<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1998
REGISTRATION NO.: 333-00437
811-7503
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 3 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 4 /X/
-------------------
MORGAN STANLEY DEAN WITTER JAPAN FUND
(A MASSACHUSETTS BUSINESS TRUST)
(FORMERLY NAMED DEAN WITTER JAPAN FUND)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
----------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the registration statement.
_X_ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS.
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<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
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<S> <C>
PART A PROSPECTUS
1. ........................................ Cover Page
2. ........................................ Summary of Fund Expenses; Prospectus Summary
3. ........................................ Financial Highlights; Performance Information
4. ........................................ Investment Objective and Policies; The Fund and its Management;
Cover Page; Investment Restrictions; Prospectus Summary; Risk
Considerations and Investment Practices
5. ........................................ The Fund and Its Management; Back Cover; Investment Objective and
Policies
6. ........................................ Dividends, Distributions and Taxes; Additional Information
7. ........................................ Purchase of Fund Shares; Shareholder Services; Prospectus Summary
8. ........................................ Purchase of Fund Shares; Redemptions and Repurchases; Shareholder
Services
9. ........................................ Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
10. ........................................ Cover Page
11. ........................................ Table of Contents
12. ........................................ The Fund and Its Management
13. ........................................ Investment Practices and Policies; Investment Restrictions;
Portfolio Transactions and Brokerage
14. ........................................ The Fund and Its Management; Trustees and Officers
15. ........................................ The Fund and Its Management; Trustees and Officers
16. ........................................ The Fund and Its Management; Purchase of Fund Shares; Custodian and
Transfer Agent; Independent Accountants; Shareholder Services
17. ........................................ Portfolio Transactions and Brokerage
18. ........................................ Description of Shares
19. ........................................ The Distributor; Purchase of Fund Shares; Redemptions and
Repurchases; Financial Statements; Determination of Net Asset
Value; Shareholder Services
20. ........................................ Dividends, Distributions and Taxes
21. ........................................ Purchase of Fund Shares
22. ........................................ Performance Information
23. ........................................ Experts; Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS
JULY 29, 1998
Morgan Stanley Dean Witter Japan Fund (the "Fund") is an open-end,
non-diversified management investment company whose investment objective is to
seek long-term capital appreciation. The Fund seeks to meet its investment
objective by investing primarily in securities of issuers located in Japan. (See
"Investment Objective and Policies.")
The Fund offers four classes of shares (each, a "Class"), each
with a different combination of sales charges, ongoing fees and other features.
The different distribution arrangements permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. (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
DISTRIBUTORS INC.,
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/4
Financial Highlights/6
The Fund and its Management/9
Investment Objective and Policies/10
Risk Factors and Special Considerations/12
Investment Restrictions/20
Purchase of Fund Shares/21
Shareholder Services/32
Redemptions and Repurchases/36
Dividends, Distributions and Taxes/37
Performance Information/38
Additional Information/38
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Morgan Stanley Dean Witter
Japan Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
PROSPECTUS SUMMARY
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<TABLE>
<S> <C>
The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an open-end,
Fund non-diversified management investment company. The Fund invests primarily in securities of issuers located in
Japan.
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Shares Offered Shares of beneficial interest with $0.01 par value (see page 38). The Fund offers four Classes of shares, each
with a different combination of sales charges, ongoing fees and other features (see pages 21-31).
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Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened through EasyInvest-SM-).
Purchase 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 21).
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Investment The investment objective of the Fund is to seek long-term capital appreciation (see page 10).
Objective
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Investment Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Fund, and its wholly-owned subsidiary,
Manager and Morgan Stanley Dean Witter Services Company Inc., serve in various investment management, advisory, management
Sub-Advisor and administrative capacities to 101 investment companies and other portfolios with net assets under management
of approximately $115 billion at June 30, 1998. Morgan Grenfell Investment Services Ltd., has been retained by
the Investment Manager as Sub-Advisor to provide investment advice and manage the Fund's portfolio. Morgan
Grenfell Investment Services Ltd. currently serves as investment advisor for primarily U.S. corporate and public
employee benefit plans, investment companies, endowments and foundations with assets of approximately $16.4
billion at December 31, 1997 (see page 9).
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Management The Investment Manager receives a monthly fee at the annual rate of 1.0% of the Fund's daily net assets, of
Fee which the Sub-Advisor receives 40% (see page 9).
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Distributor and Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution plan
Distribution Fee pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1 Plan") with respect to the distribution fees
paid by the Class A, Class B and Class C shares of the Fund to the Distributor. The entire 12b-1 fee payable by
Class A and a portion of the 12b-1 fee payable by each of Class B and Class C equal to 0.25% 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 21 and 30).
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Alternative Four classes of shares are offered:
Purchase
Arrangements - Class A shares are offered with a front-end sales charge, starting at 5.25% and reduced for larger purchases.
Investments of $1 million or more (and investments by certain other limited categories of investors) are not
subject to any sales charge at the time of purchase but a contingent deferred sales charge ("CDSC") of 1.0% may
be imposed on redemptions within one year of purchase. The Fund is authorized to reimburse the Distributor for
specific expenses incurred in promoting the distribution of the Fund's Class A shares and servicing shareholder
accounts pursuant to the Fund's 12b-1 Plan. Reimbursement may in no event exceed an amount equal to payments at
an annual rate of 0.25% of average daily net assets of the Class (see pages 21, 24 and 30).
</TABLE>
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2
<PAGE>
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<TABLE>
<S> <C>
- 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 21, 27 and 30).
- 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 21, 29 and 30).
- 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 21, 29 and 30).
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Dividends Dividends from net investment income and distributions from net capital gains, if any, are paid at least
and annually. The Fund may, however, determine to retain all or part of any net long-term capital gains in any year
Capital Gains for reinvestment. Dividends and capital gains distributions paid on shares of a Class are automatically
Distributions 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 32 and 37).
- ------------------------------------------------------------------------------------------------------------------------------------
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 EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account (see page 36).
- ------------------------------------------------------------------------------------------------------------------------------------
Risks The net asset value of the Fund's shares will fluctuate with changes in market value of portfolio securities.
The concentration of the Fund's assets in Japanese issuers will subject the Fund to the risks of adverse social,
political or economic events which occur in or affect Japan. It should be recognized that the foreign securities
and markets in which the Fund invests pose different and greater risks than those customarily associated with
domestic securities and their markets. The Fund may also invest in options and futures transactions which may be
considered speculative in nature and may involve greater risks than those customarily assumed by other
investment companies which do not invest in such instruments (see pages 12-20). The Fund is a non-diversified
investment company and, as such, is not subject to the diversification requirements of the Investment Company
Act of 1940. As a result, a relatively high percentage of the Fund's assets may be invested in a limited number
of issuers. However, the Fund intends to qualify as a regulated investment company under the federal income tax
laws and, as such, will be subject to the diversification requirements of the Internal Revenue Code (see page
17).
</TABLE>
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THE PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION.
3
<PAGE>
SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are 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)............................................................. 1.00% 1.00% 1.00% 1.00%
12b-1 Fees (6) (7).............................................................. 0.24% 1.00% 1.00% None
Other Expenses (5).............................................................. 0.48% 0.48% 0.48% 0.48%
Total Fund Operating Expenses (8)............................................... 1.72% 2.48% 2.48% 1.48%
</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 THE
JULY 28, 1997.
4
<PAGE>
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<TABLE>
<CAPTION>
EXAMPLES 1 Year 3 Years 5 Years
- ---------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <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....................................................................... $ 69 $ 104 $ 141
Class B....................................................................... $ 75 $ 107 $ 152
Class C....................................................................... $ 35 $ 77 $ 132
Class D....................................................................... $ 15 $ 47 $ 81
You would pay the following expenses on the same $1,000 investment assuming no
redemption at the end of the period:
Class A....................................................................... $ 69 $ 104 $ 141
Class B....................................................................... $ 25 $ 77 $ 132
Class C....................................................................... $ 25 $ 77 $ 132
Class D....................................................................... $ 15 $ 47 $ 81
<CAPTION>
EXAMPLES 10 Years
- ---------------------------------------------------------------------------------- -----------
<S> <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....................................................................... $ 245
Class B....................................................................... $ 282
Class C....................................................................... $ 282
Class D....................................................................... $ 177
You would pay the following expenses on the same $1,000 investment assuming no
redemption at the end of the period:
Class A....................................................................... $ 245
Class B....................................................................... $ 282
Class C....................................................................... $ 282
Class D....................................................................... $ 177
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares--Plan of Distribution"
and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales 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, the notes thereto and the unqualified
report of independent accountants which are contained in the Statement of
Additional Information. Further information about the performance of the Fund is
contained in the Fund's Annual Report to Shareholders, which may be obtained
without charge upon request to the Fund.
