Fund, the
Distributor will provide and the Trustees will review a quarterly budget of
projected distribution expenses to be incurred on behalf of the Fund,
together with a report explaining the purposes and anticipated benefits of
incurring such expenses. The Trustees will determine which particular
expenses, and the portions thereof, that may be borne by the Fund, and in
making such a determination shall consider the scope of the Distributor's
commitment to promoting the distribution of the Fund's Class A and Class C
shares.
31
<PAGE>
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended May 31, 1998 to the Distributor. The
Distributor and DWR estimate that they have spent, pursuant to the Plan,
$28,253,198 on behalf of Class B since the inception of the Plan. It is
estimated that this amount was spent in approximately the following ways: (i)
7.08% ($1,999,460)--advertising and promotional expenses; (ii) 0.81%
($229,661)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 92.11% ($26,024,077)--other expenses, including the
gross sales credit and the carrying charge, of which 6.07% ($1,580,793)
represents carrying charges, 37.90% ($9,862,865) represents commission
credits to DWR branch offices and other selected broker-dealers for payments
of commissions to Morgan Stanley Dean Witter Financial Advisors and other
selected broker-dealer representatives and 56.03% ($14,580,419) represents
overhead and other branch office distribution-related expenses. The amounts
accrued by Class A and Class C for distribution during the fiscal period July
28, 1997 through May 31, 1998 were for expenses which relate to compensation
of sales personnel and associated overhead expenses.
In the case of Class B shares, at any given time, the expenses in
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of
shares. The Distributor has advised the Fund that in the case of Class B
shares the excess distribution expenses, including the carrying charge
designed to approximate the opportunity costs incurred by DWR which arise
from it having advanced monies without having received the amount of any
sales charges imposed at the time of sale of the Fund's Class B shares,
totalled $14,280,349 at May 31, 1998. Because there is no requirement under
the Plan that the Distributor be reimbursed for all distribution expenses
with respect to Class B shares or any requirement that the Plan be continued
from year to year, this excess amount does not constitute a liability of the
Fund. Although there is no legal obligation for the Fund to pay distribution
expenses in excess of payments made under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of
shares, if for any reason the Plan is terminated, the Trustees will consider
at that time the manner in which to treat such expenses. Any cumulative
expenses incurred, but not yet recovered through distribution fees or
contingent deferred sales charges, may or may not be recovered through future
distribution fees or contingent deferred sales charges.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or
indirect financial interest in the operation of the Plan except to the extent
that the Distributor, MSDW Advisors, MSDW Services, DWR or certain of their
employees may be deemed to have such an interest as a result of benefits
derived from the successful operation of the Plan or as a result of receiving
a portion of the amounts expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending April 30, 1995 and
will continue from year to year thereafter, provided such continuance is
approved annually by a vote of the Trustees in the manner described above.
The most recent continuance of the Plan for one year, until April 30, 1999,
was approved by the Board of Trustees of the Fund, including a majority of
the Independent 12b-1 Trustees, at a Board meeting held on April 30, 1998.
Prior to approving the continuation of the Plan, the 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 to the Fund and its shareholders. Based upon their review, the
Trustees of the Fund, including each of the Independent 12b-1 Trustees,
determined that continuation of the Plan would be in the best interest of the
Fund and would have a reasonable likelihood of continuing to benefit the Fund
and its shareholders. In the Trustees' quarterly review of the Plan, they
will consider its continued appropriateness and the level of compensation
provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of
the affected Class or Classes of the Fund, and all material amendments of the
Plan must also be approved by the Trustees in the manner described
32
<PAGE>
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
Trustees.
DETERMINATION OF NET ASSET VALUE
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As stated in the Prospectus, short-term securities with remaining
maturities of sixty days or less at the time of purchase are valued at
amortized cost, unless the Trustees determine such does not reflect the
securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt
securities will be valued on a mark-to-market basis until such time as they
reach a remaining maturity of sixty days, whereupon they will be valued at
amortized cost using their value on the 61st day unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. 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 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.
Generally, trading in foreign securities, as well as corporate bonds,
United States government securities and money market instruments, is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of
the New York Stock Exchange. Occasionally, events which may affect the values
of such securities and such exchange rates may occur between the times at
which they are determined and the close of the New York Stock Exchange and
will therefore not be reflected in the computation of the Fund's net asset
value. If events that may affect the value of such securities occur during
such period, then these securities may be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
The net asset value per share for each Class of shares of the Fund is
determined once daily at 4:00 p.m., New York time (or on days when the New
York Stock Exchange closes prior to 4:00 p.m., at such earlier time), on each
day that the New York Stock Exchange is open. 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,
33
<PAGE>
if any person or entity who qualifies for this privilege holds Class A shares
of the Fund and/or other Morgan Stanley Dean Witter Funds that are multiple
class funds ("Morgan Stanley Dean Witter Multi-Class Funds") or shares of
other Morgan Stanley Dean Witter Funds sold with a front-end sales charge
purchased at a price including a front-end sales charge having a current
value of $5,000, and purchases $20,000 of additional shares of the Fund, the
sales charge applicable to the $20,000 purchase would be 4.75% of the
offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the selected broker-dealer or
shareholder when such an order is placed by mail. The reduced sales charge
will not be granted if: (a) such notification is not furnished at the time of
the order; or (b) a review of the records of the Distributor or Morgan
Stanley Dean Witter Trust FSB (the "Transfer Agent") fails to confirm the
investor's represented holdings.
Letter of Intent. As discussed in the Prospectus, reduced sales charges
are available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment
goal to be achieved by any number of purchases over a thirteen-month period.
Each purchase of Class A shares made during the period will receive the
reduced sales commission applicable to the amount represented by the goal, as
if it were a single purchase. A number of shares equal in value to 5% of the
dollar amount of the Letter of Intent will be held in escrow by the Transfer
Agent, in the name of the shareholder. The initial purchase under a Letter of
Intent must be equal to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to
pay the difference between the sales charge otherwise applicable to the
purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the
Distributor is authorized by the shareholder to liquidate a sufficient number
of his or her escrowed shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level,
the sales charge on the entire amount of the purchase that results in passing
that level and on subsequent purchases will be subject to further reduced
sales charges in the same manner as set forth above under "Right of
Accumulation," but there will be no retroactive reduction of sales charges on
previous purchases. For the purpose of determining whether the investor is
entitled to a further reduced sales charge applicable to purchases at or
above a sales charge level which exceeds the stated goal of a Letter of
Intent, the cumulative current net asset value of any shares owned by the
investor in any other Morgan Stanley Dean Witter Funds held by the
shareholder which were previously purchased at a price including a front-end
sales charge (including shares of the Fund and other Morgan Stanley Dean
Witter Funds acquired in exchange for those shares, and including in each
case shares acquired through reinvestment of dividends and distributions)
will be added to the cost or net asset value of shares of the Fund owned by
the investor. However, shares of "Exchange Funds" (see "Shareholder
Services--Exchange Privilege") and the purchase of shares of other Morgan
Stanley Dean Witter Funds will not be included in determining whether the
stated goal of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction.
The 5% escrow and minimum purchase requirements will be applicable to the new
stated goal. Investors electing to purchase shares of the Fund pursuant to a
Letter of Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to
a CDSC payable upon most redemptions within six years after purchase. As
stated in the Prospectus, a CDSC will be imposed on any
34
<PAGE>
redemption by an investor if after such redemption the current value of the
investor's Class B shares of the Fund is less than the dollar amount of all
payments by the shareholder for the purchase of Class B shares during the
preceding six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years). However, no CDSC will be imposed to the
extent that the net asset value of the shares redeemed does not exceed: (a)
the current net asset value of shares purchased more than six years (or, in
the case of shares held by certain Qualified Retirement Plans, three years)
prior to the redemption, plus (b) the current net asset value of shares
purchased through reinvestment of dividends or distributions of the Fund or
another Morgan Stanley Dean Witter Fund (see "Shareholder Services--Targeted
Dividends"), plus (c) the current net asset value of shares acquired in
exchange for (i) shares of Morgan Stanley Dean Witter front-end sales charge
funds, or (ii) shares of other Morgan Stanley Dean Witter Funds for which
shares of front-end sales charge funds have been exchanged (see "Shareholder
Services--Exchange Privilege"), plus (d) increases in the net asset value of
the investor's shares above the total amount of payments for the purchase of
Fund shares made during the preceding six (three) years. The CDSC will be
paid to the Distributor.
In determining the applicability of the CDSC to each redemption, the
amount which represents an increase in the net asset value of the investor's
shares above the amount of the total payments for the purchase of shares
within the last six years (or, in the case of shares held by certain
Qualified Retirement Plans, three years) will be redeemed first. In the event
the redemption amount exceeds such increase in value, the next portion of the
amount redeemed will be the amount which represents the net asset value of
the investor's shares purchased more than six (three) years prior to the
redemption and/or shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of Morgan Stanley
Dean Witter front-end sales charge funds, or for shares of other Morgan
Stanley Dean Witter funds for which shares of front-end sales charge funds
have been exchanged. A portion of the amount redeemed which exceeds an amount
which represents both such increase in value and the value of shares
purchased more than six years (or, in the case of shares held by certain
Qualified Retirement Plans, three years) prior to the redemption and/or
shares purchased through reinvestment of dividends or distributions and/or
shares acquired in the above-described exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number
of years from the time of any payment for the purchase of shares,all payments
made during a month will be aggregated and deemed to have been made on the
last day of the month. The following table sets forth the rates of the CDSC
applicable to most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- --------------------------- ------------------------
<S> <C> <C>
First ...................... 5.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 2.0%
Fifth ...................... 2.0%
Sixth ...................... 1.0%
Seventh and thereafter .... None
</TABLE>
35
<PAGE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund purchased on or after July 28, 1997 by Qualified
Retirement Plans for which MSDW Trust serves as Trustee or DWR's Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ------------------------- ------------------------
<S> <C>
First .................... 2.0%
Second ................... 2.0%
Third .................... 1.0%
Fourth and thereafter .... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year or three-year period. This will result in any such
CDSC being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years
(or, in the case of shares held by certain Qualified Retirement Plans, three
years) of purchase which are in excess of these amounts and which redemptions
do not qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC
of 1.0% on most redemptions made within one year after purchase, except in
the circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account
is opened for the investor on the books of the Fund and maintained by the
Transfer Agent. This is an open account in which shares owned by the investor
are credited by the Transfer Agent in lieu of issuance of a share
certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares
and may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. Whenever a shareholder instituted
transaction takes place in the Shareholder Investment Account, the
shareholder will be mailed a confirmation of the transaction from the Fund or
from DWR or other selected broker-dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of
the Fund, unless the shareholder requests that they be paid in cash. Each
purchase of shares of the Fund is made upon the condition that the Transfer
Agent is thereby automatically appointed as agent of the investor to receive
all dividends and capital gains distributions on shares owned by the
investor. Such dividends and distributions will be paid, at the net asset
value per share, in shares of the applicable Class of the Fund (or in cash if
the shareholder so requests) as of the close of business on the record date.
At any time an investor may request the Transfer Agent, in writing, to have
subsequent dividends and/or capital gains distributions paid to him or her in
cash rather than shares. To assure sufficient time to process the change,
such request should be received by the Transfer Agent at least five business
days prior to the record date of the dividend or distribution. In the case of
recently purchased shares for which registration instructions have not been
received on the record date, cash payments will be made to DWR or other
selected broker-dealer, and will be forwarded to the shareholder,
36
<PAGE>
upon the receipt of proper instructions. It has been and remains the Fund's
policy and practice that, if checks for dividends or distributions paid in
cash remain uncashed, no interest will accrue on amounts represented by such
uncashed checks.
Targeted Dividends. (Service Mark) In states where it is legally
permissible, shareholders may also have all income dividends and capital
gains distributions automatically invested in shares of any Class of an
open-end Morgan Stanley Dean Witter Fund other than Morgan Stanley Dean
Witter Mid-Cap Growth Fund or in another Class of Morgan Stanley Dean Witter
Mid-Cap 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 Morgan Stanley Dean Witter Fund as
of the close of business on the payment date of the dividend or distribution
and will begin to earn dividends, if any, in the selected Morgan Stanley Dean
Witter Fund the next business day. To participate in the Targeted Dividends
program, shareholders should contact their Morgan Stanley Dean Witter
Financial Advisor or other selected broker-dealer representative or the
Transfer Agent. Shareholders of the Fund must be shareholders of the selected
Class of the Morgan Stanley Dean Witter Fund targeted to receive investments
from dividends at the time they enter the Targeted Dividends program.
Investors should review the prospectus of the targeted Morgan Stanley Dean
Witter Fund before entering the program.
EasyInvest. (Service Mark) Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for
investment in shares of the Fund. Shares purchased through EasyInvest will be
added to the shareholder's existing account at the net asset value calculated
the same business day the transfer of funds is effected (subject to any
applicable sales charges). Shares of the Morgan Stanley Dean Witter money
market funds redeemed in connection with EasyInvest are redeemed on the
business day preceding the transfer of funds. For further information or to
subscribe to EasyInvest, shareholders should contact their Morgan Stanley
Dean Witter Financial Advisor or other selected broker-dealer representative
or the Transfer Agent.
Investment of Dividends or Distributions Received in Cash. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares
of the applicable Class at net asset value, without the imposition of a CDSC
upon redemption, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. If the shareholder returns the
proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset
value per share next determined after receipt of the check or proceeds by the
Transfer Agent.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders 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 then $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" in the Prospectus).
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.
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, or amounts credited to a
shareholder's DWR or other selected broker-dealer brokerage account, within
five business days after the date of redemption. The Withdrawal Plan may be
terminated at any time by the Fund.
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<PAGE>
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 share holder'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 sales charges which may be applicable to
purchases or redemptions of shares (see "Purchase of Fund Shares").
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 Morgan Stanley Dean Witter Financial
Advisor or other selected broker-dealer representative or by written
notification to the Transfer Agent. In addition, the party and/or the address
to which checks are mailed may be changed by written notification to the
Transfer Agent, with signature guarantees required in the manner described
above. The shareholder may also terminate the Withdrawal Plan at any time by
written notice to the Transfer Agent. In the event of such termination, the
account will be continued as a regular shareholder investment account. The
shareholder may also redeem all or part of the shares held in the Withdrawal
Plan account (see "Redemptions and Repurchases" in the Prospectus) at any
time.
Direct Investments through Transfer Agent. As discussed in the Prospectus,
shareholders may make additional investments in any Class of shares of the
Fund for which they qualify at any time by sending a check in any amount, not
less than $100, payable to Morgan Stanley Dean Witter Mid-Cap Growth Fund,
and indicating the selected Class, directly to the Fund's Transfer Agent. In
the case of Class A shares, after deduction of any applicable sales charge,
the balance will be applied to the purchase of Fund shares, and, in the case
of shares of the other Classes, the entire amount will be applied to the
purchase of Fund shares, at the net asset value per share next computed after
receipt of the check or purchase payment by the Transfer Agent. The shares so
purchased will be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of each Class of
shares of the Fund may exchange their shares for shares of the same Class of
shares of any other Morgan Stanley Dean Witter Multi-Class Fund without the
imposition of any exchange fee. Shares may also be exchanged for shares of
any of the following funds: Morgan Stanley Dean Witter Short-Term U.S.
Treasury Trust, Morgan Stanley Dean Witter Limited Term Municipal Trust,
Morgan Stanley Dean Witter Short-Term Bond Fund, Morgan Stanley Dean Witter
Intermediate Term U.S. Treasury Trust and five Morgan Stanley Dean Witter
Funds which are money market funds (the foregoing nine funds are hereinafter
referred to as the "Exchange Funds"). Class A shares may also be exchanged
for shares of Morgan Stanley Dean Witter Multi-State Municipal Series Trust
and Morgan Stanley Dean Witter Hawaii Municipal Trust, which are Morgan
Stanley Dean Witter Funds sold with a front-end sales charge ("FSC Funds").
Class B shares may also be exchanged for shares of Morgan Stanley Dean Witter
Global Short-Term Income Fund Inc. ("Global Short-Term"), which is a Morgan
Stanley Dean Witter Fund offered with a CDSC. Exchanges may be made after the
shares of the Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives
38
<PAGE>
written notification to the contrary. For telephone exchanges, the exact
registration of the existing account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit
should not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number
of factors, including the number of years from the time of purchase until the
time of redemption or exchange ("holding period"). When shares of a Morgan
Stanley Dean Witter Multi-Class Fund or Global Short-Term 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 investment period or "year since purchase payment made"
is frozen. When shares are redeemed out of the Exchange Fund, they will be
subject to a CDSC which would be based upon the period of time the
shareholder held shares in a Morgan Stanley Dean Witter Multi-Class Fund or
in Global Short-Term. However, in the case of shares of the Fund exchanged
into the Exchange Fund on or after April 23, 1990, upon a redemption of
shares which results in a CDSC being imposed, a credit (not to exceed the
amount of the CDSC) will be given in an amount equal to the Exchange Fund
12b-1 distribution fees, if any, incurred on or after that date which are
attributable to those shares. Shareholders acquiring shares of an Exchange
Fund pursuant to this exchange privilege may exchange those shares back into
a Morgan Stanley Dean Witter Multi-Class Fund or Global Short-Term Fund from
the Exchange Fund, with no CDSC being imposed on such exchange. The
investment period previously frozen when shares were first exchanged for
shares of the Exchange Fund resumes on the last day of the month in which
shares of a Morgan Stanley Dean Witter Multi-Class Fund or of Global
Short-Term are reacquired. A CDSC is imposed only upon an ultimate
redemption, based upon the time (calculated as described above) the
shareholder was invested in a Morgan Stanley Dean Witter Multi-Class Fund or
in Global Short-Term. In the case of exchanges of Class A shares which are
subject to a CDSC, the holding period also includes the time (calculated as
described above) the shareholder was invested in a FSC Fund.
When shares initially purchased in a Morgan Stanley Dean Witter
Multi-Class Fund or in Global Short-Term are exchanged for shares of a Morgan
Stanley Dean Witter Multi-Class Fund, shares of Global Short-Term, shares of
a FSC Fund or shares of an Exchange Fund, the date of purchase of the shares
of the fund exchanged into, for purposes of the CDSC upon redemption, will be
the last day of the month in which the shares being exchanged were originally
purchased. In allocating the purchase payments between funds for purposes of
the CSDC, the amount which represents the current net asset value of shares
at the time of the exchange which were (i) purchased more than one, three or
six years (depending on the CDSC schedule applicable to the shares) prior to
the exchange, (ii) originally acquired through reinvestment of dividends or
distributions and (iii) acquired in exchange for shares of FSC Funds, or for
shares of other Morgan Stanley Dean Witter Funds for which shares of FSC
Funds have been exchanged (all such shares called "Free Shares"), will be
exchanged first. After an exchange, all dividends earned on shares in an
Exchange Fund will be considered Free Shares. If the exchanged amount exceeds
the value of such Free Shares, an exchange is made, on a block-by-block
basis, of non-Free Shares held for the longest period of time (except that,
with respect to Class B, if shares held for identical periods of time but
subject to different CDSC schedules are held in the same Exchange Privilege
account, the shares of that block that are subject to a lower CDSC rate will
be exchanged prior to the shares of that block that are subject to a higher
CDSC rate). Shares equal to any appreciation in the value of non-Free Shares
exchanged will be treated as Free Shares, and the amount of the purchase
payments for the non-Free Shares of the fund exchanged into will be equal to
the lesser of (a) the purchase payments for, or (b) the current net asset
value of, the exchanged non-Free Shares. If an exchange between funds would
result in exchange of only part of a particular block of non-Free Shares,
then shares equal to any appreciation in the value of the block (up to the
amount of the exchange) will be treated as Free Shares and exchanged first,
and the purchase payment for that block will be allocated on a pro rata basis
between the non-Free Shares of that block to be retained and the non-Free
Shares
39
<PAGE>
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 purchaser
payment for, or (b) the current net asset value of, those exchanged in
non-Free Shares. Based upon the procedures described in the Prospectus under
the caption "Purchase of Fund Shares," any applicable CDSC will be imposed
upon the ultimate redemption of shares of any fund, regardless of the number
of exchanges since those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any
other of the funds and the general administration of the Exchange Privilege,
the Transfer Agent acts as agent for the Distributor and for the
shareholder's selected broker-dealer, if any, in the performance of such
functions. With respect to exchanges, redemptions or repurchases, the
Transfer Agent shall be liable for its own negligence and not for the default
or negligence of its correspondents or for losses in transit. The Fund shall
not be liable for any default or negligence of the Transfer Agent, the
Distributor or any selected broker-dealer.
The Distributor and any selected broker-dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
selected broker-dealer for any transactions pursuant to this Exchange
Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Morgan Stanley Dean
Witter Liquid Asset Fund Inc., Morgan Stanley Dean Witter Tax-Free Daily
Income Trust, Morgan Stanley Dean Witter California Tax-Free Daily Income
Trust and Morgan Stanley Dean Witter New York Municipal Money Market Trust,
although those funds may, at their discretion, accept initial investments of
as low as $1,000. The minimum initial investment for the Exchange Privilege
account of each Class is $10,000 for Morgan Stanley Dean Witter Short-Term
U.S. Treasury Trust, although that fund, in its discretion, may accept
initial purchases of as low as $5,000. The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Morgan Stanley Dean
Witter Special Value Fund. The minimum initial investment for the Exchange
Privilege account of each Class of all other Morgan Stanley Dean Witter Funds
for which the Exchange Privilege is available is $1,000.) Upon exchange into
an Exchange Fund, the shares of that fund will be held in a special Exchange
Privilege Account separately from accounts of those shareholders who have
acquired their shares directly from that fund. As a result, certain services
normally available to shareholders of those funds, including the check
writing feature, will not be available for funds held in that account.
The Fund and each of the other Morgan Stanley Dean Witter Funds may limit
the number of times this Exchange Privilege may be exercised by any investor
within a specified period of time. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of the Morgan
Stanley Dean Witter funds for which shares of the Fund have been exchanged,
upon such notice as may be required by applicable regulatory agencies
(presently sixty days' prior written notice for termination or material
revision), provided that six months' prior written notice of termination will
be given to the shareholders who hold shares of Exchange Funds, pursuant to
the Exchange Privilege, and provided further that the Exchange Privilege may
be terminated or materially revised without notice at times (a) when the New
York Stock Exchange is closed for other than customary weekends and holidays,
(b) when trading on that Exchange is restricted, (c) when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, (d) during any other period
when the Securities and Exchange Commission by order so permits (provided
that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist) or (e) if the Fund would be unable to invest amounts effectively in
accordance with its investment objective, policies and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisor or other
selected broker-dealer representative or the Transfer Agent.
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<PAGE>
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount
of any applicable CDSC. If shares are held in a shareholder's account without
a share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption. The share certificate, or
an accompanying stock power, and the request for redemption, must be signed
by the shareholder or 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" in the
Prospectus) 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 new prospectus.
Repurchase. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by
DWR and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer
reduced by any applicable CDSC.
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares of any Class presented for repurchase or
redemption will be made by check within seven days after receipt by the
Transfer Agent of the certificate and/or written request in good order. Such
payment may be postponed or the right of redemption suspended at times (a)
when the New York Stock Exchange is closed for other than customary weekends
and holidays, (b) when trading on that Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) during
any other period when the Securities and Exchange Commission by order so
permits; provided that applicable rules and regulations of the Securities and
Exchange Commission shall govern as to whether the conditions prescribed in
(b) or (c) exist. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum
time needed to verify that the check used for investment has been honored
(not more than fifteen days from the time of receipt of the check by the
Transfer Agent). It has been and remains the Fund's policy and practice that,
if checks for redemption proceeds remain uncashed, no interest will accrue on
amounts represented by such uncashed checks. Shareholders maintaining margin
accounts with DWR or another selected broker-dealer are referred to their
Morgan Stanley Dean Witter Financial Advisor or other selected broker-dealer
representative regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
41
<PAGE>
Transfers of Shares. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the
length of time shares subject to the charge have been held), any transfer
involving less than all of the shares in an account will be made on a pro
rata basis (that is, by transferring shares in the same proportion that the
transferred shares bear to the total shares in the account immediately prior
to the transfer). The transferred shares will continue to be subject to any
applicable CDSC as if they had not been so transferred.
Reinstatement Privilege. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 35 days after the date of
redemption or repurchase, reinstate any portion or all of the proceeds of
such redemption or repurchase in shares of the Fund in the same Class at the
net asset value next determined after a reinstatement request, together with
the 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 under "Dividends, Distributions and Taxes,"
the Fund will determine either to distribute or to retain all or part of any
net long-term capital gains in any year for reinvestment. If any such gains
are retained, the Fund will pay federal income tax thereon, and shareholders
at year-end will be able to claim their share of the tax paid by the Fund as
a credit against their individual federal income tax.
Gains or losses on the Fund's transactions in listed non-equity options,
futures and options on futures generally are treated as 60% long-term and 40%
short-term. When the Fund engages in options and futures transactions,
various tax regulations applicable to the Fund may have the effect of causing
the Fund to recognize a gain or loss for tax purposes before the gain or loss
is realized, or to defer recognition of a realized loss for tax purposes.
Recognition, for taxes purposes, of an unrealized loss may result in a lesser
amount of the Fund's realized gains being available for annual distribution.
Gains or losses on sales of securities by the Fund will be long-term
capital gains or losses if the securities have a tax holding period of more
than twelve months. Gains or losses on the sale of securities with a tax
holding period of twelve months or less will be short-term gains or losses.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction. The Treasury intends to issue
regulations to permit shareholders to take into account their proportionate
share of the Fund's capital gains distributions that will be subject to a
reduced rate under the Taxpayer Relief Act of 1997. The Taxpayer Relief Act
reduces the maximum tax rate on long-term capital gains from 28% to 20%. It
also lengthens the required holding period to obtain the lower rate from more
than twelve months to more than eighteen months. However, the IRS
Restructuring and Reform Act of 1998 reduces the holding period requirement
for the lower capital gain rate to more than twelve months for transactions
occurring after January 1, 1998. The lower rates do not apply to collectibles
and certain other assets. Additionally, the maximum capital gain rate for
assets that are held more than five years and that are acquired after
December 31, 2000 is 18%.