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE PERIOD
MAY 31 APRIL 26, 1996*
------------------ THROUGH
CLASS B SHARES 1998**++ 1997 MAY 31, 1996
------- ------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 8.79 $ 9.61 $ 10.00
------- ------- -------
Net investment loss............................... (0.13) (0.16) --
Net realized and unrealized loss.................. (1.99) (0.66) (0.39)
------- ------- -------
Total from investment operations.................. (2.12) (0.82) (0.39)
------- ------- -------
Net asset value, end of period.................... $ 6.67 $ 8.79 $ 9.61
------- ------- -------
------- ------- -------
TOTAL INVESTMENT RETURN+.......................... (24.12)% (8.53)% (3.90)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 2.48% 2.43% 2.84%(2)
Net investment loss............................... (1.62)% (1.77)% (0.52)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $125,008 $239,719 $273,544
Portfolio turnover rate........................... 7% 25% --
Average commission rate paid...................... $0.0093 $0.0227 $0.0424
</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>
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<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
CLASS A SHARES MAY 31, 1998++
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.16
------
Net investment income................................................. 0.05
Net realized and unrealized loss...................................... (2.49)
------
Total from investment operations...................................... (2.44)
------
Net asset value, end of period........................................ $ 6.72
------
------
TOTAL INVESTMENT RETURN+.............................................. (26.64)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.83%(2)
Net investment income................................................. 0.75%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $126
Portfolio turnover rate............................................... 7%
Average commission rate paid.......................................... $0.0093
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.16
------
Net investment loss................................................... (0.07)
Net realized and unrealized loss...................................... (2.41)
------
Total from investment operations...................................... (2.48)
------
Net asset value, end of period........................................ $ 6.68
------
------
TOTAL INVESTMENT RETURN+.............................................. (27.07)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.52%(2)
Net investment loss................................................... (1.21)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,738
Portfolio turnover rate............................................... 7%
Average commission rate paid.......................................... $0.0093
</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>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
CLASS D SHARES MAY 31, 1998++
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.16
------
Net investment loss................................................... (0.01)
Net realized and unrealized gain...................................... (2.43)
------
Total from investment operations...................................... (2.44)
------
Net asset value, end of period........................................ $ 6.72
------
------
TOTAL INVESTMENT RETURN+.............................................. (26.64)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.60%(2)
Net investment loss................................................... (0.23)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $628
Portfolio turnover rate............................................... 7%
Average commission rate paid.......................................... $0.0093
</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
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Morgan Stanley Dean Witter Japan Fund (the "Fund") (formerly named Dean
Witter Japan Fund) is an open-end, non-diversified, management investment
company. The Fund is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the laws of The Commonwealth of
Massachusetts on January 22, 1996.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048, is
the Fund's Investment Manager. The Investment Manager is a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co., a preeminent global financial
services firm that maintains leading market positions in each of its three
primary businesses--securities, asset management and credit services. The
Investment Manager, which was incorporated in July, 1992 under the name Dean
Witter InterCapital Inc., changed its name to Morgan Stanley Dean Witter
Advisors Inc. on June 22, 1998.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services"), serve in various investment management,
advisory, management and administrative capacities to 101 investment companies,
thirty 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 supervise the investment of the Fund's
assets. MSDW Advisors has retained MSDW Services to perform the aforementioned
administrative services for the Fund.
Under a Sub-Advisory Agreement between Morgan Grenfell Investment Services
Limited ("Morgan Grenfell" or the "Sub-Advisor") and the Investment Manager, the
Sub-Advisor provides the Fund with investment advice and portfolio management
relating to the Fund's investments, subject to the overall supervision of the
Investment Manager. The Fund's Trustees review the various services provided by
the Investment Manager and the Sub-Advisor 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.
The Sub-Advisor, whose address is 20 Finsbury Circus, London, England,
manages, as of June 30, 1997, assets of approximately $16.5 billion for
primarily U.S. corporate and public employee benefit plans, investment
companies, endowments and foundations. The Sub-Advisor is an indirect subsidiary
of Deutsche Bank AG, the largest commercial bank in Germany.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 1.0% to the Fund's average net assets. As compensation for its
services provided pursuant to the Sub-Advisory Agreement, the Investment Manager
pays the Sub-Advisor monthly compensation equal to 40% of its monthly
compensation.
For the fiscal year May 31, 1998, the Fund accrued total compensation to the
Investment Manager amounting to 1.00% of the Fund's average daily net assets and
the total expenses of Class B amounted to 2.48% 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
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Fund's operations which are not expressly assumed by the Investment Manager
under its Investment Management Agreement with the Fund.
In May, 1998 Morgan Grenfell advised the Board of Trustees of the Fund and
MSDW Advisors of its resignation as Sub-Advisor to the Fund, effective at the
close of business on September 30, 1998. On June 2, 1998, the Board of Trustees
unanimously recommended that a new Sub-Advisory Agreement with Morgan Stanley
Asset Management Inc. ("MSAM"), an affiliate of MSDW Advisors, be submitted to
shareholders for approval at a special meeting expected to be held in August,
1998. Under the proposed new Sub-Advisory Agreement, MSAM will provide the Fund
with investment advice and portfolio management relating to the Fund's
investments, subject to the overall supervision of MSDW Advisors and will
receive a fee from MSDW Advisors equal to 40% of MSDW Advisors' investment
management fee. The new Sub-Advisory Agreement is identical to the current
Sub-Advisory Agreement, except for: (1) the dates of effectiveness and
termination; and (2) the deletion of a provision pursuant to which Morgan
Grenfell and its affiliates were prohibited from acting as investment advisor or
sub-advisor to funds that are similar to the Fund. If approved, the new
Sub-Advisory Agreement would take effect on October 1, 1998. At the same time
that the new Sub-Advisory Agreement takes effect, MSDW Advisors and the Fund
will amend the Investment Management Agreement between MSDW Advisors and the
Fund to reduce the fee paid by the Fund to MSDW Advisors under the Investment
Management Agreement by 0.05% of the Fund's average daily net assets to 0.95% of
the Fund's average daily net assets.
MSAM, like MSDW Advisors, is a wholly-owned subsidiary of Morgan Stanley
Dean Witter & Co. MSAM serves in various portfolio management and similar
capacities to investment companies and pension plans and other institutional and
individual investors.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to seek long-term capital
appreciation. There is no assurance that the objective will be achieved. The
objective is a fundamental policy of the Fund and may not be changed without
shareholder approval.
The Fund seeks to achieve its investment objective by investing, under
normal circumstances, at least 65% of its total assets in equity securities
issued by issuers located in Japan. Such issuers will include companies (i)
which are organized under the laws of Japan and have a principal office in
Japan; (ii) which derive 50% or more of their total revenues from operating
business(es) in Japan; or (iii) the equity securities of which are traded
principally on a stock exchange in Japan. Equity securities in which the Fund
may invest include common and preferred stocks and rights or warrants to
purchase common stocks.
The Fund may invest up to 25% of its total assets in equity securities of
Japanese companies traded on the Second Sections of the Main Japanese exchanges
and in the over-the-counter market. These would generally be smaller companies
with above-average growth potential. (See "Risk Factors and Special
Considerations.")
As a "single country" mutual fund, the Fund may exhibit certain speculative
characteristics and thus should not constitute a complete investment program.
Investing internationally involves certain risks, such as economic and political
risk, and therefore poses different and greater risks than those customarily
associated with domestic securities and their markets. The concentration of the
Fund's assets in Japanese issuers will subject the Fund to the risks of adverse
social, political or economic events which occur in Japan (see "Risk Factors and
Special Considerations").
The remainder of the Fund's portfolio equalling, at times, up to 35% of the
Fund's total assets, may
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be invested in fixed-income and convertible securities of issuers located in
Japan or guaranteed by the Japanese government when it is deemed that such
investments are consistent with the Fund's investment objective. This remainder
may also include equity, government, fixed-income and convertible securities
issued by issuers located in developed economies in Asia, Europe and North
America, including the United States, subject to the Fund's investment
objective. Although the Fund may invest up to 35% of its net assets in
fixed-income and convertible securities which are either not rated or rated
below investment grade, the Fund has no current intention of investing in excess
of 10% of its net assets in unrated or lower rated convertible securities nor in
excess of 5% of its net assets in unrated or lower rated non-convertible debt
securities (see "Lower Rated Convertible and Fixed-Income Securities" below). In
addition, this portion of the Fund's portfolio will consist of various other
financial instruments such as forward foreign exchange contracts, futures
contracts and options.
The Fund may also invest in securities of Japanese and other foreign issuers
in the form of American Depository Receipts (ADRs), European Depository Receipts
(EDRs) or other similar securities convertible into securities of foreign
issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a United States bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
United States securities markets and EDRs, in bearer form, are designed for use
in European securities markets.
The Sub-Advisor will use a "bottom-up" approach, whereby the identification
of earnings growth and attractively priced stocks drives the Sub-Advisor's
investment process. However, no investments will be made without assessing
future country risk (including politics, monetary policy and currency) that
might adversely affect stock selection. The Sub-Advisor believes that strong
growth will be reflected in superior investment returns. A company's ability to
grow earnings leads to the accumulation of assets, increased dividend payments
and, ultimately, drives share prices higher.
Because market inefficiency can lead to "over" as well as "under" pricing,
the Sub-Advisor believes that an assessment of company growth prospects must be
combined with an understanding of how the stock is priced. A series of multiples
is used for this purpose and evaluated against the stock's history. Stocks that
are trading significantly above their historic norm are disqualified from
inclusion in the portfolio. In addition, the Fund will maintain a disciplined
sell process for liquidating portfolio holdings.
There may be periods during which, in the opinion of the Investment Manager
or Sub-Advisor, market conditions warrant reduction of some or all of the Fund's
securities holdings. During such periods, the Fund may adopt a temporary
"defensive" posture in which greater than 35% and, in some circumstances up to
100%, of its net assets are invested in cash or money market instruments. Money
market instruments in which the Fund may invest are securities issued or
guaranteed by the U.S. Government (Treasury bills, notes and bonds, including
zero coupon securities); bank obligations (such as certificates of deposit and
bankers' acceptances); Yankee instruments; Eurodollar certificates of deposit;
obligations of savings institutions; fully insured certificates of deposit; and
commercial paper rated within the two highest grades by Moody's or S&P or, if
not rated, issued by a company having an outstanding debt issue rated at least
AA by S&P or Aa by Moody's.