The Fund intends to remain qualified as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986. As such, the Fund
will not be subject to federal income tax on its net investment income and
capital gains, if any, realized during any fiscal year in which it
distributes such income and capital gains to its shareholders. In addition,
the Fund intends to distribute to its shareholders
42
<PAGE>
each calendar year a sufficient amount of ordinary income and capital gains
to avoid the imposition of a 4% excise tax. Shareholders will normally have
to pay federal income taxes, and any state and/or local income taxes, on the
dividends and distributions they receive from the Fund. Such dividends and
distributions, to the extent that they are derived from net investment income
or short-term capital gains, are taxable to the shareholder as ordinary
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 year.
As stated under "Investment Objectives and Policies" in the Prospectus,
the Fund may invest up to 35% of its portfolio in securities other than
common stocks, including U.S. Government securities. Under current federal
tax law, the Fund will receive net investment income in the form of interest
by virtue of holding Treasury bills, notes and bonds, and will recognize
income attributable to it from holding zero coupon Treasury securities.
Current federal tax law requires that a holder (such as the Fund) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the Fund receives no interest
payment in cash on the security during the year. As an investment company,
the Fund must pay out substantially all of its net investment income each
year. Accordingly, the Fund, to the extent it invests in zero coupon Treasury
securities, may be required to pay out as an income distribution each year an
amount which is greater than the total amount of cash receipts of interest
the Fund actually received. Such distributions will be made from the
available cash of the Fund or by liquidation of portfolio securities if
necessary. If a distribution of cash necessitates the liquidation of
portfolio securities, the Investment Manager will select which securities to
sell. The Fund may realize a gain or loss from such sales. In the event the
Fund realizes net capital gains from such transactions, its shareholders may
receive a larger capital gain distribution, if any, than they would in the
absence of such transactions.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value
of the shareholder's stock in that company by the exact amount of the
dividend or capital gains distribution. Furthermore, capital gains
distributions and some portion of the dividends are subject to federal income
taxes. If the net asset value of the shares should be reduced below a
shareholder's cost as a result of the payment of dividends or the
distribution of realized long-term capital gains, such payment or
distribution would be in part a return of capital but nonetheless would be
taxable to the shareholder. Therefore, an investor should consider the tax
implications of purchasing Fund shares immediately prior to a distribution
record date.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital
loss to the extent of any distributions of net long-term capital gains during
the six-month period.
Dividend payments will be eligible for the federal dividends received
deduction available to the Fund's corporate shareholders only to the extent
the aggregate dividends received by the Fund would be eligible for the
deduction if the Fund were the shareholder claiming the dividends received
deduction. The amount of dividends paid by the Fund which may qualify for the
dividends received deduction is limited to the aggregate amount of qualifying
dividends which the Fund derives from its portfolio investments which the
Fund has held for a minimum period, usually 46 days within a 90-day period
beginning 45 days before the ex-dividend date of each qualifying dividend.
Shareholders must meet a similar holding period requirement with respect to
their shares to claim the dividends received deduction with respect to any
distribution of qualifying dividends. Any long-term capital gain
distributions will also not be eligible for the dividends received deduction.
The ability to take the dividends received deduction will also be limited in
the case of a Fund shareholder which incurs or continues indebtedness which
is directly attributable to its investment in the Fund.
Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
43
<PAGE>
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. These figures are
computed separately for Class A, Class B, Class C and Class D shares. The
Fund's "average annual total return" represents an annualization of the
Fund's total return over a 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 operations,
if shorter than any of the foregoing. The ending redeemable value is reduced
by any CDSC at the end of the one, five or ten year or other period. For the
purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing the average annual
total return involves a percentage obtained by dividing the ending redeemable
value by the amount of the initial investment, taking a root of the quotient
(where the root is equivalent to the number of years in the period) and
subtracting 1 from the result. The average annual total returns of Class B
for the fiscal year ended May 31, 1998 and for the period September 29, 1994
(commencement of the Fund's operation) through May 31, 1998 were 19.68% and
23.51%, respectively.
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each of Class A, Class C and Class D for specified periods by
determining the aggregate percentage rate which will result in the ending
value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value by the
initial $1,000 investment and subtracting 1 from the result. The ending
redeemable value is reduced by any CDSC at the end of the period. Based on
the foregoing calculations, the total returns for the period July 28, 1997
through May 31, 1998 were 6.85%, 11.01% and 12.89% for Class A, Class C and
Class D, respectively.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types to total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for
Class A or the deduction of the CDSC for each of Class B and Class C which,
if reflected, would reduce the performance quoted. For example, the average
annual total return of the Fund may be calculated in the manner described
above, but without deduction for any applicable sales charge. Based upon this
calculation, the average annual total returns of Class B for the fiscal year
ended May 31, 1998 and for the period September 29, 1994 through May 31, 1998
were 24.68% and 23.82%, respectively.
In addition, the Fund may compute its aggregate total return for each
Class for specified periods by determining the aggregate percentage rate
which will result in the ending value of a hypothetical $1,000 investment
made at the beginning of the period. For the purpose of this calculation, it
is assumed that all dividends and distributions are reinvested. The formula
for computing aggregate total return involves a percentage obtained by
dividing the ending value (without the reduction for any sales charge) by the
initial $1,000 investment and subtracting 1 from the result. Based on the
foregoing calculation, the total returns for Class B for the fiscal year
ended May 31, 1998 and for the period September 29, 1994 through May 31, 1998
were 24.68% and 118.98%, respectively. Based on the foregoing calculations,
the total returns for Class A, Class C and Class D for the period July 28,
1997 through May 31, 1998 were 12.77%, 12.01% and 12.89%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1
to the Fund's aggregate total return to date (expressed as a decimal and
without taking into account the effect of any applicable CDSC) and
multiplying by $9,475, $48,000 and $97,000 in the case of Class A
(investments of $10,000, $50,000 and $100,000 adjusted for the initial sales
charge) or by $10,000, $50,000 and $100,000 in the case of each
44
<PAGE>
of Class B, Class C and Class D, as the case may be. Investments of $10,000,
$50,000 and $100,000 in each Class at inception of the Class would have grown
to the following amounts at May 31, 1998:
<TABLE>
<CAPTION>
INCEPTION INVESTMENT AT INCEPTION OF:
----------- -----------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ---------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C>
Class A .. 7/28/97 $10,685 $ 54,130 $109,387
Class B .. 9/29/94 21,898 109,490 218,980
Class C .. 7/28/97 11,201 56,005 112,010
Class D .. 7/28/97 11,289 56,445 112,890
</TABLE>
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 OF THE FUND
- -----------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share of beneficial interest held. All of the Trustees have been elected by
the shareholders of the Fund, most recently at a Special Meeting of
Shareholders held on May 21, 1997. The Trustees themselves have the power to
alter the number and the terms of office of the Trustees (as provided for in
the Declaration of Trust), and they may at any time lengthen or shorten their
own terms or make their terms of unlimited duration and appoint their own
successors, provided that always at least a majority of the Trustees has been
elected by the shareholders of the Fund. Under certain circumstances the
Trustees may be removed by action of the Trustees. The shareholders also have
the right under certain circumstances to remove the Trustees. The voting
rights of shareholders are not cumulative, so that holders of more than 50
percent of the shares voting can, if they choose, elect all Trustees being
selected, while the holders of the remaining shares would be unable to elect
any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future
regulations or other unforeseen circumstances). The Trustees have not
authorized any such additional series or classes of shares other than as set
forth in the Prospectus.
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor
is any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise
from his/her or its own bad faith, willful misfeasance, gross negligence or
reckless disregard of his/her or its duties. It also provides that all third
persons shall look solely to the Fund property for satisfaction of claims
arising in connection with the affairs of the Fund. With the exceptions
stated, the Declaration of Trust provides that a Trustee, officer, employee
or agent is entitled to be indemnified against all liability in connection
with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of
beneficial interest. The Fund shall be of unlimited duration subject to the
provisions in the Declaration of Trust concerning termination by action of
the shareholders or the Trustees.
CUSTODIAN AND TRANSFER AGENT
- -----------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is
the Custodian of the
Fund's assets. Any of the Fund's cash balances with the Custodian in excess
of $100,000 are unprotected by federal deposit insurance. Such balances may,
at times, be substantial.
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), Harborside Financial
Center, Plaza Two, Jersey City, New Jersey 07311 is the Transfer Agent of the
Fund's shares and Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various
investment plans described herein. MSDW Trust is an affiliate of Morgan
Stanley Dean Witter Advisors Inc., the Fund's Investment Manager, and Morgan
Stanley Dean Witter Distributors Inc., the Fund's
45
<PAGE>
Distributor. As Transfer Agent and Dividend Disbursing Agent, MSDW Trust's
responsibilities include maintaining shareholder accounts, disbursing cash
dividends and reinvesting dividends, processing account registration changes,
handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these
services MSDW Trust receives a per shareholder account fee from the Fund.
INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------------
PricewaterhouseCoopers LLP serves as the independent accountants of the
Fund. The independent accountants are responsible for auditing the annual
financial statements of the Fund.
REPORTS TO SHAREHOLDERS
- -----------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports
showing the Fund's portfolio and other information. An annual report,
containing financial statements audited by independent account-ants, will be
sent to shareholders each year.
The Fund's fiscal year is May 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
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- -----------------------------------------------------------------------------
The annual financial statements of the Fund for the year ended May 31,
1998, which are 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 PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
REGISTRATION STATEMENT
- -----------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
46
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (95.1%)
Advertising (2.6%)
181,225 HA-LO Industries, Inc.* ......................................... $ 5,606,648
270,000 Snyder Communications, Inc.* .................................... 10,884,375
------------
16,491,023
------------
Apparel (3.8%)
140,000 Jones Apparel Group, Inc.* ...................................... 8,872,500
150,000 Tommy Hilfiger Corp.* ........................................... 10,087,500
140,000 Warnaco Group, Inc. (Class A) ................................... 5,775,000
------------
24,735,000
------------
Automotive -Replacement Parts (0.5%)
50,000 Magna International Inc. (Class A)(Canada) ..................... 3,525,000
------------
Biotechnology (2.5%)
320,000 BioChem Pharma, Inc. (Canada)* .................................. 8,360,000
200,000 Centocor, Inc.* ................................................. 7,800,000
------------
16,160,000
------------
Broadcast Media (0.7%)
100,000 Cox Radio, Inc. (Class A)* ...................................... 4,212,500
------------
Building Materials (1.7%)
170,000 Southdown, Inc. ................................................. 11,156,250
------------
Communications Equipment (2.1%)
200,000 CIENA Corp.* .................................................... 10,350,000
200,000 Pairgain Technologies, Inc.* .................................... 3,125,000
------------
13,475,000
------------
Computer Equipment (1.1%)
175,000 EMC Corp.* ...................................................... 7,251,562
------------
Computer Software (7.8%)
250,000 Cadence Design Systems, Inc.* ................................... 8,812,500
125,000 Compuware Corp.* ................................................ 5,734,375
170,000 Network Associates, Inc.* ....................................... 10,412,500
440,000 Platinum Technology, Inc.* ...................................... 11,990,000
275,000 Software AG Systems, Inc.* ...................................... 6,703,125
150,000 Synopsys, Inc.* ................................................. 6,440,625
------------
50,093,125
------------
Computer Software & Services (4.0%)
180,000 Citrix Systems, Inc.* ........................................... 9,382,500
350,000 Legato Systems, Inc.* ........................................... 9,975,000
140,000 Visio Corp.* .................................................... 6,545,000
------------
25,902,500
------------
Computers (1.9%)
100,000 FileNET Corp.* .................................................. $ 5,500,000
125,000 Lexmark International Group, Inc. (Class A)* .................... 6,937,500
------------
12,437,500
------------
Consumer Business Services (1.5%)
290,000 AccuStaff Inc.* ................................................. 9,551,875
------------
Consumer Products (1.3%)
200,000 Dominick's Supermarkets, Inc.* .................................. 8,625,000
------------
Drugs (3.2%)
240,000 ICN Pharmaceuticals, Inc. ....................................... 10,365,000
250,000 Medicis Pharmaceutical Corp. (Class A)* ......................... 10,156,250
------------
20,521,250
------------
Electronics (3.1%)
125,000 Avid Technology, Inc.* .......................................... 5,062,500
180,000 Jabil Circuit, Inc.* ............................................ 6,131,250
115,000 Sanmina Corp* ................................................... 8,941,250
------------
20,135,000
------------
Energy (7.6%)
50,000 Camco International Inc. ....................................... 3,487,500
200,000 Diamond Offshore Drilling, Inc. ................................. 9,562,500
150,000 Evi Weatherford Inc.* ........................................... 7,584,375
375,000 R&B Falcon Corp.* ............................................... 10,757,812
150,000 Rowan Companies, Inc.* .......................................... 3,834,375
150,000 Stolt Comex Seaway, S.A. (United Kingdom)* ...................... 4,734,375
350,000 Varco International, Inc.* ...................................... 9,121,875
------------
49,082,812
------------
Environmental Control (1.4%)
500,000 Newpark Resources, Inc.* ........................................ 9,093,750
------------
Financial -Miscellaneous (3.0%)
130,000 Newcourt Credit Group Inc. (Canada) ............................ 6,386,250
200,000 Providian Financial Corp. ....................................... 12,725,000
------------
19,111,250
------------
Healthcare Products & Services (7.0%)
12,500 Concentra Managed Care, Inc.* ................................... 292,188
72,000 Express Scripts, Inc. (Class A)* ................................ 5,508,000
225,000 Health Management Associates, Inc. (Class A)* ................... 6,707,813
300,000 HealthSouth Corp.* .............................................. 8,512,500
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1998, continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------
190,000 IDX Systems Corp.* ..............................................$ 7,956,250
160,000 Renal Care Group, Inc.* ......................................... 5,770,000
350,000 Total Renal Care Holdings, Inc.* ................................ 10,740,625
------------
45,487,376
------------
Home Entertainment (1.0%)
150,000 Electronic Arts Inc.* ........................................... 6,487,500
------------
Insurance (1.2%)
150,000 Hartford Life, Inc. (Class A) .................................. 7,725,000
------------
Internet (1.1%)
200,000 At Home Corp. (Series A)* ....................................... 6,925,000
------------
Life & Health Insurance (1.8%)
250,000 Conseco, Inc. .................................................. 11,656,250
------------
Manufacturing -Diversified (2.1%)
250,000 Tyco International Ltd. ........................................ 13,843,750
------------
Media Group (6.5%)
225,000 Chancellor Media Corp.* ......................................... 9,393,750
75,000 Clear Channel Communications, Inc.* ............................. 7,190,625
150,000 Jacor Communications, Inc.* ..................................... 7,912,500
300,000 Outdoor Systems, Inc.* .......................................... 9,000,000
235,000 Univision Communications, Inc. (Class A)* ....................... 8,166,250
------------
41,663,125
------------
Medical Products & Supplies (0.2%)
39,000 North American Scientific, Inc.* ................................ 1,126,125
------------
Pharmaceuticals (1.4%)
107,000 Shire Pharmaceuticals Group PLC (ADR)* (United Kingdom) ......... 2,046,375
160,000 Watson Pharmaceuticals, Inc.* ................................... 7,000,000
------------
9,046,375
------------
Pollution Control (6.1%)
400,000 Allied Waste Industries, Inc.* .................................. 10,550,000
275,000 Eastern Environmental Services, Inc.* ........................... 7,768,750
260,000 U.S. Filter Corp.* .............................................. 7,913,750
275,000 U.S.A. Waste Services, Inc.* .................................... 12,976,562
------------
39,209,062
------------
Restaurants (2.8%)
280,000 Showbiz Pizza Time, Inc.* .......................................$ 9,940,000
175,000 Starbucks Corp.* ................................................ 8,378,125
------------
18,318,125
------------
Retail (2.8%)
Abercrombie & Fitch Co.
165,000 (Class A)* ...................................................... 6,971,250
50,000 General Nutrition Companies, Inc.* .............................. 1,575,000
250,000 Proffitt's, Inc.* ............................................... 9,812,500
------------
18,358,750
------------
Retail -Department Stores (1.8%)
80,000 Dillard's, Inc. (Class A) ....................................... 3,365,000
225,000 Dollar General Corp. ............................................ 8,578,125
------------
11,943,125
------------
Retail -Specialty (4.2%)
190,000 Consolidated Stores Corp.* ...................................... 7,255,625
300,000 Finish Line, Inc. (Class A)* .................................... 7,087,500
500,000 Staples, Inc.* .................................................. 12,531,250
------------
26,874,375
------------
Retail -Specialty Apparel (1.4%)
190,000 Stage Stores, Inc.* ............................................. 8,858,750
------------
Telecommunications (2.2%)
190,000 Pacific Gateway Exchange, Inc.* ................................. 8,075,000
350,000 Vanguard Cellular Systems, Inc. (Class A)* ...................... 6,278,125
------------
14,353,125
------------
Utilities -Electric (1.7%)
225,000 AES Corp.* ...................................................... 10,701,563
------------
TOTAL COMMON STOCKS (Identified Cost $563,762,612) .............. 614,137,773
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (4.1%)
$10,200 U.S. GOVERNMENT AGENCY (a) (1.6%)
Federal Home Loan Mortgage Corp. 5.50% due 06/01/98 (Amortized
Cost $10,200,000) ............................................... 10,200,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT (2.5%)
$15,837 The Bank of New York 5.50% due 06/01/98 (dated 05/29/98;
proceeds $15,844,654)(b)
(Identified Cost $15,837,395) ................................... $15,837,395
--------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $26,037,395) ................................... 26,037,395
--------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $589,800,007)(C) . 99.2% 640,175,168
OTHER ASSETS IN EXCESS OF
LIABILITIES........................ 0.8 5,399,739
-------- -------------
NET ASSETS......................... 100.0% $645,574,907
======== =============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $15,105,582 U.S. Treasury Note 7.50% due 05/15/02
valued at $16,154,143.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$67,382,362 and the aggregate gross unrealized depreciation is
$17,007,201, resulting in net unrealized appreciation of
$50,375,161.
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $589,800,007)............. $640,175,168
Receivable for:
Investments sold ......................... 19,972,517
Shares of beneficial interest sold ...... 1,689,528
Dividends ................................ 38,125
Deferred organizational expenses ........... 42,651
Prepaid expenses and other assets .......... 89,676
--------------
TOTAL ASSETS ............................. 662,007,665
--------------
LIABILITIES:
Payable for:
Investments purchased..................... 14,139,345
Shares of beneficial interest
repurchased.............................. 1,224,538
Plan of distribution fee.................. 569,716
Investment management fee................. 426,321
Accrued expenses and other payables ....... 72,838
--------------
TOTAL LIABILITIES ........................ 16,432,758
--------------
NET ASSETS................................ $645,574,907
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................. $506,745,908
Net unrealized appreciation ................ 50,375,161
Accumulated undistributed net realized
gain....................................... 88,453,838
--------------
NET ASSETS ............................... $645,574,907
==============
CLASS A SHARES:
Net Assets.................................. $ 2,875,594
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 166,357
NET ASSET VALUE PER SHARE ................ $ 17.29
==============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset
value) .................................. $ 18.25
==============
CLASS B SHARES:
Net Assets.................................. $635,816,029
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 37,034,486
NET ASSET VALUE PER SHARE ................ $ 17.17
==============
CLASS C SHARES:
Net Assets.................................. $ 5,802,131
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 337,906
NET ASSET VALUE PER SHARE ................ $ 17.17
==============
CLASS D SHARES:
Net Assets.................................. $ 1,081,153
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 62,443
NET ASSET VALUE PER SHARE ................ $ 17.31
==============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended May 31, 1998*
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $6,428 foreign withholding
tax) ....................................... $ 1,911,801
Interest .................................... 1,635,606
-------------
TOTAL INCOME .............................. 3,547,407
-------------
EXPENSES
Plan of distribution fee (Class A shares) ... 3,277
Plan of distribution fee (Class B shares) ... 5,693,336
Plan of distribution fee (Class C shares) ... 26,884
Investment management fee.................... 4,285,550
Transfer agent fees and expenses............. 682,082
Registration fees ........................... 180,094
Custodian fees............................... 51,400
Professional fees ........................... 50,182
Shareholder reports and notices ............. 39,674
Organizational expenses ..................... 30,229
Trustees' fees and expenses.................. 14,381
Other........................................ 7,524
-------------
TOTAL EXPENSES ............................ 11,064,613
-------------
NET INVESTMENT LOSS ....................... (7,517,206)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain............................ 120,508,014
Net change in unrealized appreciation ...... (3,609,267)
-------------
NET GAIN .................................. 116,898,747
-------------
NET INCREASE ................................ $109,381,541
=============
</TABLE>
- ------------
*
Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 1998* MAY 31, 1997
- ------------------------------------------------------ --------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ................................... $ (7,517,206) $ (3,745,901)
Net realized gain...................................... 120,508,014 18,972,626
Net change in unrealized appreciation ................. (3,609,267) 10,689,644
--------------- --------------
NET INCREASE ........................................ 109,381,541 25,916,369
--------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares ........................................ (57,133) --
Class B shares ........................................ (38,691,036) (28,296,177)
Class C shares ........................................ (196,298) --
Class D shares ........................................ (20,585) --
--------------- --------------
TOTAL DISTRIBUTIONS ................................. (38,965,052) (28,296,177)
--------------- --------------
Net increase from transactions in shares of beneficial
interest.............................................. 156,406,489 111,860,026
--------------- --------------
NET INCREASE ........................................ 226,822,978 109,480,218
NET ASSETS:
Beginning of period.................................... 418,751,929 309,271,711
--------------- --------------
END OF PERIOD ....................................... $645,574,907 $418,751,929
=============== ==============
</TABLE>
- ------------
*
Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Mid-Cap Growth Fund (the "Fund") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Fund's investment
objective is to seek long-term capital growth. The Fund seeks to achieve its
objective by investing primarily in domestic and foreign equity securities of
"mid-cap" companies. The Fund was organized as a Massachusetts business trust
on May 25, 1994 and commenced operations on September 29, 1994. On July 28,
1997, the Fund commenced offering three additional classes of shares, with
the then current shares designated as Class B shares.
Effective June 22, 1998, the following entities have changed their name:
<TABLE>
<CAPTION>
OLD NAME NEW NAME
------------------------------------ ------------------------------------------------
<S> <C>
Dean Witter Mid-Cap Growth Fund Morgan Stanley Dean Witter Mid-Cap Growth Fund
Dean Witter InterCapital Inc. Morgan Stanley Dean Witter Advisors Inc.
Dean Witter Distributors Inc. Morgan Stanley Dean Witter Distributors Inc.
</TABLE>
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a
sales charge. Additionally, Class A shares, Class B shares and Class C shares
incur distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS-- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where securities are traded on more than one exchange,
the security is valued on the exchange designated as the primary market
pursuant to procedures adopted by the Trustees); (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation;
(3) when market quotations are not readily available, including circumstances
under which it is determined by Morgan Stanley Dean Witter Advisors Inc. (the
52
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
"Investment Manager") that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the 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); and (4) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS-- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date except for certain dividends on foreign securities which are
recorded as soon as the Fund is informed after the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS-- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are
allocated to each class of shares based upon the relative net asset value on
the date such items are recognized. Distribution fees are charged directly to
the respective class.
D. FEDERAL INCOME TAX STATUS-- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS-- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The 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.
53
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
F. ORGANIZATIONAL EXPENSES-- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $156,000 which have been
reimbursed for the full amount thereof. Such expenses have been deferred and
are being amortized on the straight-line method over a period not to exceed
five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund as of the close of each
business day: 0.75% to the portion of net assets not exceeding $500 million
and 0.725% to the portion of the daily net assets exceeding $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund
has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under
the Act. The Plan provides that the Fund will pay the Distributor a fee which
is accrued daily and paid monthly at the following annual rates: (i) Class A
- -up to 0.25% of the average daily net assets of Class A; (ii) Class B -1.0%
of the lesser of: (a) the average daily aggregate gross sales of the Class B
shares since the inception of the Fund (not including reinvestment of
dividend or capital gain distributions) less the average daily aggregate net
asset value of the Class B shares redeemed since the Fund's inception upon
which a contingent deferred sales charge has been imposed or waived; or (b)
the average daily net assets of Class B; and (iii) Class C -up to 1.0% of the
average daily net assets of Class C. In the case of Class A shares, amounts
paid under the Plan are paid to the Distributor for services provided. In the
case of Class B and Class C shares, amounts paid under the Plan are paid to
the Distributor for services provided and the expenses borne by it and others
in the distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter Financial Advisors Inc. and others
who engage in or support distribution of the shares or who service
shareholder accounts, including overhead
54
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
and telephone expenses; printing and distribution of prospectuses and reports
used in connection with the offering of these shares to other than current
shareholders; and preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan, in the case of Class B shares, to compensate Dean
Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor and other selected broker-dealers for their opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect,
any cumulative expenses incurred by the Distributor but not yet recovered may
be recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated, the Trustees will consider at that time the manner in
which to treat such expenses. The Distributor has advised the Fund that such
excess amounts, including carrying charges, totaled $14,280,349 at May 31,
1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant
to the Plan in any calendar year in excess of 0.25% or 1.0% of the average
daily net assets of Class A or Class C, respectively, will not be reimbursed
by the Fund through payments in any subsequent year, except that expenses
representing a gross sales credit to Morgan Stanley Dean Witter Financial
Advisors or other selected broker-dealer representatives may be reimbursed in
the subsequent calendar year. For the period ended May 31, 1998, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the period ended May 31, 1998,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $7,185, $800,755
and $2,004, respectively and received $59,087 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such
charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended May 31, 1998 aggregated
$1,012,812,830 and $920,667,492, respectively.
55
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
For the year ended May 31, 1998, the Fund incurred $91,976 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the
Fund. At May 31, 1998, the Fund's payable for investments purchased included
unsettled trades with DWR of $244,938.