To hedge against adverse price movements in the securities held in its
portfolio and the currencies in which they are denominated (as well as in the
securities it might wish to purchase and their denominated currencies) the Fund
may engage in transactions in forward foreign currency contracts, options on
securities and currencies, and futures
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contracts and options on futures contracts on securities, currencies and
indexes. The Fund may also purchase options on securities to facilitate its
participation in the potential appreciation of the value of the underlying
securities. A discussion of these transactions follows below under "Risk Factors
and Special Considerations" and is supplemented by further disclosure in the
Statement of Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in Japanese equity securities involves certain risks and special
considerations as follows:
THE JAPANESE SECURITIES MARKETS
(a) The Exchange Market. The Japanese exchange market is a highly
systemized, government regulated market currently consisting of eight stock
exchanges. The three Main Japanese Exchanges (Tokyo, Osaka and Nagoya) are
comprised of First and Second Sections. The First Sections have more stringent
listing standards with respect to a company's number of years in existence,
number of outstanding shares and trading volume and, accordingly, list larger,
more established companies than
the Second Sections. The Fund intends to invest primarily in the securities of
companies listed on the First Section of the Tokyo Stock Exchange ("TSE"). The
TSE is the largest exchange and, as of December 31, 1997, the First Section
listed 1,324 companies with market capitalization of approximately U.S.$2.1
trillion. The Fund may invest up to 25% of its net assets in securities which
are traded on the Second Sections of the Main Japanese Exchanges (primarily, the
TSE), and in the over-the-counter market, described below. These are generally
smaller, less capitalized companies than those traded on the First Sections. As
of December 31, 1997, the Second Section of the TSE listed approximately 478
companies with market capitalization of approximately U.S.$53.6 billion.
(b) The OTC Market. The Japanese OTC market is less systemized than the
stock exchanges. Trading of equity securities in the Japanese OTC market is
conducted by securities firms in Japan, primarily through an organization which
acts as a "matching agent" by matching buy and sell orders. As of December 31,
1997, 834 companies with market capitalization of approximately U.S.$70.5
billion were traded through the Japanese OTC market.
MARKET RISKS. Although the market for Japanese equities traded on the First
Section of the TSE is substantial in terms of trading volume and liquidity, the
TSE has nonetheless exhibited significant market volatility in the past several
years. With respect to the OTC market, trades of certain stocks may not be
effected on days when the matching of buy and sell orders for such stocks does
not occur. The liquidity of the Japanese OTC market, as well as that of the
Second Sections of the exchanges, although increasing in recent years, is
limited by the small number of publicly held shares which trade on a regular
basis. Overall, Japanese securities markets have declined significantly from
their 1989 levels which has contributed to a weakness in the Japanese economy
and the impact of a further decline cannot be ascertained. The common stocks of
many Japanese companies continue, as they have historically, to trade at high
price-earnings ratios in comparison with those in the U.S., even after the
recent market decline. Differences in accounting methods make it difficult to
compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.
POLITICAL RISKS. Japan has a parliamentary form of government. Triggered by
successive revelations of political scandals, one-party domination by the
Liberal Democratic Party which was established in 1955, was terminated in
mid-1993. Since then, political instability has resulted from frequent turnover
of coalition governments and prime ministers. What, if any, effect the current
political situation will have on prospective regulatory reforms of the economy
in Japan cannot be predicted. Recent and future developments in Japan and
neighboring Asian countries may lead to changes in policy that might adversely
affect the Fund.
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ECONOMIC FACTORS. The Japanese economy experienced its worst recession
since World War II in the 1990s. Asset deflation, in both the financial and real
estate sectors, has exerted a continuous drag on the economy. The Japanese
government has called for a transformation of the economy away from its high
dependency on export-led growth towards greater stimulation of the domestic
economy through extensive deregulation plans, including a fundamental overhaul
of Japan's financial industry. It is difficult to predict how successful these
regulatory changes will be at this early stage.
Strains in the financial system have also been one of the major causes of
Japan's economic weakness. The non-performing loans of financial institutions
have hampered their ability to take on risks, thus obstructing the flow of funds
into capital outlays as well as equities. While the banking system appears to be
making some progress in its attempt to deal with non-performing assets, it is
extremely difficult to gauge the true extent of the bad-debt problem which could
lead to a crisis in the banking system. Japan has also been experiencing notable
uncertainty and loss of public confidence in connection with the reform of its
political process and deregulation of its economy. The government is very aware
of the issues at stake, and the current ultra-low interest rate environment is
effectively in place to aid the financial industry. Analysts therefore now
believe that the risk of a full scale financial crisis is currently remote.
INTERNATIONAL TRADE. Japan is largely dependent upon foreign economies for
raw materials. International trade is important to Japan's economy, as exports
provide the means to pay for many of the raw materials it must import. Because
of the concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and the large trade surpluses
ensuing therefrom, Japan has entered a difficult phase in its relations with its
trading partners, particularly with respect to the United States, with whom the
trade imbalance is the greatest. It is possible that differences over trade
policy may lead the U.S. to take actions which may have an adverse effect on the
Japanese economy.
CURRENCY FACTORS. Securities in Japan are denominated and quoted in "yen."
Yen are fully convertible and transferable based on floating exchange rates into
all currencies, without administrative or legal restrictions for both
non-residents and residents of Japan. In determining the net asset value of
shares of the Fund, assets or liabilities initially expressed in terms of
Japanese yen will be translated into U.S. dollars at the current selling rate of
Japanese yen against U.S. dollars. As a result, in the absence of a successful
currency hedge, the value of the Fund's assets as measured in U.S. dollars may
be affected favorably or unfavorably by fluctuations in the value of Japanese
yen relative to the U.S. dollar.
NATURAL DISASTERS. In the past, Japan has experienced earthquakes and tidal
waves varying in degrees of severity, and the risks of such phenomena, and
damage resulting therefrom, continue to exist.
GENERAL RISKS OF INVESTING IN JAPANESE AND OTHER FOREIGN
SECURITIES. Foreign securities investments may be affected by changes in
currency rates or exchange control regulations, changes in governmental
administration or economic or monetary policy (in the United States and abroad)
or changed circumstances in dealings between nations. Fluctuations in the
relative rates of exchange between the currencies of different nations will
affect the value of the Fund's investments denominated in foreign currency.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's assets denominated in that currency
and thereby impact upon the Fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and
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<PAGE>
other factors. Moreover, foreign currency exchange rates may be affected by the
regulatory control of the exchanges on which the currencies trade. The foreign
currency transactions of the Fund will be conducted on a spot basis or through
forward foreign currency exchange contracts (described below). The Fund will
incur certain costs in connection with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of the Fund's trades effected in such markets. As such, the
inability to dispose of portfolio securities due to settlement delays could
result in losses to the Fund due to subsequent declines in value of such
securities and the inability of the Fund to make intended security purchases due
to settlement problems could result in a failure of the Fund to make potentially
advantageous investments.
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 to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
and maintaining adequate collateralization.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may also use
reverse repurchase agreements and dollar rolls as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. The Fund may enter into dollar rolls in which
the Fund sells securities and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. Reverse repurchase agreements and dollar rolls involve the risk that the
market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Fund's use of proceeds of the agreement may
be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques
involving leverage, and are considered borrowings by the Fund.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in
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the ordinary course of business, the Fund may purchase securities on a
when-issued or delayed delivery basis or may purchase or sell securities on a
forward commitment basis. When such transactions are negotiated, the price is
fixed at the time of the commitment, but delivery and payment can take place a
month or more after the date of the commitment. There is no overall limit on the
percentage of the Fund's assets which may be committed to the purchase of
securities on a when-issued, delayed delivery or forward commitment basis. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued, delayed delivery or forward commitment basis may
increase the volatility of the Fund's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have lost an investment opportunity. There is no overall limit on the
percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage of
the Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value.
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.
PRIVATE PLACEMENTS. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
such securities may have an adverse effect on their marketability, and may
prevent the Fund from disposing of them promptly at reasonable prices. The Fund
may have to bear the expense of registering such securities for resale and the
risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The 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
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<PAGE>
will not be included within the category "illiquid securities," which under
current policy may not exceed 15% of the Fund's net assets. 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 AND FUTURES TRANSACTIONS. The Fund may purchase and sell (write)
call and put options on (i) portfolio securities which are denominated in either
U.S. dollars or foreign currencies; (ii) stock indexes; and (iii) the U.S.
dollar and foreign currencies. Such options are or may in the future be listed
on several U.S. and foreign securities exchanges or may be traded in
over-the-counter transactions ("OTC options"). OTC options are purchased from or
sold (written) to dealers or financial institutions which have entered into
direct agreements with the Fund.
The Fund is permitted to write covered call options on portfolio securities
and the U.S. dollar and foreign currencies, without limit, in order to hedge
against the decline in the value of a security or currency in which such
security is denominated (although such hedge is limited to the value of the
premium received) and to close out long call option positions. The Fund may
write covered put options, under which the Fund incurs an obligation to buy the
security (or currency) underlying the option from the purchaser of the put at
the option's exercise price at any time during the option period, at the
purchaser's election.
The Fund may purchase listed and OTC call and put options in amounts
equalling up to 5% of its total assets. The Fund may purchase call options to
close out a covered call position or to protect against an increase in the price
of a security it anticipates purchasing or, in the case of call options on a
foreign currency, to hedge against an adverse exchange rate change of the
currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The Fund may
purchase put options on securities which it holds in its portfolio to protect
itself against a decline in the value of the security and to close out written
put positions in a manner similar to call option closing purchase transactions.
There are no limits on the Fund's ability to purchase call and put options other
than compliance with the foregoing policies.
The Fund may purchase and sell futures contracts that are currently traded,
or may in the future be traded, on U.S. and foreign commodity exchanges on
underlying portfolio securities, on any currency ("currency" futures), on U.S.
and foreign fixed-income securities ("interest rate" futures) and on such
indexes of U.S. or foreign equity or fixed-income securities as may exist or
come into being ("index" futures). The Fund may purchase or sell interest rate
futures contracts for the purpose of hedging some or all of the value of its
portfolio securities (or anticipated portfolio securities) against changes in
prevailing interest rates. The Fund may purchase or sell index futures contracts
for the purpose of hedging some or all of its portfolio securities (or
anticipated portfolio securities) against changes in their prices. The Fund may
purchase or sell currency futures contracts to hedge against an anticipated rise
or decline in the value of the currency in which a portfolio security is
denominated vis-a-vis another currency. 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 also may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position.