For the year ended May 31, 1998, the Fund incurred $88,675 in brokerage
commissions with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager, for portfolio transactions executed on behalf of the Fund. At May
31, 1998 the Fund's payable for investments purchased included an unsettled
trade with Morgan Stanley & Co., Inc. of $620,730.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At May 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $2,500.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 1998 MAY 31, 1997
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold .......................... 223,859 $ 3,887,750 -- --
Reinvestment of distributions 3,525 57,133 -- --
Redeemed ...................... (61,027) (1,101,805) -- --
--------------- --------------- --------------- ---------------
Net increase -Class A ......... 166,357 2,843,078 -- --
--------------- --------------- --------------- ---------------
CLASS B SHARES
Sold .......................... 20,515,049 348,155,548 21,016,632 $ 298,480,486
Reinvestment of distributions 2,245,246 36,260,726 1,950,535 26,449,257
Redeemed ...................... (14,102,658) (237,680,244) (15,064,395) (213,069,717)
--------------- --------------- --------------- ---------------
Net increase -Class B ......... 8,657,637 146,736,030 7,902,772 111,860,026
--------------- --------------- --------------- ---------------
CLASS C SHARES*
Sold .......................... 388,549 6,774,774 -- --
Reinvestment of distributions 11,759 190,027 -- --
Redeemed ...................... (62,402) (1,095,646) -- --
--------------- --------------- --------------- ---------------
Net increase -Class C ......... 337,906 5,869,155 -- --
--------------- --------------- --------------- ---------------
CLASS D SHARES*
Sold .......................... 132,955 2,212,136 -- --
Reinvestment of distributions 495 8,020 -- --
Redeemed ...................... (71,007) (1,261,930) -- --
--------------- --------------- --------------- ---------------
Net increase -Class D ......... 62,443 958,226 -- --
--------------- --------------- --------------- ---------------
Net increase in Fund .......... 9,224,343 $ 156,406,489 7,902,772 $ 111,860,026
=============== =============== =============== ===============
</TABLE>
- ------------
* For the period July 28, 1997 (issue date) through May 31, 1998.
56
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
6. FEDERAL INCOME TAX STATUS
As of May 31, 1998, the Fund had temporary book/tax differences attributable
to capital loss deferrals
on wash sales and permanent book/tax differences attributable to a net
operating loss. To reflect reclassifications arising from the permanent
differences, accumulated undistributed net realized gain was charged and net
investment loss was credited $7,517,206.
57
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP 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 MAY 31, SEPTEMBER 29, 1994*
---------------------------------------------- THROUGH
1998**++ 1997 1996 MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $14.76 $15.11 $10.81 $10.00
-------------- -------------- -------------- -------------------
Net investment loss ....................... (0.22) (0.13) (0.10) (0.01)
Net realized and unrealized gain .......... 3.79 0.94 5.60 0.84
-------------- -------------- -------------- -------------------
Total from investment operations .......... 3.57 0.81 5.50 0.83
-------------- -------------- -------------- -------------------
Less distributions from net realized gain (1.16) (1.16) (1.20) (0.02)
-------------- -------------- -------------- -------------------
Net asset value, end of period ............ $17.17 $14.76 $15.11 $10.81
============== ============== ============== ===================
TOTAL INVESTMENT RETURN+ .................. 24.68 % 6.01 % 53.02 % 8.26 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.93 % 1.99 % 2.05 % 2.21 %(2)
Net investment loss ....................... (1.31)% (1.06)% (1.05)% (0.16)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $635,816 $418,752 $309,272 $115,126
Portfolio turnover rate ................... 169 % 209% 328 % 199%(1)
Average commission rate paid .............. $0.0579 $0.0592 $0.0582 --
</TABLE>
- ------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B
shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MAY 31, 1998++
- ------------------------------------------ --------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 16.43
--------------
Net investment loss ....................... (0.10)
Net realized and unrealized gain .......... 2.12
--------------
Total from investment operations .......... 2.02
--------------
Less distributions from net realized gain (1.16)
--------------
Net asset value, end of period ............ $ 17.29
==============
TOTAL INVESTMENT RETURN+ .................. 12.77 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.19 %(2)
Net investment loss ....................... (0.70)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 2,876
Portfolio turnover rate ................... 169 %
Average commission rate paid .............. $ 0.0579
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 16.43
--------------
Net investment loss ....................... (0.20)
Net realized and unrealized gain .......... 2.10
--------------
Total from investment operations .......... 1.90
--------------
Less distributions from net realized gain (1.16)
--------------
Net asset value, end of period ............ $ 17.17
==============
TOTAL INVESTMENT RETURN+ .................. 12.01 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.94 %(2)
Net investment loss ....................... (1.40)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 5,802
Portfolio turnover rate ................... 169 %
Average commission rate paid .............. $ 0.0579
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MAY 31, 1998++
- ------------------------------------------ --------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... 16.43
--------------
Net investment loss ....................... (0.06)
Net realized and unrealized gain .......... 2.10
--------------
Total from investment operations .......... 2.04
--------------
Less distributions from net realized gain (1.16)
--------------
Net asset value, end of period ............ $17.31
==============
TOTAL INVESTMENT RETURN+ .................. 12.89 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 0.93 %(2)
Net investment loss ....................... (0.41)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 1,081
Portfolio turnover rate ................... 169 %
Average commission rate paid .............. $0.0579
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER MID-CAP 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 Morgan Stanley
Dean Witter Mid-Cap Growth Fund (the "Fund"), formerly Dean Witter Mid-Cap
Growth Fund, at May 31, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at May 31, 1998 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
July 6, 1998
1998 Federal Tax Notice (unaudited)
During the year ended May 31, 1998, the Fund paid to its shareholders
$0.26 per share from long-term capital gains. Of this $0.26
distribution, $0.15 is taxable as 28% rate gain and $0.11 is taxable as
20% rate gain. For such period, 8.16% of the income paid qualified for
the dividends received deduction available to corporations.
61
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The response to this item is incorporated herein by reference to Exhibits
1 and 2 under Item 16 below and by reference to Item 25 of, Post-Effective
Amendment No. 5 to Registrant's Registration Statement on Form N-1A, dated
, which was filed electronically pursuant to Regulation S-T on January
28, 1999 ("Post-Effective Amendment No. 5") as an amendment to Registrant's
Registration Statement on Form N-1A (File Nos. 811-7377 and 33-63685) (the
"Registration Statement").
ITEM 16. EXHIBITS
(1) Declaration of Trust dated October 16, 1995 ("Declaration of Trust")
(incorporated herein by reference to Exhibit 1 of Registrant's initial
Registration Statement); Amendment Establishing and Designating Additional
Classes of Shares to Declaration of Trust (incorporated herein by
reference to Exhibit 1 to Post-Effective Amendment No. 3)
(2) Amended and Restated By-Laws of Registrant dated as of January 28, 1999
(3) Not Applicable
(4) Copy of Agreement and Plan of Reorganization (filed herewith as Exhibit A
to the Proxy Statement and Prospectus)
(5) Not Applicable
(6) (a) Investment Advisory Agreement (incorporated herein by reference to
Exhibit 5 to Pre-Effective Amendment No. 1)
(b) Management Agreement (incorporated herein by reference to Exhibit 9 to
Pre-Effective Amendment No. 1)
(7) (a) Distribution Agreement between Registrant and Morgan Stanley Dean
Witter Distributors Inc. (incorporated herein by reference to Exhibit
6(a) to Post-Effective Amendment No. 3)
(b) Multiple Class Distribution Agreement between Registrant and Morgan
Stanley Dean Witter Distributors, Inc. (incorporated herein by
reference to Exhibit 6(b) of Post-Effective Amendment No. 3)
(c) Selected Dealer Agreement (incorporated herein by reference to Exhibit
6(c) to Pre-Effective Amendment No. 1)
(8) Not Applicable
(9) (a) Custody Agreement dated November 30, 1995 (incorporated herein by
reference to Exhibit 8(a) to Pre-Effective Amendment No. 1)
(b) Amendment to the Custody Agreement (incorporated herein by reference to
Exhibit 8 of Post-Effective Amendment No. 1)
(c) Amended and Restated Transfer Agency and Services Agreement between
Registrant and Morgan Stanley Dean Witter Trust FSB (incorporated
herein by reference to Exhibit 8 of Post-Effective Amendment No. 5)
C-1
<PAGE>
(10) (a) Amended and Restated Plan of Distribution pursuant to Rule 12b-1,
dated July 28, 1997 (incorporated herein by reference to Exhibit 15 to
Post-Effective Amendment No. 3)
(b) TCW/DW Fund Multiple Class Plan pursuant to Rule 18f-3 (incorporated
herein by reference to Exhibit--Other to Post-Effective Amendment No.
3)
(11) (a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
regarding tax matters
(13) Not Applicable
(14) Consent of Independent Accountants
(15) Not Applicable
(16) Powers of Attorney
(17) (a) Registrant's Rule 24f-2 Notice pursuant to Rule 24f-2 under the
Investment Company Act of 1940, for its fiscal year ended November 30,
1998 (incorporated herein by reference to Form 24f-2 filed with the
Securities and Exchange Commission on January 14, 1999)
(b) Form of Proxy
(c) Voting Instruction Card
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of the prospectus which is a part
of this registration statement on Form N-14 by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the Securities
Act of 1933, the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
2. The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to this
registration statement on Form N-14 and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act of
1933, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering of
them.
C-2
<PAGE>
SIGNATURE
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of New York and State of
New York, on the 25th day of February, 1999.
TCW/DW MID-CAP EQUITY TRUST
By: /s/ BARRY FINK
-------------------------------------
Barry Fink
Vice President and Secretary
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------------------------- -------------------------- ------------------
<S> <C> <C> <C>
1. Principal Executive Officer
/s/ CHARLES A. FIUMEFREDDO Chairman, Chief Executive
---------------------------
Charles A. Fiumefreddo Officer and Trustee February 25, 1999
2. Principal Financial Officer
/s/ THOMAS F. CALOIA
--------------------------- Treasurer February 25, 1999
Thomas F. Caloia
3. Majority of Trustees
/s/ THOMAS E. LARKIN, JR.
--------------------------- President and Trustee February 25, 1999
Thomas E. Larkin, Jr.
/s/ JOHN C. ARGUE
--------------------------- Trustee February 25, 1999
John C. Argue
/s/ RICHARD M. DEMARTINI
--------------------------- Trustee February 25, 1999
Richard M. DeMartini
/s/ JOHN R. HAIRE
--------------------------- Trustee February 25, 1999
John R. Haire
/s/ DR. MANUEL H. JOHNSON
--------------------------- Trustee February 25, 1999
Dr. Manuel H. Johnson
/s/ MICHAEL E. NUGENT
--------------------------- Trustee February 25, 1999
Michael E. Nugent
/s/ JOHN L. SCHROEDER
--------------------------- Trustee February 25, 1999
John L. Schroeder
/s/ MARC I. STERN
--------------------------- Trustee February 25, 1999
Marc I. Stern
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- --------- ------------------------------------------------------------------------------- -------
<S> <C> <C>
(2) Amended and Restated By-laws of the Registrant, dated January 28, 1999.
(11) (a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens LLP
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein regarding
tax matters
(14) Consent of Independent Accountants
(16) Powers of Attorney
(17) (b) Form of Proxy
(c) Voting Information Card
</TABLE>
<PAGE>
BY-LAWS
OF
TCW/DW MID-CAP EQUITY TRUST
AMENDED AND RESTATED AS OF JANUARY 28, 1999
ARTICLE I
DEFINITIONS
The terms "Commission," "Declaration," "Distributor," "Investment
Adviser," "Majority Shareholder Vote," "1940 Act," "Shareholder," "Shares,"
"Transfer Agent," "Trust," "Trust Property," and "Trustees" have the respective
meanings given them in the Declaration of Trust of TCW/DW Mid-Cap Equity Trust
dated October 16, 1995, as amended from time to time.
ARTICLE II
OFFICES
SECTION 2.1. Principal Office. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
SECTION 2.2. Other Offices. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and
without the Commonwealth as the Trustees may from time to time designate or the
business of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. Place of Meetings. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. Meetings. Meetings of Shareholders of the Trust shall be held
whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the provisions
of Section 16(a) of the 1940 Act, for that purpose. Meetings of Shareholders
shall also be called by the Secretary upon the written request of the holders
of Shares entitled to vote as otherwise required by Section 16(c) of the 1940
Act and to the extent required by the corporate or business statute of any
state in which the Shares of the Trust are sold, as made applicable to the
Trust by the provisions of Section 2.3 of the Declaration. Such request shall
state the purpose or purposes of such meeting and the matters proposed to be
acted on thereat. Except to the extent otherwise required by Section 16(c) of
the 1940 Act, as made applicable to the Trust by the provisions of Section 2.3
of the Declaration, the Secretary shall inform such Shareholders of the
reasonable estimated cost of preparing and mailing such notice of the meeting,
and upon payment to the Trust of such costs, the Secretary shall give notice
stating the purpose or purposes of the meeting to all entitled to vote at such
meeting. No meeting need be called upon the request of the holders of Shares
entitled to cast less than a majority of all votes entitled to be cast at such
meeting, to consider any matter which is substantially the same as a matter
voted upon at any meeting of Shareholders held during the preceding twelve
months.
SECTION 3.3. Notice of Meetings. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes thereof,
shall be given by the Secretary not less than ten (10) nor more than ninety
(90) days before such meeting to each Shareholder entitled to vote at such
meeting. Such notice shall be deemed to be given when deposited in the United
States mail, postage prepaid, directed to the Shareholder at his address as it
appears on the records of the Trust.
SECTION 3.4. Quorum and Adjournment of Meetings. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders, the holders of a majority of the Shares issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
be
<PAGE>
requisite and shall constitute a quorum for the transaction of business. In the
absence of a quorum, the Shareholders present or represented by proxy and
entitled to vote thereat shall have the power to adjourn the meeting from time
to time. The Shareholders present in person or represented by proxy at any
meeting and entitled to vote thereat also shall have the power to adjourn the
meeting from time to time if the vote required to approve or reject any
proposal described in the original notice of such meeting is not obtained (with
proxies being voted for or against adjournment consistent with the votes for
and against the proposal for which the required vote has not been obtained).