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New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options may generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer. Also,
exchanges may limit the amount by which the price of many futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
Futures contracts and options transactions may be considered speculative in
nature and may involve greater risks than those customarily assumed by other
investment companies which do not invest in such instruments. One such risk is
that the Investment Manager or Sub-Advisor could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For example,
if the Fund sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the Fund would lose money on the sale. Another risk
which will arise in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities, currencies
and indexes subject to futures contracts (and thereby the futures contract
prices) may correlate imperfectly with the behavior of the U.S. dollar cash
prices of the Fund's portfolio securities and their denominated currencies. See
the Statement of Additional Information for a further discussion of risks.
NON-DIVERSIFIED STATUS. The Fund is a non-diversified investment company
and, as such, is not subject to the diversification requirements of the
Investment Company Act of 1940, as amended (the "Investment Company Act"). As a
non-diversified investment company, the Fund may invest a greater portion of its
assets in the securities of a single issuer and thus is subject to greater
exposure to risks such as a decline in the credit rating of that issuer.
However, the Fund anticipates that it will qualify as a regulated investment
company under the federal income tax laws and, if so qualified, will be subject
to the applicable diversification requirements of the Internal Revenue Code, as
amended (the "Code"). As a regulated investment company under the Code, the Fund
may not, as of the end of any of its fiscal quarters, have invested more than
25% of its total assets in the securities of any one issuer (including a foreign
government), or as to 50% of its total assets, have invested more than 5% of its
total assets in the securities of a single issuer.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may enter into forward
foreign currency exchange contracts ("forward contracts") in connection with its
foreign securities investments.
A forward contract involves an obligation to purchase or sell a currency at
a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
The Fund may enter into forward contracts as a hedge against fluctuations in
future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible
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loss resulting from an adverse change in the relationship between the U.S.
dollar or other currency which is being used for the security purchase (by the
Fund or the counterparty) and the foreign currency in which the security is
denominated during the period between the date on which the security is
purchased or sold and the date on which payment is made or received.
At other times, when, for example, the Fund's Investment Manager or
Sub-Advisor believe that the currency of a particular foreign country may suffer
a substantial decline against the U.S. dollar or some other foreign currency,
the Fund may enter into a forward contract to sell, for a fixed amount of
dollars or other currency, the amount of foreign currency approximating the
value of some or all of the Fund's securities holdings (or securities which the
Fund has purchased for its portfolio) denominated in such foreign currency.
Under identical circumstances, the Fund may enter into a forward contract to
sell, for a fixed amount of U.S. dollars or other currency, an amount of foreign
currency other than the currency in which the securities to be hedged are
denominated approximating the value of some or all of the portfolio securities
to be hedged. This method of hedging, called "cross-hedging," will be selected
by the Investment Manager or Sub-Advisor when it is determined that the foreign
currency in which the portfolio securities are denominated has insufficient
liquidity or is trading at a discount as compared with some other foreign
currency with which it tends to move in tandem.
In addition, when the Fund's Investment Manager or Sub-Advisor anticipate
purchasing securities at some time in the future, and wish to lock in the
current exchange rate of the currency in which those securities are denominated
against the U.S. dollar or some other foreign currency, the Fund may enter into
a forward contract to purchase an amount of currency equal to some or all of the
value of the anticipated purchase, for a fixed amount of U.S. dollars or other
currency. The Fund may, however, close out the forward contract without
purchasing the security which was the subject of the "anticipatory" hedge.
In all of the above circumstances, if the currency in which the Fund's
securities holdings (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), the
Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Investment Manager or Sub-Advisor. The Fund generally will not enter into a
forward contract with a term of greater than one year, although it may enter
into forward contracts for periods of up to five years. The Fund may be limited
in its ability to enter into hedging transactions involving forward contracts by
the Internal Revenue Code requirements relating to qualification as a regulated
investment company (see "Dividends, Distributions and Taxes").
RIGHTS AND WARRANTS. The Fund may acquire rights and/or warrants which are
attached to other securities in its portfolio, or which are issued as a
distribution by the issuer of a security held in its portfolio. Rights and/or
warrants are, in effect, options to purchase equity securities at a specific
price, generally valid for a specific period of time, and have no voting rights,
pay no dividends and have no rights with respect to the corporation issuing
them.
LOWER RATED CONVERTIBLE AND FIXED-INCOME 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
18
<PAGE>
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 conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
A portion of the fixed-income and convertible securities in which the Fund
may invest are not rated; when rated, such ratings will generally be below
investment grade. Securities below investment grade are the equivalent of high
yield, high risk bonds, commonly known as "junk bonds." Investment grade is
generally considered to be debt securities rated BBB or higher by Standard &
Poor's Corporation ("S&P") or Baa or higher by Moody's Investors Service, Inc.
("Moody's"). However, the Fund will not invest in debt securities that are in
default in payment of principal or interest.
Because of the special nature of the Fund's permitted investments in lower
rated debt securities, the Investment Manager and Sub-Advisor 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 fixed-income security owned by
the Fund defaults, the Fund may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and change can be expected to result
in an increased volatility of market prices of lower rated securities and a
corresponding volatility in the net asset value of a share of the Fund.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the Sub-Advisor 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 Sub-Advisor, 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 through 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
19
<PAGE>
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.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager and the
Sub-Advisor 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 and the Sub-Advisor 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 affiliated broker-dealers that are affiliates of the Investment
Manager, and the Investment Manager's and Sub-Advisor's own analysis of factors
they deem relevant. The Fund's primary portfolio manager is William G.M. Thomas,
an Investment Director of the Sub-Advisor. Mr. Thomas has been managing equity
portfolios for the Sub-Advisor for over ten years.
Personnel of the Investment Manager and Sub-Advisor have substantial
experience in the use of the investment techniques described above under the
heading "Options and Futures Transactions," which techniques require skills
different from those needed to select the portfolio securities underlying
various options and futures contracts.
Orders for transactions in portfolio securities and commodities may be
placed for the Fund with a number of brokers and dealers, including Dean Witter
Reynolds Inc., Morgan Stanley & Co. Incorporated or other broker-dealer
affiliates of the Investment Manager and two affiliated broker-dealers of the
Sub-Advisor (Morgan Grenfell Asia and Partners Securities Pte. Limited and
Morgan Grenfell Asia Securities (Hong Kong) Limited). 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
broker-dealers that are affiliates of the Investment Manager and the
Sub-Advisor.
Although the Fund does not intend to engage in short-term trading, it may
sell portfolio securities without regard to the length of time they have been
held when such sale will, in the opinion of the Investment Manager or
Sub-Advisor, contribute to the Fund's investment objective. It is not
anticipated that the Fund's portfolio turnover rate will exceed 100% in any one
year.
The expenses of the Fund relating to its portfolio management are likely to
be greater than those incurred by other investment companies investing primarily
in securities issued by domestic issuers as custodial costs, brokerage
commissions and other transaction charges related to investing in Japan and
other foreign markets are generally higher than in the United States.
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, a fundamental policy may not be changed without the vote of a
majority of the outstanding voting securities of the Fund, as defined in the
Act. For purposes of the following limitations: (i) all percentage limitations
apply immediately after a purchase or initial investment, and (ii) any
subsequent change in any applicable percentage resulting from market
fluctuations or other changes in total or net assets does not require
elimination of any security from the portfolio.
The Fund may not:
1. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry.
20
<PAGE>
This restriction does not apply to obligations issued or guaranteed by the
United States Government, its agencies or instrumentalities.
2. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
In addition, as a non-fundamental policy, the Fund may not, as to 75% of its
total assets, purchase more than 10% of the voting securities of any issuer.
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 Arrangements-- Selecting a Particular Class" for a
discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($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-
21
<PAGE>
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 Japan Fund, directly to Morgan
Stanley Dean Witter Trust FSB (the "Transfer Agent" or "MSDW Trust") at P.O. Box
1040, Jersey City, NJ 07303 or by contacting a Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer representative. When
purchasing shares of the Fund, investors must specify whether the purchase is
for Class A, Class B, Class C or Class D shares. If no Class is specified, the
Transfer Agent will not process the transaction until the proper Class is
identified. The minimum initial purchase in the case of investments through
EasyInvest-SM-, an automatic purchase plan (see "Shareholder Services"), is
$100, provided that the schedule of automatic investments will result in
investments totalling at least $1,000 within the first twelve months. 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. Shares of the
Fund purchased through the Distributor are entitled to any dividends declared
beginning on the next business day following settlement date. 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. Shares purchased through the Transfer Agent are entitled to any
dividends declared beginning on the next business day following receipt of an
order. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive 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 distributions. Sales personnel of a
Selected Broker-Dealer are compensated for selling shares of the Fund at the
time of their sale 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
22
<PAGE>
Class A, Class B and Class C shares bear the expenses of the ongoing shareholder
service fees, Class B and Class C shares bear the expenses of the ongoing
distribution fees and Class A, Class B and Class C shares which are redeemed
subject to a CDSC bear the expense of the additional incremental distribution
costs resulting from the CDSC applicable to shares of those Classes. The ongoing
distribution fees that are imposed on Class A, Class B and Class C shares will
be imposed directly against those Classes and not against all assets of the Fund
and, accordingly, such charges against one Class will not affect the net asset
value of any other Class or have any impact on investors choosing another sales
charge option. See "Plan of Distribution" and "Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances. Class A
shares are also subject to a 12b-1 fee of up to 0.25% of the average daily net
assets of the Class. See "Initial Sales Charge Alternative--Class A Shares."
CLASS B SHARES. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed
within three years after purchase.) This CDSC may be waived for certain
redemptions. Class B shares are also subject to an annual 12b-1 fee of 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's Class B
shares since the inception of the Fund (not including reinvestments of dividends
or capital gains distributions), less the average daily aggregate net asset
value of the Fund's Class B shares redeemed since the Fund's inception upon
which a CDSC has been imposed or waived, or (b) the average daily net assets of
Class B. The Class B shares' distribution fee will cause that Class to have
higher expenses and pay lower dividends than Class A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D shares. See
"Level Load Alternative--Class C Shares."
CLASS D SHARES. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares are
sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
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
23
<PAGE>
amount and intended length of his or her investment. Investors who prefer an
initial sales charge alternative may elect to purchase Class A shares. Investors
qualifying for significantly reduced or, in the case of purchases of $1 million
or more, no initial sales charges may find Class A shares particularly
attractive because similar sales charge reductions are not available with
respect to Class B or Class C shares. Moreover, Class A shares are subject to
lower ongoing expenses than are Class B or Class C shares over the term of the
investment. As an alternative, Class B and Class C shares are sold without any
initial sales charge so the entire purchase price is immediately invested in the
Fund. Any investment return on these additional investment amounts may partially
or wholly offset the higher annual expenses of these Classes. Because the Fund's
future return cannot be predicted, however, there can be no assurance that this
would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example, they
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A 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
<C> <S> <C> <C>
- -----------------------------------------------------------
A Maximum 5.25% 0.25% No
initial sales
charge reduced for
purchases of
$25,000 and over;
shares sold
without an initial
sales charge
generally subject
to a 1.0% CDSC
during first year.
- -----------------------------------------------------------
B Maximum 5.0% CDSC 1.0% B shares convert
during the first to A shares
year decreasing to automatically
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
24
<PAGE>
investments by certain other limited categories of investors) are not subject to
any sales charges at the time of purchase but are subject to a CDSC of 1.0% on
redemptions made within one year after purchase (calculated from the last day of
the month in which the shares were purchased), except for certain specific
circumstances. The CDSC will be assessed on an amount equal to the lesser of the
current market value or the cost of the shares being redeemed. The CDSC will not
be imposed (i) in the circumstances set forth below in the section "Contingent
Deferred Sales Charge Alternative--Class B Shares--CDSC Waivers," except that
the references to six years in the first paragraph of that section shall mean
one year in the case of Class A shares, and (ii) in the circumstances identified
in the section "Additional Net Asset Value Purchase Options" below. Class A
shares are also subject to an annual 12b-1 fee of up to 0.25% of the average
daily net assets of the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF PUBLIC OFFERING PERCENTAGE OF AMOUNT
SINGLE TRANSACTION PRICE 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
25
<PAGE>
sales charges in accordance with the above schedule if the cumulative net asset
value of Class A shares purchased in a single transaction, together with shares
of the Fund and other Morgan Stanley Dean Witter Funds previously purchased at a
price including a front-end sales charge (including shares of the Fund and other
Morgan Stanley Dean Witter Funds acquired in exchange for those shares, and
including in each case shares acquired through reinvestment of dividends and
distributions), which are held at the time of such transaction, amounts to
$25,000 or more. If such investor has a cumulative net asset value of shares of
FSC Funds and Class A and Class D shares that, together with the current
investment amount, is equal to at least $5 million ($25 million for certain
qualified plans), such investor is eligible to purchase Class D shares subject
to the $1,000 minimum initial investment requirement of that Class of the Fund.
See "No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm the
investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from DWR or other Selected Broker-Dealers. The cost of Class A shares of the
Fund or shares of other Morgan Stanley Dean Witter Funds which were previously
purchased at a price including a front-end sales charge during the 90-day period
prior to the date of receipt by the Distributor of the Letter of Intent, or of
Class A shares of the Fund or shares of other Morgan Stanley Dean Witter Funds
acquired in exchange for shares of such funds purchased during such period at a
price including a front-end sales charge, which are still owned by the
shareholder, may also be included in determining the applicable reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value by
the following:
(1) trusts for which MSDW Trust (which is an affiliate of the Investment
Manager) provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory, administrative and/or brokerage services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees, mandatory redemption upon
termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section 401(a)
of the Internal Revenue Code ("Qualified Retirement Plans") with at least 200
eligible employees and for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees;
(5) investors who are clients of a Morgan Stanley Dean Witter Financial
Advisor who joined Morgan Stanley Dean Witter from another investment firm
within six months prior to the date of purchase
26
<PAGE>
of Fund shares by such investors, if the shares are being purchased with the
proceeds from a redemption of shares of an open-end proprietary mutual fund of
the Financial Advisor's previous firm which imposed either a front-end or
deferred sales charge, provided such purchase was made within sixty days after
the redemption and the proceeds of the redemption had been maintained in the
interim in cash or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE
ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain 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
27
<PAGE>
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 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
28
<PAGE>
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 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
29
<PAGE>
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
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
30
<PAGE>
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 $1,807,418, which amount is equal to 1.0%
of the Fund's average daily net assets for the fiscal year. The payments accrued
under the Plan were calculated pursuant to clause (b) of the compensation
formula under the Plan. 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 $505 and $6,449, respectively, which amounts on an annualized basis
are equal to 0.24% and 1.00% of the average daily net assets of Class A and
Class C, respectively, for such period.
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
$16,172,790 at May 31, 1998, which was equal to 12.92% 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
account executives at the time of sale totalled $3,593 in the case of Class C at
December 31, 1997, which amount was equal to 0.87% 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.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time, on each day that the New York Stock Exchange is open (or, on days
when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier
time) by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the Class
A, Class B, Class C and Class D shares will be invested together in a single
portfolio. The net asset value of
31
<PAGE>
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 or quotation service, 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); and (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest bid price. When
market quotations are not readily available, including circumstances under which
it is determined by the Investment Manager that sale and bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Board of Trustees. 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.
Short-term debt 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.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.
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.
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),
32
<PAGE>
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 AND DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share next determined after receipt
by the Transfer Agent, by returning the check or the proceeds to the Transfer
Agent within 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-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of 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 dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable CDSC
will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase of
Fund Shares"). Therefore, any shareholder participating in the Withdrawal Plan
will have sufficient shares redeemed from his or her account so that the
proceeds (net of any applicable CDSC) to the shareholder will be the designated
monthly or quarterly amount. Withdrawal plan payments should not be considered
as dividends, yields or income. If periodic withdrawal plan payments
continuously exceed net investment income and net capital gains, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Each withdrawal constitutes a redemption of shares and any gain or
loss realized must be recognized for federal income tax purposes.
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 and five 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
33
<PAGE>
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 the net asset value determined the
following business 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 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, upon a redemption
of shares which results in a CDSC being imposed, a credit (not to exceed the
amount of the CDSC) will be given in an amount equal to the Exchange Fund 12b-1
distribution fees incurred on or after that date which are attributable to those
shares. (Exchange Fund 12b-1 distribution fees are described in the prospectuses
for those funds.) Class B shares of the Fund acquired in exchange for 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 of the shareholder not later than ten days following such
34
<PAGE>
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 a shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the Shareholder's account. An exchange will be
treated for federal income tax purposes the same as a repurchase or redemption
of shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an exchange
may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Morgan
Stanley Dean Witter Funds (for which the Exchange Privilege is available)
pursuant to this Exchange Privilege by contacting their Morgan Stanley Dean
Witter Financial Advisor or other Selected Broker-Dealer representative (no
Exchange Privilege Authorization Form is required). Other shareholders (and
those shareholders who are clients of DWR or another Selected Broker-Dealer but
who wish to make exchanges directly by writing or telephoning the Transfer
Agent) must complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Transfer Agent, to
initiate an exchange. If the Authorization Form is used, exchanges may be made
in writing or by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures 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 experience with the Morgan Stanley Dean Witter Funds in the past.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative or the Transfer Agent for
further information about the Exchange Privilege.
35
<PAGE>
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(s), the shares may be redeemed by surrendering the certificates
with a written request for redemption, along with any additional information
required by the Transfer Agent.
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 next computed (see "Purchase of Fund Shares") after such repurchase
order is received by DWR or other Selected Broker-Dealer, reduced by any
applicable CDSC.
The CDSC, if any, will be the only fee imposed 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 redemption suspended under
unusual circumstances; e.g., when normal trading is not taking place on the New
York Stock Exchange. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their Morgan Stanley Dean Witter Financial Advisor
or other Selected Broker-Dealer representative regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund in the same Class from which such shares were redeemed or
repurchased, at 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 to redeem, on sixty
days' notice and at net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares due to redemptions
by the shareholder have a value of less than $100 or such lesser amount as may
be fixed by the Trustees or, in the case of an account opened through
EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account. However, before the Fund redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the value
of the shares is less than the applicable amount and allow him or her sixty days
to make an
36
<PAGE>
additional investment in an amount which will increase the value of his or her
account to at least the applicable amount before the redemption is processed. No
CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends separately for
each Class of shares and intends to pay dividends and to distribute
substantially all of its net investment income and distribute capital gains, if
any, once each year. The Fund may, however, determine either to distribute or to
retain all or part of any long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
shares of the same Class and automatically credited to the shareholder's account
without issuance of a share certificate unless the shareholder requests in
writing that all dividends and/or distributions be paid in cash. Shares acquired
by dividend and distribution reinvestments will not be subject to any front-end
sales charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. Distributions paid on Class A and Class D shares will be higher than
for Class B and Class C shares because distribution fees paid by Class B and
Class C shares are higher. (see "Shareholder Services--Automatic Investment of
Dividends and Distributions.")