The affirmative vote of the holders of a majority of the Shares then present in
person or represented by proxy shall be required to adjourn any meeting. Any
adjourned meeting may be reconvened without further notice or change in record
date. At any reconvened meeting at which a quorum shall be present, any
business may be transacted that might have been transacted at the meeting as
originally called.
SECTION 3.5. Voting Rights, Proxies. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy for each Share of beneficial interest of the Trust
and for the fractional portion of one vote for each fractional Share entitled
to vote so registered in his or her name on the records of the Trust on the
date fixed as the record date for the determination of Shareholders entitled to
vote at such meeting. Without limiting the manner in which a Shareholder may
authorize another person or persons to act for such Shareholder as proxy
pursuant hereto, the following shall constitute a valid means by which a
Shareholder may grant such authority:
(i) A Shareholder may execute a writing authorizing another person or
persons to act for such Shareholder as proxy. Execution may be
accomplished by the Shareholder or such Shareholder's authorized officer,
director, employee, attorney-in-fact or another agent signing such writing
or causing such person's signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile or telecopy
signature. No written evidence of authority of a Shareholder's authorized
officer, director, employee, attorney-in-fact or other agent shall be
required; and
(ii) A Shareholder may authorize another person or persons to act for such
Shareholder as proxy by transmitting or authorizing the transmission of a
telegram or cablegram or by other means of telephonic, electronic or
computer transmission to the person who will be the holder of the proxy or
to a proxy solicitation firm, proxy support service organization or like
agent duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such telegram or cablegram or
other means of telephonic, electronic or computer transmission must either
set forth or be submitted with information from which it can be determined
that the telegram, cablegram or other transmission was authorized by the
Shareholder.
No proxy shall be valid after eleven months from its date, unless otherwise
provided in the proxy. At all meetings of Shareholders, unless the voting is
conducted by inspectors, all questions relating to the qualification of voters
and the validity of proxies and the acceptance or rejection of votes shall be
decided by the chairman of the meeting. In determining whether a telegram,
cablegram or other electronic transmission is valid, the chairman or inspector,
as the case may be, shall specify the information upon which he or she relied.
Pursuant to a resolution of a majority of the Trustees, proxies may be
solicited in the name of one or more Trustees or Officers of the Trust. Proxy
solicitations may be made in writing or by using telephonic or other electronic
solicitation procedures that include appropriate methods of verifying the
identity of the Shareholder and confirming any instructions given thereby.
SECTION 3.6. Vote Required. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority Shareholder
Vote.
SECTION 3.7. Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the request
of any Shareholder or his proxy shall, appoint Inspectors of Election of the
meeting. In case any person appointed as Inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Trustees
in advance of the convening of the meeting or at the meeting by the person
acting
2
<PAGE>
as chairman. The Inspectors of Election shall determine the number of Shares
outstanding, the Shares represented at the meeting, the existence of a quorum,
the authenticity, validity and effect of proxies, shall receive votes, ballots
or consents, shall hear and determine all challenges and questions in any way
arising in connection with the right to vote, shall count and tabulate all
votes or consents, determine the results, and do such other acts as may be
proper to conduct the election or vote with fairness to all Shareholders. On
request of the chairman of the meeting, or of any Shareholder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
SECTION 3.8. Inspection of Books and Records. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under Section 32 of the Business Corporation Law of
the Commonwealth of Massachusetts.
SECTION 3.9. Action by Shareholders Without Meeting. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
SECTION 3.10. Presence at Meetings. Presence at meetings of shareholders
requires physical attendance by the shareholder or his or her proxy at the
meeting site and does not encompass attendance by telephonic or other
electronic means.
ARTICLE IV
TRUSTEES
SECTION 4.1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the Chairman and shall be
called by the Chairman or the Secretary upon the written request of any two (2)
Trustees.
SECTION 4.2. Notice of Special Meetings. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed to
be given when deposited in the United States mail, postage prepaid, directed to
the Trustee at his address as it appears on the records of the Trust. Subject
to the provisions of the 1940 Act, notice or waiver of notice need not specify
the purpose of any special meeting.
SECTION 4.3. Telephone Meetings. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such committee,
as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
SECTION 4.4. Quorum, Voting and Adjournment of Meetings. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees present shall be the act of
the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By-Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall have been obtained.
SECTION 4.5. Action by Trustees Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of the Trustees may be taken without a meeting if a consent in
3
<PAGE>
writing setting forth the action shall be signed by all of the Trustees
entitled to vote upon the action and such written consent is filed with the
minutes of proceedings of the Trustees.
SECTION 4.6. Expenses and Fees. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of said
persons shall receive for services rendered as a Trustee of the Trust such
compensation as may be fixed by the Trustees. Nothing herein contained shall be
construed to preclude any Trustee from serving the Trust in any other capacity
and receiving compensation therefor.
SECTION 4.7. Execution of Instruments and Documents and Signing of Checks
and Other Obligations and Transfers. All instruments, documents and other
papers shall be executed in the name and on behalf of the Trust and all checks,
notes, drafts and other obligations for the payment of money by the Trust shall
be signed, and all transfer of securities standing in the name of the Trust
shall be executed, by the Chairman, the President, any Vice President or the
Treasurer or by any one or more officers or agents of the Trust as shall be
designated for that purpose by vote of the Trustees; notwithstanding the above,
nothing in this Section 4.7 shall be deemed to preclude the electronic
authorization, by designated persons, of the Trust's Custodian (as described
herein in Section 9.1) to transfer assets of the Trust, as provided for herein
in Section 9.1.
SECTION 4.8. Indemnification of Trustees, Officers, Employees and
Agents. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Trustee, officer, employee, or agent of the Trust. The
indemnification shall be against expenses, including attorneys' fees,
judgments, fines, and amounts paid in settlement, actually and reasonably
incurred by him in connection with the action, suit, or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Trust, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or on behalf of the Trust to obtain a judgment or decree in its favor
by reason of the fact that he is or was a Trustee, officer, employee, or agent
of the Trust. The indemnification shall be against expenses, including
attorneys' fees actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Trust; except that no indemnification shall be made in respect of any
claim, issue, or matter as to which the person has been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Trust,
except to the extent that the court in which the action or suit was brought, or
a court of equity in the county in which the Trust has its principal office,
determines upon application that, despite the adjudication of liability but in
view of all circumstances of the case, the person is fairly and reasonably
entitled to indemnity for those expenses which the court shall deem proper,
provided such Trustee, officer, employee or agent is not adjudged to be liable
by reason of his willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
(c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsection (a) or (b) or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in subsections (a) or
(b).
4
<PAGE>
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which consists
of Trustees who were not parties to the action, suit or proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person shall
be entitled to indemnification for any liability, whether or not there is
an adjudication of liability, arising by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of duties as described
in Section 17(h) and (i) of the Investment Company Act of 1940 ("disabling
conduct"). A person shall be deemed not liable by reason of disabling
conduct if, either:
(i) a final decision on the merits is made by a court or other
body before whom the proceeding was brought that the person to be
indemnified ("indemnitee") was not liable by reason of disabling conduct;
or
(ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the indemnitee was
not liable by reason of disabling conduct, is made by either--
(A) a majority of a quorum of Trustees who are neither
"interested persons" of the Trust, as defined in Section 2(a)(19)
of the Investment Company Act of 1940, nor parties to the action,
suit or proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition thereof
if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the Trustee,
officer, employee or agent of the Trust to repay the advance if it is not
ultimately determined that such person is entitled to be indemnified by
the Trust; and
(3) either, (i) such person provides a security for his undertaking, or
(ii) the Trust is insured against losses by reason of any lawful
advances, or
(iii) a determination, based on a review of readily available
facts, that there is reason to believe that such person ultimately will be
found entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of Trustees who are
neither "interested persons" of the Trust, as defined in Section
2(a)(19) of the 1940 Act, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding the office, and shall continue as to a person who has ceased to
be a Trustee, officer, employee, or agent and inure to the benefit of the
heirs, executors and administrators of such person; provided that no person may
satisfy any right of indemnity or reimbursement granted herein or to which he
may be otherwise entitled except out of the property of the Trust, and no
Shareholder shall be personally liable with respect to any claim for indemnity
or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against any
liability asserted against him and incurred by him in
5
<PAGE>
any such capacity, or arising out of his status as such. However, in no event
will the Trust purchase insurance to indemnify any officer or Trustee against
liability for any act for which the Trust itself is not permitted to indemnify
him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE V
COMMITTEES
SECTION 5.1. Executive and Other Committees. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the Trustees
of the Trust and may delegate to such committees, in the intervals between
meetings of the Trustees, any or all of the powers of the Trustees in the
management of the business and affairs of the Trust. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in place
of such absent member. Each such committee shall keep a record of its
proceedings.
The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees
at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. Advisory Committee. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in any
other capacity and which shall have advisory functions with respect to the
investments of the Trust but which shall have no power to determine that any
security or other investment shall be purchased, sold or otherwise disposed of
by the Trust. The number of persons constituting any such advisory committee
shall be determined from time to time by the Trustees. The members of any such
advisory committee may receive compensation for their services and may be
allowed such fees and expenses for the attendance at meetings as the Trustees
may from time to time determine to be appropriate.
SECTION 5.3. Committee Action Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of any Committee of the Trustees appointed pursuant to Section 5.1 of
these By-Laws may be taken without a meeting if a consent in writing setting
forth the action shall be signed by all members of the Committee entitled to
vote upon the action and such written consent is filed with the records of the
proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. Executive Officers. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. The executive officers of the Trust shall be elected annually by the
Trustees and each executive officer so elected shall hold office until his
successor is elected and has qualified.
SECTION 6.2. Other Officers and Agents. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers
and may elect, or may delegate to the Chairman the power to appoint, such other
officers and agents as the Trustees shall at any time or from time to time deem
advisable.
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SECTION 6.3. Term and Removal and Vacancies. Each officer of the Trust
shall hold office until his successor is elected and has qualified. Any officer
or agent of the Trust may be removed by the Trustees whenever, in their
judgment, the best interests of the Trust will be served thereby, but such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed.
SECTION 6.4. Compensation of Officers. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the Chairman to the
extent provided by the Trustees with respect to officers appointed by the
Chairman.
SECTION 6.5. Power and Duties. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws, or to the extent not so provided, as may be prescribed by the
Trustees; provided, that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless he has
knowledge thereof.
SECTION 6.6. The Chairman. (a) The Chairman shall be the chief executive
officer of the Trust; he shall preside at all meetings of the Shareholders and
of the Trustees; he shall have general and active management of the business of
the Trust, shall see that all orders and resolutions of the Trustees are
carried into effect, and, in connection therewith, shall be authorized to
delegate to the President or to one or more Vice Presidents such of his powers
and duties at such times and in such manner as he may deem advisable; he shall
be a signatory on all Annual and Semi-Annual Reports as may be sent to
shareholders, and he shall perform such other duties as the Trustees may from
time to time prescribe.
(b) In the absence of the Chairman, the Board shall determine who shall
preside at all meetings of the shareholders and the Board of Trustees.
SECTION 6.7. The President. The President shall perform such duties as the
Board of Trustees and the Chairman may from time to time prescribe.
SECTION 6.8. The Vice Presidents. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by the
Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the Chairman, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President, and
he or they shall perform such other duties as the Trustees or the Chairman may
from time to time prescribe.
SECTION 6.9. The Assistant Vice Presidents. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Trustees or the Chairman.
SECTION 6.10. The Secretary. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the Shareholders and special meetings of the Trustees, and shall
perform such other duties and have such powers as the Trustees, or the
Chairman, may from time to time prescribe. He shall keep in safe custody the
seal of the Trust and affix or cause the same to be affixed to any instrument
requiring it, and, when so affixed, it shall be attested by his signature or by
the signature of an Assistant Secretary.
SECTION 6.11. The Assistant Secretaries. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the Chairman, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such duties and have such other powers as the Trustees or the
Chairman may from time to time prescribe.
SECTION 6.12. The Treasurer. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and he
shall render to the Trustees and the Chairman, whenever any of them require it,
an account of his transactions as Treasurer and of the financial condition of
the Trust; and he shall perform such other duties as the Trustees, or the
Chairman, may from time to time prescribe.
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SECTION 6.13. The Assistant Treasurers. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order determined
by the Trustees or the Chairman, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Trustees, or
the Chairman, may from time to time prescribe.
SECTION 6.14. Delegation of Duties. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in Shares,
from any sources permitted by law, all as the Trustees shall from time to time
determine.
Inasmuch as the computation of net income and net profits from the sales
of securities or other properties for federal income tax purposes may vary from
the computation thereof on the records of the Trust, the Trustees shall have
power, in their discretion, to distribute as income dividends and as capital
gain distributions, respectively, amounts sufficient to enable the Trust to
avoid or reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. Certificates of Shares. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of the
Trust by the Chairman, the President, or a Vice President, and countersigned by
the Secretary or an Assistant Secretary or the Treasurer and an Assistant
Treasurer of the Trust; shall be sealed with the seal; and shall contain such
recitals as may be required by law. Where any certificate is signed by a
Transfer Agent or by a Registrar, the signature of such officers and the seal
may be facsimile, printed or engraved. The Trust may, at its option, determine
not to issue a certificate or certificates to evidence Shares owned of record
by any Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Trust, such certificate or certificates shall,
nevertheless, be adopted by the Trust and be issued and delivered as though the
person or persons who signed such certificate or certificates or whose
facsimile signature or signatures shall appear therein had not ceased to be
such officer or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. Lost, Stolen, Destroyed and Mutilated Certificates. The
Trustees may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Trust alleged to have
been lost, stolen or destroyed, upon satisfactory proof of such loss, theft, or
destruction; and the Trustees may, in their discretion, require the owner of
the lost, stolen or destroyed certificate, or his legal representative, to give
to the Trust and to such Registrar, Transfer Agent and/or Transfer Clerk as may
be authorized or required to countersign such new certificate or certificates,
a bond in such sum and of such type as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be
against them or any of them on account of or in connection with the alleged
loss, theft or destruction of any such certificate.
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ARTICLE IX
CUSTODIAN
SECTION 9.1. Appointment and Duties. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at least
five million dollars ($5,000,000) as custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as
may be contained in these By-Laws and the 1940 Act:
(1) to receive and hold the securities owned by the Trust and deliver
the same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as the
Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon between
the custodian and such sub-custodian and approved by the Trustees.
SECTION 9.2. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to such notice and filed with the records of the meeting, whether before or
after the holding thereof, or actual attendance at the meeting of shareholders,
Trustees or committee, as the case may be, in person, shall be deemed
equivalent to the giving of such notice to such person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Location of Books and Records. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
SECTION 11.2. Record Date. The Trustees may fix in advance a date as the
record date for the purpose of determining the Shareholders entitled to (i)
receive notice of, or to vote at, any meeting of Shareholders, or (ii) receive
payment of any dividend or the allotment of any rights, or in order to make a
determination of Shareholders for any other proper purpose. The record date, in
any case, shall not be more than one hundred eighty (180) days, and in the case
of a meeting of Shareholders not less than ten (10) days, prior to the date on
which such meeting is to be held or the date on which such other particular
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action requiring determination of Shareholders is to be taken, as the case may
be. In the case of a meeting of Shareholders, the meeting date set forth in the
notice to Shareholders accompanying the proxy statement shall be the date used
for purposes of calculating the 180 day or 10 day period, and any adjourned
meeting may be reconvened without a change in record date. In lieu of fixing a
record date, the Trustees may provide that the transfer books shall be closed
for a stated period but not to exceed, in any case, twenty (20) days. If the
transfer books are closed for the purpose of determining Shareholders entitled
to notice of a vote at a meeting of Shareholders, such books shall be closed
for at least ten (10) days immediately preceding the meeting.
SECTION 11.3. Seal. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from time
to time provide. The seal of the Trust may be affixed to any document, and the
seal and its attestation may be lithographed, engraved or otherwise printed on
any document with the same force and effect as if it had been imprinted and
attested manually in the same manner and with the same effect as if done by a
Massachusetts business corporation under Massachusetts law.
SECTION 11.4. Fiscal Year. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
SECTION 11.5. Orders for Payment of Money. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement between
the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees; provided,
however, that no By-Law may be amended, adopted or repealed by the Trustees if
such amendment, adoption or repeal requires, pursuant to law, the Declaration,
or these By-Laws, a vote of the Shareholders. The Trustees shall in no event
adopt By-Laws which are in conflict with the Declaration, and any apparent
inconsistency shall be construed in favor of the related provisions in the
Declaration.
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing TCW/DW Mid-Cap Equity Trust, dated
October 16, 1995, a copy of which, together with all amendments thereto, is on
file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name TCW/DW Mid-Cap Equity Trust refers to the Trustees under
the Declaration collectively as Trustees, but not as individuals or personally;
and no Trustee, Shareholder, officer, employee or agent of TCW/DW Mid-Cap
Equity Trust shall be held to any personal liability, nor shall resort be had
to their private property for the satisfaction of any obligation or claim or
otherwise, in connection with the affairs of said TCW/DW Mid-Cap Equity Trust,
but the Trust Estate only shall be liable.
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February 25, 1999
TCW/DW Mid-Cap Equity Trust
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
This opinion is being furnished to TCW/DW Mid-Cap Equity
Trust, a Massachusetts business trust (the "Trust"), in connection with the
Registration Statement on Form N-14 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "1933 Act"), to be filed by the Trust
in connection with the acquisition by the Trust of substantially all the assets
of Morgan Stanley Dean Witter Mid-Cap Growth Fund ("MSDW Mid-Cap"), in exchange
for shares of beneficial interest, par value $.01, of the Trust ("Shares") and
the assumption by the Trust of certain stated liabilities of MSDW Mid-Cap
pursuant to an Agreement and Plan of Reorganization dated as of February 25,
1999, between the Trust and MSDW Mid-Cap (the "Reorganization Agreement"). We
have examined such statutes, regulations, corporate records and other documents
and reviewed such questions of law as we deemed necessary or appropriate for
the purposes of this opinion.
As to matters of Massachusetts law contained in this opinion,
we have relied upon the opinion of Lane Altman & Owens LLP, dated February 25,
1999.
Based upon the foregoing, we are of the opinion that the
Shares when issued, as described in the Reorganization Agreement, will be duly
authorized and, assuming receipt of the consideration to be paid therefor, upon
delivery as provided in the Reorganization Agreement, will be legally issued,
fully paid and non-assessable (except for the potential liability of
shareholders described in the Trust's current Prospectus under the caption
"Additional Information").
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
We do not thereby admit that we are within the category of persons whose
consent is required under Section 7 of the 1933 Act or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Gordon Altman Butowsky Weitzen
Shalov & Wein
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
101 Federal Street Telephone
LANE ALTMAN & OWENS LLP Boston, Massachusetts 02110 (617) 345-9800
Counsellors at Law Telefax
(617) 345-0400
February 25, 1999
</TABLE>
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, NY 10036
Dear Sirs:
We understand that the trustees of TCW/DW Mid-Cap Equity Trust, a
Massachusetts business trust (the "Trust"), intend, on or about February 25,
1999, to cause to be filed on behalf of the Trust a Registration Statement on
Form N-14 (the "Registration Statement") in connection with the acquisition
(the "Acquisition") by the Trust of substantially all the assets of Morgan
Stanley Dean Witter Mid-Cap Growth Fund ("MSDW Mid-Cap"), in exchange for
shares of beneficial interest of the Trust (the "Shares"), and the assumption
by the Trust of certain stated liabilities of MSDW Mid-Cap pursuant to an
Agreement and Plan of Reorganization dated as of February 25, 1999 (the
"Agreement"). We further understand that the Shares will be issued pursuant to
the Agreement.
You have requested that we act as special counsel to the Trust with
respect to the laws of the Commonwealth of Massachusetts on certain specified
matters, and in such capacity we are furnishing you with this opinion. You have
not asked for, and we do not offer, an opinion on any other matter or
transaction related to the Trust, MSDW Mid-Cap, the Acquisition, the Agreement
or any matter related thereto, except as specifically set forth below.
The Trust is a business trust created under an Agreement and Declaration
of Trust finally executed, delivered and filed in Boston, Massachusetts on
October 17, 1995 (as amended from time to time, the "Trust Agreement"). The
Trustees of the Trust (as defined in the Trust Agreement) (the "Trustees") have
the powers set forth in the Trust Agreement, subject to the terms, provisions
and conditions provided therein.
In connection with our opinions delivered herein, we have examined the
following items some of which have been provided to us by, or on behalf of,
you: (i) a copy of the Agreement in the form to be executed by the Trust; (ii)
a copy of the Trust Agreement; (iii) a copy of the Amended and Restated By-laws
of the Trust effective as of January 28, 1999; (iv) a Certificate of Legal
Existence for the Trust provided by the Secretary of State of the Commonwealth
of Massachusetts dated February 24, 1999; and (v) copies of the Registration
Statement on Form N-14 to be filed by the Trust and the Trust's current
Prospectus and Statement of Additional Information.
In rendering this opinion we have assumed, without independent
verification, (i) the due authority of all individuals signing in
representative capacities and the genuineness of signatures, (ii) the
authenticity, completeness and continued effectiveness of all documents or
copies furnished to us, (iii) that resolutions approving the Registration
Statement, the Acquisition and the Agreement have been duly
<PAGE>
adopted by the Trustees, (iv) that no amendments, agreements, resolutions or
actions have been approved, executed or adopted which would limit, supersede or
modify the items described above, and (v) that the by-laws filed as an exhibit
to the Registration Statement have been duly adopted by the Trustees. We have
also examined such questions of law as we have concluded necessary or
appropriate for purposes of the opinions expressed below. Where documents are
referred to in resolutions approved by the Trustees, or in the Registration
Statement, we assume such documents are the same as in the most recent form
provided to us, whether as an exhibit to the Registration Statement, or
otherwise. When any opinion set forth below relates to the existence or
standing of the Trust, such opinion is based entirely upon and is limited by
the items referred to above. We understand that the foregoing assumptions,
limitations and qualifications are acceptable to you.
Based upon the foregoing, and with respect to Massachusetts law only
(except that no opinion is herein expressed with respect to compliance with the
Massachusetts Uniform Securities Act), to the extent that Massachusetts law may
be applicable, and without reference to the laws of any of the other several
states or of the United States of America, including State and Federal
securities laws, we are of the opinion that:
1. The Trust is a business trust with transferable shares, organized in
compliance with the requirements of The Commonwealth of Massachusetts, and the
Trust Agreement is legal and valid.
2. The Shares to be issued as described in the Registration Statement,
including any Exhibits thereto, have been duly authorized and, assuming receipt
of the consideration to be paid therefor, upon delivery as provided in the
Agreement, will be validly issued, fully paid and nonassessable (except for the
potential liability of shareholders described in the Trust's current Prospectus
under the caption "Additional Information").
We understand that you will rely on this opinion solely in connection with
your opinion to be filed with the Securities and Exchange Commission as an
Exhibit to the Registration Statement. We hereby consent to such use of this
opinion and we also consent to the filing of said opinion with the Securities
and Exchange Commission. In so consenting, we do not thereby admit to be within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
LANE ALTMAN & OWENS LLP
2
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February 25, 1999
TCW/DW Mid-Cap Equity Trust
Two World Trade Center
New York, New York 10048
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Two World Trade Center
New York, New York 10048
Gentlemen:
You have requested our opinion as to the Federal income tax
consequences of the transaction (the "Reorganization") described below pursuant
to which (i) substantially all assets of Morgan Stanley Dean Witter Mid-Cap
Growth Fund ("MSDW Mid-Cap"), a Massachusetts business trust, will be combined
with those of TCW/DW Mid-Cap Equity Trust, a Massachusetts business trust (the
"Trust"), in exchange for shares of the Trust ("Trust Shares"), and the
assumption by the Trust of certain liabilities of MSDW Mid-Cap (the
"Liabilities"); (ii) MSDW Mid-Cap will be liquidated; and (iii) the Trust
Shares will be distributed to the holders ("MSDW Mid-Cap Shareholders") of
shares in MSDW Mid-Cap ("MSDW Mid-Cap Shares").
We have examined and are familiar with such documents, records and
other instruments as we have deemed appropriate for purposes of this opinion
letter, including the Registration Statement filed with the Securities and
Exchange Commission under the Securities Act of 1933 on Form N-14, relating to
the Trust Shares (the "Registration Statement") which includes, as a part
thereof, the proxy statement of MSDW Mid-Cap (the "MSDW Mid-Cap Proxy"), which
will be used to solicit proxies of MSDW Mid-Cap Shareholders in connection with
the Special Meeting of MSDW Mid- Cap Shareholders and the Agreement and Plan of
Reorganization by and between the Trust and MSDW Mid-Cap (the "Plan").
In rendering this opinion, we have assumed that such documents as yet
unexecuted will, when executed, conform to the proposed forms of such documents
that we have examined. We have further assumed that the Reorganization will be
carried out pursuant to the terms of the Plan, that factual statements and
information contained in the Registration Statement, the MSDW Mid-Cap Proxy and
other documents, records and instruments
<PAGE>
February 25, 1999
Page 2
supplied to us are correct and that there will be no material change with
respect to such facts or information prior to the time of the Reorganization.
In rendering our opinion, we have also relied on the representations and facts
discussed below which have been provided to us by TCW Funds Management Inc.
("TCW"), Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"), the Trust
and MSDW Mid-Cap, and we have assumed that such representations and facts will
remain correct at the time of the Reorganization.
FACTS
The Trust is an open-end diversified management investment company
engaged in the continuous offering of its shares to the public. Since its
inception, the Trust has conducted its affairs so as to qualify, and has
elected to be taxed, as a regulated investment company under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
MSDW Mid-Cap is an open-end diversified management investment company
engaged in the continuous offering of its shares to the public. Since its
inception, MSDW Mid-Cap has conducted its affairs so as to qualify, and has
elected to be taxed, as a regulated investment company under Section 851 of the
Code.
The Board of Trustees of each of the Trust and MSDW Mid-Cap have
determined, for valid business reasons, that it is advisable to combine the
assets of the Trust and MSDW Mid-Cap into one fund.