TAXES. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise qualify as
a regulated investment company under Subchapter M of the Internal Revenue Code,
it is not expected that the Fund will be required to pay any Federal income tax
on any such income and capital gains. Shareholders will normally have to pay
Federal income taxes, and any state and local income taxes, on the dividends and
distributions they receive from the Fund.
Distributions of net investment income and net 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. Some
part of such dividends and distributions may be eligible for the Federal
dividends received deduction available to the Fund's corporate shareholders.
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. 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.
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.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes
37
<PAGE>
imposed by foreign countries. If it qualifies for and makes the appropriate
election with the Internal Revenue Service, the Fund will report annually to its
shareholders the amount per share of such taxes to enable shareholders to claim
United States foreign tax credits or deductions with respect to such taxes. In
the absence of such an election, the Fund would deduct foreign tax in computing
the amount of its distributable income.
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 will be incurred by shareholders, for the stated
periods. It also assumes reinvestment of all dividends and distributions paid by
the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average, and
year-by-year or other types of total return figures. The Fund may also advertise
the growth of hypothetical investments of $10,000, $50,000 and $100,000 in each
Class of shares of the Fund. Such calculations may or may not reflect the
deduction of any sales charge which, if reflected, would reduce the performance
quoted. The Fund from time to time may also advertise its performance relative
to certain performance rankings and indexes compiled by independent
organizations, such as mutual fund performance rankings of Lipper Analytical
Services, Inc.
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
circumstances, be held personally liable as partners for obligations of the
Fund. However, the Declaration of Trust contains
38
<PAGE>
an express disclaimer of shareholder liability for acts or obligations of the
Fund, requires that Fund obligations include such disclaimer, and provides for
indemnification and reimbursement of expenses out of the Fund's property for any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself would be unable
to meet its obligations. Given the above limitations on shareholder personal
liability, and the nature of the Fund's assets and operations, in the opinion of
Massachusetts counsel to the Fund, the risk to shareholders of personal
liability is remote.
CODE OF ETHICS. 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 purchase) 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.
The Fund's Sub-Advisor also has a Code of Ethics which complies with
regulatory requirements and, insofar as it relates to persons associated with
the Fund, 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
non-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.
39
<PAGE>
Morgan Stanley Dean Witter
Japan 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
Thomas F. Caloia
Treasurer
CUSTODIAN
The Chase Manhattan Bank
One Chase Plaza
New York, NY 10005
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.
SUB-ADVISOR
Morgan Grenfell Investment Services Limited
MORGAN STANLEY
DEAN WITTER
JAPAN FUND
[PHOTO]
PROSPECTUS -- JULY 29, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JULY 29, 1998
MORGAN STANLEY
DEAN WITTER
JAPAN FUND
- --------------------------------------------------
Morgan Stanley Dean Witter Japan Fund (the "Fund") is an open-end,
non-diversified management investment company whose investment objective is to
seek long-term capital appreciation. The Fund seeks to achieve its objective by
investing primarily in securities of issuers located in Japan (see "Investment
Objective and Policies" in the Prospectus).
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 the 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 Japan Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management............................................................ 3
Trustees and Officers.................................................................. 8
Investment Practices and Policies...................................................... 14
Investment Restrictions................................................................ 30
Portfolio Transactions and Brokerage................................................... 31
The Distributor........................................................................ 33
Determination of Net Asset Value....................................................... 37
Purchase of Fund Shares................................................................ 38
Shareholder Services................................................................... 40
Redemptions and Repurchases............................................................ 45
Dividends, Distributions and Taxes..................................................... 47
Performance Information................................................................ 49
Description of Shares.................................................................. 50
Custodian and Transfer Agent........................................................... 51
Independent Accountants................................................................ 51
Reports to Shareholders................................................................ 51
Legal Counsel.......................................................................... 51
Experts................................................................................ 51
Registration Statement................................................................. 51
Financial Statements--May 31, 1998..................................................... 52
Report of Independent Accountants...................................................... 67
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts business
trust" and was organized under the laws of the Commonwealth of Massachusetts on
January 22, 1996 under the name Dean Witter Japan 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 Japan 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 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":
<TABLE>
<CAPTION>
OPEN-END FUNDS
<C> <S>
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.
30 Morgan Stanley Dean Witter Income Builder Fund
31 Morgan Stanley Dean Witter Information Fund
</TABLE>
3
<PAGE>
<TABLE>
<C> <S>
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
<CAPTION>
CLOSED-END FUNDS
<C> <S>
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
17 Municipal Income Trust II
18 Municipal Income Trust III
19 Municipal Premium Income Trust
20 InterCapital New York Quality Municipal Securities
</TABLE>
4
<PAGE>
<TABLE>
<C> <S>
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"):
<TABLE>
<CAPTION>
OPEN-END FUNDS
<C> <S>
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
<CAPTION>
CLOSED-END FUNDS
<C> <S>
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 "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
supervise the investment of the Fund's assets including the placing of orders
for the purchase and sale of portfolio securities. The Investment Manager,
through consultation with Morgan Grenfell Investment Services Ltd. (the "Sub-
Advisor") and through its own portfolio management staff, 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 Management Agreement, 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 certain 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 perform its
administrative services under the Agreement.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement, by the Sub-Advisor pursuant to the Sub-Advisory Agreement
(see below) or by the distributor of the Fund's shares, Morgan Stanley Dean
Witter Distributors Inc. ("Morgan Stanley Distributors" or the
5
<PAGE>
"Distributor") (see "Purchase of Fund Shares") 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 Sub-Advisor or any
corporate affiliate of the Investment Manager or Sub-Advisor; 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 or Sub-Advisor (not including
compensation or expenses of attorneys who are employees of the Investment
Manager) and independent accountants; membership dues of industry associations;
interest on the Fund's 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
(depending upon the nature of the legal claim, liability or lawsuit) and all
other costs of the Fund's operations properly payable by the Fund. 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.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its obligation
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 Management Agreement in no way
restricts the Investment Manager from acting as investment manager or advisor to
others.
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 annual
rate of 1.0% to the daily net assets of the Fund. 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 period April 26, 1996 (commencement
of operations) through May 31, 1996 and the fiscal years ended May 31, 1997 and
May 31, 1998, the Fund accrued to the Investment Manager total compensation
under the Investment Management Agreement of $249,726, $2,415,212 and
$1,817,407, respectively.
Pursuant to a sub-advisory agreement between the Investment Manager and
Sub-Advisor, the Sub-Advisor has been retained, subject to the overall
supervision of the Investment Manager and the Trustees of the Fund, to
continuously furnish investment advice concerning individual security
selections, asset allocations and overall economic trends and to manage the
Fund's portfolio subject to the supervision of the Investment Manager.
Morgan Grenfell Investment Services Limited ("MGIS") was organized as a
British corporation in 1972 and manages, as of December 31, 1997, assets of
approximately $16.4 billion for primarily U.S. corporate and public employee
benefit plans, investment companies, endowments and foundations. MGIS' principal
office is located at 20 Finsbury Circus, London, England. MGIS is a subsidiary
of London based Morgan Grenfell Asset Management Limited which is itself a
subsidiary of London-based Morgan Grenfell Group plc (which is owned by Deutsche
Bank AG, an international commercial and investment banking group) and is
registered as an investment adviser under the Investment Advisers Act of 1940.
In
6
<PAGE>
1838 Morgan Grenfell was founded to provide merchant banking services, primarily
trade financing between Great Britain and the United States. In 1958, its
investment management arm began operations. In recent years Morgan Grenfell
Group plc has achieved a prominent position in the securities industry by
providing investment and commercial banking services, financial services, and
discretionary management and advisory services covering all of the world's
leading securities markets. Morgan Grenfell Asset Management Limited, through
its various investment management subsidiaries, which have extensive experience
in global investment management, is managing, as of December 31, 1997,
approximately $160.9 billion worldwide.
Both the Investment Manager and the Sub-Advisor have authorized any of their
directors, officers and employees who have been elected as Trustees or officers
of the Fund to serve in the capacities in which they have been elected. Services
furnished by the Investment Manager and the Sub-Advisor may be furnished by
directors, officers and employees of the Investment Manager and the Sub-Advisor.
In connection with the services rendered by the Sub-Advisor, the Sub-Advisor
bears the following expenses: (a) the salaries and expenses of its personnel;
and (b) all expenses incurred by it in connection with performing the services
provided by it as Sub-Advisor, as described above.
As full compensation for the services and facilities furnished to the Fund
and the Investment Manager and expenses of the Fund and the Investment Manager
assumed by the Sub-Advisor, the Investment Manager pays the Sub-Advisor monthly
compensation equal to 40% of the Investment Manager's monthly compensation
payable under the Management Agreement. The Investment Manager informed the Fund
that it accrued during the fiscal period April 26, 1996 (commencement of
operations) through May 31, 1996 and during the fiscal years ended May 31, 1997
and May 31, 1998 total compensation to the Sub-Advisor of $99,890, $966,085 and
$726,963, respectively.
The Investment Manager has paid the organizational expenses of the Fund of
approximately $207,000 incurred prior to the offering of the Fund's shares. The
Fund will reimburse the Investment Manager for such expenses. The Fund has
deferred and is amortizing the organizational expenses on the straight line
method over a period not to exceed five years from the date of commencement of
the Fund's operations.
The Management Agreement and the Sub-Advisory Agreement (the "Agreements")
were initially approved by the Trustees on February 21, 1997. The Agreements are
substantially identical to prior investment management and sub-advisory
agreements which were initially approved by the Board of Trustees on February
15, 1996 and by MSDW Advisors as the then sole shareholder on February 20, 1996.
The Agreements took effect on May 31, 1997 upon the consummation of the merger
of Dean Witter, Discover & Co. with Morgan Stanley Group Inc. The Agreements may
be terminated at any time, without penalty, on thirty days' notice by the Board
of Trustees of the Fund, by the holders of a majority, as defined in the
Investment Company Act of 1940 (the "Act"), of the outstanding shares of the
Fund, or by the Investment Manager. The Agreements will automatically terminate
in the event of their assignment (as defined in the Act).
Under their terms, the Agreements will continue in effect until April 30,
1999, and from year to year thereafter, provided continuance of the Agreements
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 June
30, 1998:
The following owned 5% or more of the outstanding shares of Class A on July
7, 1998: Dean Witter Reynolds as Custodian for Perry S. Bruno, IRA rollover,
dated 02/24/94, 2663 Sherwood Drive, Salt Lake City, UT 84108-2466 -- 27.134;
Shinn-Fu Chuang & Jen-Ian Chuang trustees of Shinn-Fu & Jen-Ian Chuang Family
Trust dated 8-28-97, 6474 via Corral Street, Anaheim, CA 92807 -- 8.487%;
William S.
7
<PAGE>
Paddock and Jane Knox Paddock Jtwros, 308 Valerie Drive, Waverly, OH 45690-1525
- -- 7.617%; Morgan Stanley Dean Witter Advisors Inc., Maurice Bendrihem, 2 World
Trade Center, 73rd Floor, New York, NY 10048-0203 -- 7.060%; Dean Witter
Reynolds, Custodian for Edward A. Baroody, IRA standard rollover dated 2-10-82,
8811 Sandy Ridge Ct., Fairfax, VA 22031-3232 -- 6.467%; Dean Witter Reynolds
Custodian for Ralph Lang IRA standard dated 7/14/84, 170 Mt. Zion Road,
Florence, KY 41042-3272 -- 5.244%; The following owned 5% or more of the
outstanding shares of Class C on July 7, 1998: Whitepark Investment & Holding
Ltd, Rehov-Hehilutz, 44-3 Jerusalem, 96222 Israel -- 7.173%; The following owned
5% or more of the outstanding shares of Class D on July 7, 1998: Hare & Company,
c/o the Bank of New York, P.O. Box 11203, New York, N.Y. 10286-1203 -- 98.022%;
The following owned 25% or more of the outstanding shares of Class A on July 7,
1998: Dean Witter Reynolds Custodian for Perry S. Bruno, IRA rollover dated
02/24/94, 2663 Sherwood Drive, Salt Lake City, UT 84108-2466 -- 27.134%; The
following owned 25% or more of the outstanding shares of Class D on July 7,
1998: Hare & Company, c/o of the Bank of New York, P.O. Box 11203, New York,
N.Y. 10286-1203 -- 98.022%.
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
Management Agreement is terminated, or if the affiliation between MSDW Advisors
and its parent 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
- --------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------ --------------------------------------------------
<S> <C>
Michael Bozic (57) Chairman and Chief Executive Officer of Levitz
Trustee Furniture Corporation (since November, 1995);
c/o Levitz Furniture Director or Trustee of the Morgan Stanley Dean
Corporation Witter Funds; formerly President and Chief
7887 N. Federal Highway Executive Officer of Hills Department Stores (May,
Boca Raton, Florida 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.
Charles A. Fiumefreddo* (65) Chairman, Director or Trustee, President and Chief
Chairman, President, Chief Executive Officer of the Morgan Stanley Dean
Executive Officer and Trustee Witter Funds; Chairman, Chief Executive Officer
Two World Trade Center and Trustee of the TCW/DW Funds; formerly
New York, New York Chairman, Chief Executive 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).
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------ --------------------------------------------------
<S> <C>
Edwin J. Garn (65) Director or Trustee of the Morgan Stanley Dean
Trustee Witter 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
Salt Lake City, Utah 84111 City, Utah (1971-1974); 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;
Two World Trade Center Chairman of the Audit Committee and Trustee of the
New York, New York TCW/DW Funds; 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 Advisor (1964-1978).
Wayne E. Hedien (64) Retired; Director or Trustee of the Morgan Stanley
Trustee Dean Witter Funds; Director of The PMI Group, Inc.
c/o Gordon Altman Butowsky (private mortgage insurance); Trustee and Vice
Weitzen Shalov & Wein Chairman of The Field Museum of Natural History;
Counsel to the Independent formerly associated with the Allstate Companies
Trustees (1966-1994), most recently as Chairman of The
114 West 47th Street Allstate Corporation (March, 1993-December, 1994)
New York, New York 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.
Dr. Manuel H. Johnson (49) Senior Partner, Johnson Smick International, Inc.,
Trustee a consulting firm; Co-Chairman and a founder of
c/o Johnson Smick the Group of Seven Council (G7C), an international
International, Inc. economic commission; Director or Trustee of the
1133 Connecticut Avenue, N.W. Morgan Stanley Dean Witter Funds; Trustee of the
Washington, D.C. 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
237 Park Avenue TCW/DW Funds; formerly Vice President, Bankers
New York, New York Trust Company and BT Capital Corporation
(1984-1988); Director of various business
organizations.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------ --------------------------------------------------
<S> <C>
Philip J. Purcell* (54) Chairman of the Board of Directors and Chief
Trustee Executive Officer of MSDW, DWR and Novus Credit
1585 Broadway Services Inc.; Director of MSDW Distributors;
New York, New York Director or Trustee of 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
Trustee Dean Witter Funds; Trustee of the TCW/DW Funds;
c/o Gordon Altman Butowsky Director of Citizens Utilities Company; formerly
Weitzen Shalov & Wein Executive Vice President and Chief Investment
Counsel to the Independent Officer of the Home Insurance Company (August,
Trustees 1991-September, 1995).
114 West 47th Street
New York, New York
Barry Fink (43) Senior Vice President (since March, 1997) and
Vice President, Secretary Secretary and General Counsel (since February,
and General Counsel 1997) and Director (since July, 1998) of MSDW
Two World Trade Center Advisors and MSDW Services; Senior Vice President
New York, New York (since March, 1997) and Assistant 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.
Thomas F. Caloia (52) First Vice President and Assistant Treasurer of
Treasurer InterCapital and DWSC; Treasurer of the Dean
Two World Trade Center Witter Funds and the TCW/DW Funds.
New York, New York
<FN>
- ------------------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
</TABLE>
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 Mark Bavoso,
Edward F. Gaylor 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
10
<PAGE>
Witter Funds, comprised of 132 portfolios. As of June 30, 1998, the Morgan
Stanley Dean Witter Funds had total net assets of approximately $107 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.
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; and 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.
11
<PAGE>
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.
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
COMPENSATION
NAME OF INDEPENDENT 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 TOTAL CASH
CHAIRMAN OF FOR SERVICE COMPENSATION
FOR SERVICE INDEPENDENT AS FOR
AS DIRECTOR OR DIRECTORS/TRUSTEES CHAIRMAN OF SERVICES TO
TRUSTEE AND AND AUDIT INDEPENDENT 84
COMMITTEE FOR SERVICE AS COMMITTEES OF TRUSTEES MORGAN
MEMBER OF 84 TRUSTEE AND 84 AND AUDIT STANLEY
MORGAN STANLEY COMMITTEE MORGAN STANLEY COMMITTEES OF DEAN WITTER
NAME OF DEAN WITTER MEMBER OF 14 DEAN WITTER 14 FUNDS AND 14
INDEPENDENT TRUSTEE FUNDS TCW/DW FUNDS 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
12
<PAGE>
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 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
BENEFITS BENEFITS
ESTIMATED ACCRUED AS UPON
CREDITED YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
RETIREMENT ELIGIBLE ADOPTING ADOPTING
NAME OF INDEPENDENT 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.
13
<PAGE>
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
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 currencies trade.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation then 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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. As discussed in the
Prospectus, the Fund may enter into forward foreign currency exchange contracts
("forward contracts") as a hedge against fluctuations in future foreign exchange
rates. The Fund will conduct its foreign currency exchange transactions either
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through entering into forward contracts to purchase or sell
foreign currencies. A forward contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large, commercial and
investment banks) and their customers. Such forward contracts will only be
entered into with United States banks and their foreign branches or foreign
banks whose assets total $1 billion or more. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
When management of the Fund believes that the currency of a particular
foreign country may suffer a substantial movement against the U.S. dollar, it
may enter into a forward contract to purchase or sell, for a fixed amount of
dollars or other currency, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. The Fund will not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
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investment decisions made with regard to overall diversification strategies.
However, management of the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Fund will be served. The Fund's custodian bank will place
cash, U.S. Government securities or other appropriate liquid portfolio
securities in a segregated account of the Fund in an amount equal to the value
of the Fund's total assets committed to the consummation of forward contracts
entered into under the circumstances set forth above. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with respect to such
contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign securities denominated in a foreign currency against adverse exchange
rate moves vis-a-vis the U.S. dollar, at the maturity of the forward contract
for delivery by the Fund of a foreign currency, the Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency (however, the ability of the Fund to terminate a contract is
contingent upon the willingness of the currency trader with whom the contract
has been entered into to permit an offsetting transaction). It is impossible to
forecast the market value of portfolio securities at the expiration of the
contract. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency the
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of the foreign currency. Conversely, it may be necessary to sell
on the spot market some of the foreign currency received upon the sale of the
portfolio securities if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase of
the foreign currency, the Fund will realize a gain to the extent the price of
the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, the Fund will suffer a loss
to the extent the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Fund has written a call option on a security or the
currency in which it is denominated, it may wish to enter into a forward
contract to purchase or sell the foreign currency in which the security is
denominated. A forward contract would, for example, hedge the risk of the
security on which a call option has been written declining in value to a greater
extent than the value of the premium received for the option. The Fund will
maintain with its Custodian at all times, cash, U.S. Government securities, or
other appropriate liquid portfolio securities in a segregated account equal in
value to all forward contract obligations and option contract obligations
entered into in hedge situations such as this.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the spread
between the prices at
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which they are buying and selling various currencies. Thus a dealer may offer to
sell a foreign currency to the Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer.