In view of the above, the Board of Trustees of MSDW Mid-Cap adopted
the Plan, subject to, among other things, approval by MSDW Mid-Cap
Shareholders. Pursuant to the Plan, MSDW Mid-Cap will transfer all of its
assets to the Trust in exchange for the Trust Shares (including fractional
Trust Shares) and the assumption by the Trust of the Liabilities. Immediately
thereafter, MSDW Mid-Cap will distribute the Trust Shares to MSDW Mid-Cap
Shareholders in exchange for and in cancellation of their MSDW Mid-Cap Shares
and in complete liquidation of MSDW Mid-Cap.
Each of the following representations, among other representations,
has been made to us in connection with the Reorganization by TCW, MSDW
Advisors, MSDW Mid-Cap and by the Trust.
<PAGE>
February 25, 1999
Page 3
(1) To the best of the knowledge of the management of TCW, MSDW
Advisors, MSDW Mid-Cap, the Trust, and their affiliates, there is no plan or
intention on the part of MSDW Mid-Cap Shareholders, to redeem, sell, exchange
or otherwise dispose of a number of Trust Shares that would reduce MSDW Mid-
Cap Shareholders' ownership of Trust Shares to a number of Trust Shares having
a value, as of the date of the Reorganization, of less than fifty percent of
the value of all of the formerly outstanding MSDW Mid-Cap Shares as of such
date;
(2) The Trust has no plan or intention to reacquire any of the Trust
Shares to be issued pursuant to the Reorganization except to the extent
necessary to comply with its legal obligation to redeem its own shares;
(3) The Liabilities to be assumed by or transferred to the Trust were
incurred by MSDW Mid-Cap in the ordinary course of business and are associated
with the assets being transferred to the Trust;
(4) The amount of the Liabilities will not exceed the aggregate
adjusted basis of MSDW Mid-Cap for its assets transferred to the Trust;
(5) The Trust has no plan or intention to sell or otherwise dispose of
more than fifty percent of the assets of MSDW Mid-Cap acquired in the
Reorganization, except for dispositions made in the ordinary course of
business;
(6) There is no indebtedness between MSDW Mid-Cap and the Trust that
was issued, acquired or will be settled at a discount;
(7) MSDW Mid-Cap has been a regulated investment company within the
meaning of Section 851 of the Code since the date of its organization through
the end of its last complete taxable year and will qualify as a regulated
investment company for its taxable year ending on the date of the
Reorganization;
(8) The Trust has been a regulated investment company within the
meaning of Section 851 of the Code since the date of its organization through
the date hereof and will qualify as a regulated investment company for its
taxable year ending on November 30, 1999;
<PAGE>
February 25, 1999
Page 4
(9) MSDW Mid-Cap will have no accumulated earnings and profits as of
the close of its taxable year ending on the date of the Reorganization.
OPINION
Based on the Code, Treasury Regulations issued thereunder, Internal
Revenue Service Rulings and the relevant case law, as of the date hereof, and
on the facts, representations and assumptions set forth above, and the
documents, records and other instruments we have reviewed, it is our opinion
that the Federal income tax consequences of the Reorganization to the Trust,
MSDW Mid-Cap and the MSDW Mid-Cap Shareholders will be as follows:
(1) The transfer of substantially all of MSDW Mid- Cap's assets in
exchange for the Trust Shares and the assumption by the Trust of certain stated
Liabilities of MSDW Mid-Cap, followed by the distribution by MSDW Mid-Cap of
the Trust Shares to the MSDW Mid-Cap Shareholders in exchange for their MSDW
Mid- Cap Shares, will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) the Code, and MSDW Mid-Cap and the Trust will each be a
"party to a reorganization" within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by the Trust upon the receipt
of the assets of MSDW Mid-Cap solely in exchange for the Trust Shares and the
assumption of the Liabilities by the Trust;
(3) No gain or loss will be recognized by MSDW Mid-Cap upon the
transfer of the assets of MSDW Mid-Cap to the Trust, in exchange for the Trust
Shares and the assumption of the Liabilities by the Trust, or upon the
distribution of the Trust Shares to MSDW Mid-Cap Shareholders in exchange for
their MSDW Mid-Cap Shares as provided in the Plan;
(4) No gain or loss will be recognized by MSDW Mid-Cap Shareholders
upon the exchange of their MSDW Mid-Cap Shares for the Trust Shares;
(5) The aggregate tax basis for the Trust Shares received by each MSDW
Mid-Cap Shareholder pursuant to the Reorganization will be the same as the
aggregate tax basis of the MSDW Mid-Cap Shares held by each such MSDW Mid-Cap
Shareholder immediately prior to the Reorganization;
<PAGE>
February 25, 1999
Page 5
(6) The holding period of the Trust Shares to be received by each MSDW
Mid-Cap Shareholder will include the period during which the MSDW Mid-Cap
Shares surrendered in exchange therefor were held (provided such MSDW Mid-Cap
Shares were held as capital assets on the date of the Reorganization);
(7) The tax basis of the assets of MSDW Mid-Cap acquired by the Trust
will be the same as the tax basis of such assets to MSDW Mid-Cap immediately
prior to the Reorganization; and
(8) The holding period of the assets of MSDW Mid-Cap in the hands of
the Trust will include the period during which those assets were held by MSDW
Mid-Cap.
We are not expressing an opinion as to any aspect of the
Reorganization other than those opinions expressly stated above.
As noted above, this opinion is based upon our analysis of the Code,
Treasury Regulations issued thereunder, Internal Revenue Service Rulings and
case law which we deem relevant as of the date hereof. No assurances can be
given that there will not be a change in the existing law or that the Internal
Revenue Service will not alter its present views, either prospectively or
retroactively, or adopt new views with regard to any of the matters upon which
we are rendering this opinion, nor can any assurances be given that the
Internal Revenue Service will not audit or question the treatment accorded to
the Reorganization on the Federal income tax returns of the Trust, MSDW Mid-Cap
or the MSDW Mid-Cap Shareholders.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and any reference to our firm
in the Registration Statement and the MSDW Mid-Cap Proxy constituting a part
thereof.
Very truly yours,
/S/ GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy Statement and
Prospectus and the Statement of Additional Information constituting parts of
this registration statement on Form N-14 (the "Registration Statement") of our
report dated January 8, 1999 relating to the November 30, 1998 financial
statements and financial highlights of TCW/DW Mid-Cap Equity Trust (the "Fund"),
appearing in the November 30, 1998 Annual Report to Shareholders of TCW/DW
Mid-Cap Equity Trust, which is also incorporated by reference in the
Registration Statement. We also consent to the reference to us under the heading
"Financial Statements and Experts" in such Proxy Statement and Prospectus. We
also consent to the incorporation by reference in the Proxy Statement and
Prospectus of our report dated July 6, 1998 relating to May 31, 1998 financial
statements and financial highlights of Morgan Stanley Dean Witter Mid-Cap Growth
Fund, formerly Dean Witter Mid-Cap Growth Fund, appearing in the Annual Report
to Shareholders of Morgan Stanley Dean Witter Mid-Cap Growth Fund, which is also
incorporated by reference into the Registration Statement. We also consent to
the reference to us under the headings "Independent Accountants" and "Experts"
in that fund's Statement of Additional Information dated July 29, 1998 and to
the reference to us under the heading "Financial Highlights" in that fund's
Prospectus dated July 29, 1998, which is incorporated by reference into the
Registration Statement.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 25, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David M. Butowsky, Stuart M. Strauss and Ronald
M. Feiman and each and any one of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-14 of TCW/DW Mid-Cap Equity Trust, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause
to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------- ------------------
<S> <C> <C>
/s/ JOHN C. ARGUE
--------------------------- Trustee February 25, 1999
John C. Argue
/s/ JOHN R. HAIRE
--------------------------- Trustee February 25, 1999
John R. Haire
/s/ DR. MANUEL H. JOHNSON
--------------------------- Trustee February 25, 1999
Dr. Manuel H. Johnson
/s/ MICHAEL E. NUGENT
--------------------------- Trustee February 25, 1999
Michael E. Nugent
/s/ JOHN L. SCHROEDER
--------------------------- Trustee February 25, 1999
John L. Schroeder
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry Fink and Marilyn K. Cranney and each and
any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to the Registration Statement on Form N-14 of TCW/DW
Mid-Cap Equity Trust, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ----------------------- ------------------
<S> <C> <C>
/s/ THOMAS E. LARKIN, JR.
--------------------------- President and Trustee February 25, 1999
Thomas E. Larkin, Jr
/s/ RICHARD M. DEMARTINI
--------------------------- Trustee February 25, 1999
Richard M. DeMartini
/s/ CHARLES A. FIUMEFREDDO
--------------------------- Trustee February 25, 1999
Charles A. Fiumefreddo
/s/ MARC I. STERN
--------------------------- Trustee February 25, 1999
Marc I. Stern
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 8, 1999
The undersigned shareholder of Morgan Stanley Dean Witter Mid-Cap Growth
Fund does hereby appoint BARRY FINK, RONALD E. ROBISON and ROBERT S. GIAMBRONE
and each of them, as attorneys-in-fact and proxies of the undersigned, each
with the full power of substitution, to attend the Special Meeting of
Shareholders of Morgan Stanley Dean Witter Mid-Cap Growth Fund to be held on
June 8, 1999, in Conference Room A, Forty-Fourth Floor, Two World Trade Center,
New York, New York at 11:00 A.M., New York time, and at all adjournments
thereof and to vote the shares held in the name of the undersigned on the
record date for said meeting for the Proposal specified on the reverse side
hereof. Said attorneys-in-fact shall vote in accordance with their best
judgment as to any other matter.
(Continued on reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSAL SET FORTH ON THE REVERSE HEREOF AND AS RECOMMENDED BY
THE BOARD OF TRUSTEES.
IMPORTANT--THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
<PAGE>
- -------------------------------------------------------------------------------
12-DIGIT CONTROL NO.
TO VOTE BY MAIL, PLEASE COMPLETE AND RETURN THIS CARD
YOU ALSO MAY VOTE A PROXY BY TOUCH-TONE PHONE OR BY INTERNET
(See enclosed Voting Information Card for further instructions)
TO VOTE A PROXY BY PHONE, call Toll-Free: 1-800-690-6903
TO VOTE A PROXY BY INTERNET, visit our Website(s): WWW.MSDWT.COM or
WWW.PROXYVOTE.COM
PLEASE MARK VOTES AS
[X] IN THE EXAMPLE USING
BLACK OR BLUE INK
The Proposal:
Approval of the Agreement and Plan of
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Reorganization, dated as of February 25, 1999, pursuant to which substantially
all of the assets of Morgan Stanley Dean Witter Mid-Cap Growth Fund would be
combined with those of TCW/DW Mid-Cap Equity Trust and shareholders of Morgan
Stanley Dean Witter Mid-Cap Growth Fund would become shareholders of TCW/DW
Mid-Cap Equity Trust receiving shares in TCW/DW Mid-Cap Equity Trust with a
value equal to their holdings in Morgan Stanley Dean Witter Mid-Cap Growth
Fund.
Date
------------------------------------
Please make sure to sign and date this
Proxy using black or blue ink. If the
shares are registered in more than one
name, each joint owner or each fiduciary
should sign personally. Only authorized
officers should sign for corporations.
----------------------------------------
----------------------------------------
Shareholder sign in the box above
----------------------------------------
----------------------------------------
Co-Owner (if any) sign in the box above
- -------------------------------------------------------------------------------
| | PLEASE DETACH AT PERFORATION | |
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
- -------------------------------------------------------------------------------
IMPORTANT
USE ONE OF THESE THREE EASY WAYS TO VOTE YOUR PROXY
1. BY MAIL. PLEASE DATE, SIGN AND RETURN THE ABOVE PROXY CARD IN THE ENCLOSED
POSTAGE PAID ENVELOPE .
2. BY INTERNET. HAVE YOUR PROXY CARD AT HAND. GO TO THE "VOTE YOUR PROXY HERE"
LINK ON THE WEBSITE WWW.MSDWT.COM OR WWW.PROXYVOTE.COM. ENTER YOUR 12 DIGIT
CONTROL NUMBER LOCATED ON THE PROXY CARD AND FOLLOW THE SIMPLE INSTRUCTIONS
3. BY TELEPHONE. HAVE YOUR PROXY CARD AT HAND. CALL 1-800-690-6903 ON A
TOUCH-TONE PHONE. ENTER YOUR 12-DIGIT CONTROL NUMBER LOCATED ON THE PROXY
CARD AND FOLLOW THE SIMPLE RECORDED INSTRUCTIONS.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER FUNDS
- -------------------------------------------------------------------------------
OFFERS TWO NEW WAYS TO VOTE YOUR PROXY
24 HOURS A DAY, 7 DAYS A WEEK
You can now vote your proxy in a matter of minutes with the ease and
convenience of the Internet or the telephone. You may still vote by mail.
But remember, if you are voting by Internet or telephone, do not mail the
proxy.
TO VOTE BY INTERNET:
1. Read the enclosed Proxy Statement and have your Proxy Card available.
2. Go to the "Proxy Voting" link on www.msdwt.com or to website
www.proxyvote.com.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple instructions.
TO VOTE BY TELEPHONE:
1. Read the enclosed Proxy Statement and have your Proxy Card available.
2. Call toll-free 1-800-690-6903.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple recorded instructions.
Your Proxy Vote is Important!
Thank You for Submitting Your Proxy.
- -------------------------------------------------------------------------------