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 net assets.
The Fund's investments in repurchase agreements may at times be substantial
when, in the view of the Investment Manager and/or the Sub-Advisor, liquidity,
tax or other considerations warrant.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may also use
reverse repurchase agreements and dollar rolls as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. Generally, the effect of such a transaction is
that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are only advantageous if the interest cost to the
Fund of the reverse repurchase transaction is less than the cost of obtaining
the cash otherwise.
The Fund may enter into dollar rolls in which the Fund sells securities for
delivery in the current months and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund will establish a segregated account with its custodian bank in
which it will maintain cash, U.S. Government Securities or other liquid high
grade debt obligations equal in value to its obligations in respect of reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements and dollar
rolls involve the risk that the market value of the securities the Fund is
obligated to repurchase under the
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agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Fund's use of proceeds of the agreement may
be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques
involving leverage, and are considered borrowings by the Fund.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to notice provisions described below), and are at all times
secured by cash or cash equivalents, which are maintained in a segregated
account pursuant to applicable regulations and that are equal to at least the
market value, determined daily, of the loaned securities. The advantage of such
loans is that the Fund continues to receive the income on the loaned securities
while at the same time earning interest on the cash amounts deposited as
collateral, which will be invested in short-term obligations. The Fund will not
lend its portfolio securities if such loans are not permitted by the laws or
regulations of any state in which its shares are qualified for sale and will not
lend more than 25% of the value of its total assets. A loan may be terminated by
the borrower on one business day's notice, or by the Fund on four business days'
notice. If the borrower fails to deliver the loaned securities within four days
after receipt of notice, the Fund could use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Fund's management to be
creditworthy and when the income which can be earned from such loans justifies
the attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price during
the loan period would inure to the Fund. The creditworthiness of firms to which
the Fund lends its portfolio securities will be monitored on an ongoing basis by
the Investment Manager pursuant to procedures adopted and reviewed, on an
ongoing basis, by the Board of Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund will pay reasonable finder's, administrative
and custodial fees in connection with a loan of its securities. However, the
Fund has no intention of lending any of its portfolio securities during its
fiscal year ending May 31, 1999.
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 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, the
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 high grade debt 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,
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such as approval of a merger, corporate reorganization, leveraged buyout or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio of the Fund until the Investment Manager and/or the
Sub-Advisor 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 liquid portfolio securities equal in value to
recognized commitments for such securities. Once a segregated account has been
established, if the anticipated event does not occur and the securities are not
issued, the Fund will have lost an investment opportunity. The 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 the sale.
RIGHTS AND WARRANTS. The Fund may invest up to 5% of the value of its net
assets in warrants, including not more than 2% in warrants not listed on either
a recognized domestic or foreign exchange. Warrants are, in effect, an option to
purchase equity securities at a specific price, generally valid for a specific
period of time, and have no voting rights, pay no dividends and have no rights
with respect to the corporations issuing them. The Fund may acquire warrants and
stock rights attached to other securities without reference to the foregoing
limitations.
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.) 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 ("SEC") 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 the SEC's current policies may not
exceed 15% of the Fund's net assets, and will not be subject to the 5%
limitation set out in the preceding paragraph.
The market for certain private placements purchased pursuant to Rule 144A
may be initially small or may, subsequent to purchase, become illiquid.
Furthermore, the Investment Manager may not posses all the information
concerning an issue of securities that it wishes to purchase in a private
placement to which it would normally have had access, had the registration
statement necessitated by a public offering been filed with the Securities and
Exchange Commission.
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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 series to effect closing transactions,
and may hedge against potential changes in the market value of investments (or
anticipated investments) and facilitate the reallocation of the Fund's assets
into and out of equities and fixed-income securities by purchasing put and call
options on portfolio (or eligible portfolio) securities and engaging in
transactions involving futures contracts and options on such contracts. The Fund
may also hedge against potential changes in the market value of the currencies
in which its investments (or anticipated investments) are denominated by
purchasing put and call options on currencies and engage in transactions
involving currency 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") and other clearing entities including foreign exchanges.
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.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be enabled to sell the foreign
currency for a fixed amount of U.S. dollars, thereby "locking in" the dollar
value of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, the Fund may purchase call options on foreign currencies
in which securities it anticipates purchasing are denominated to secure a set
U.S. dollar price for such securities and protect against a decline in the value
of the U.S. dollar against such foreign currency. The Fund may also purchase
call and put options to close out written option positions.
The Fund may also write call options on foreign currency to protect against
potential declines in its portfolio securities which are denominated in foreign
currencies. If the U.S. dollar value of the portfolio securities falls as a
result of a decline in the exchange rate between the foreign currency in which a
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security is denominated and the U.S. dollar, then a loss to the Fund occasioned
by such value decline would be ameliorated by receipt of the premium on the
option sold. At the same time, however, the Fund gives up the benefit of any
rise in value of the relevant portfolio securities above the exercise price of
the option and, in fact, only receives a benefit from the writing of the option
to the extent that the value of the portfolio securities falls below the price
of the premium received. The Fund may also write options to close out long call
option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not purchase or
write such options unless and until, in the opinion of the management of the
Fund, the market for them has developed sufficiently to ensure that the risks in
connection with such options are not greater than the risks in connection with
the underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. In addition,
options on foreign currencies are affected by all of those factors which
influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
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 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.
COVERED CALL WRITING. The Fund is permitted to write covered call options
on portfolio securities and the U.S. dollar and foreign currencies, without
limit, in order to aid in achieving its investment objective. Generally, a call
option is "covered" if the Fund owns, or has the right to acquire, without
additional cash consideration (or for additional cash consideration held for the
Fund by its Custodian in a segregated account) the underlying security
(currency) subject to the option except that in the case of call options on U.S.
Treasury Bills, the Fund might own U.S. Treasury Bills of a different series
from those underlying the call option, but with a principal amount and value
corresponding to the exercise price and a maturity date no later than that of
the securities (currency) deliverable under the call option. A call option is
also covered if the Fund holds a call on the same security (currency) as the
underlying security (currency) of the written option, where the exercise price
of the call used for coverage is equal to or less than the exercise price of the
call written or greater than the exercise price of the call written if the mark
to
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market difference is maintained by the Fund in cash, U.S. Government securities
or other liquid portfolio securities which the Fund holds in a segregated
account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to achieve a greater total return than would be
realized from holding the underlying securities (currency) alone. Moreover, the
income received from the premium will offset a portion of the potential loss
incurred by the Fund if the securities (currency) underlying the option are
ultimately sold (exchanged) by the Fund at a loss. The premium received will
fluctuate with varying economic market conditions. If the market value of the
portfolio securities (or the currencies in which they are denominated) upon
which call options have been written increases, the Fund may receive less total
return from the portion of its portfolio upon which calls have been written than
it would have had such calls not been written.
As regards listed options and certain OTC options, during the option period,
the Fund may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Fund to write another call option on
the underlying security (currency) with either a different exercise price or
expiration date or both. 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 (currency).
Conversely, a gain resulting from a closing purchase transaction could be offset
in whole or in part or exceeded by a decline in the market value of the
underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying security
(currency) during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security (currency)
equal to the difference between the purchase price of the underlying security
(currency) and the proceeds of the sale of the security (currency) plus the
premium received for 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 (currency) at the time
the option is written. See "Risks of Options Transactions," below.
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 and OTC put options written by the Fund
will be exercisable by the purchaser only on a specific date). A put is
"covered" if, at all times, the Fund maintains, in a segregated account
maintained on its behalf at the Fund's Custodian, cash, U.S. Government
securities or other liquid portfolio securities in an amount equal to at least
the exercise price of the option, at all times during the option period.
Similarly, a short put position could be covered by the Fund by its purchase of
a put option on the same security 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
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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).
In the case of listed options, during the option period, the Fund may be
required, at any time, to make payment of the exercise price against delivery of
the underlying security. 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).
The Fund may also purchase put options to close out written put positions in
a manner similar to call options closing purchase transactions. In addition, the
Fund may sell a put option which it has previously purchased prior to the sale
of the securities (currency) 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
sold. Any such gain or loss could be offset in whole or in part by a change in
the market value of the underlying security (currency). If a put option
purchased by the Fund expired without being sold or exercised the premium would
be lost.
PURCHASING CALL AND PUT OPTIONS. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options in amounts equalling up to 5% of
its total assets. The Fund may purchase call options in order to close out a
covered call position (see "Covered Call Writing" above), to protect against an
increase in price of a security it anticipates purchasing or, in the case of a
call option on foreign currency to hedge against an adverse exchange rate move
of the currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The purchase
of the call option to effect a closing transaction on a call written
over-the-counter may be a listed or an OTC option. In either case, the call
purchased is likely to be on the same securities (currencies) and have the same
terms as the written option. If purchased over-the-counter, the option would
generally be acquired from the dealer or financial institution which purchased
the call written by the Fund.
The Fund may purchase put options on securities and currencies (or related
currencies) which it holds in its portfolio only to protect itself against a
decline in the value of the security (currency). If the value of the underlying
security (currency) were to fall below the exercise price of the put purchased
in an amount greater than the premium paid for the option, the Fund would incur
no additional loss. In addition, the Fund may sell a put option which it has
previously purchased prior to the sale of the securities (currencies) underlying
such option. Such a sale would result in a net gain or loss depending on whether
the amount received on the sale is more or less than the premium and other
transaction costs paid on the put option which is sold. Any such gain or loss
could be offset in whole or in part by a change in the market value of the
underlying security (currency). If a put option purchased by the Fund expired
without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. The successful use of options depends on the
ability of the Investment Manager and/or the Sub-Advisor to forecast correctly
interest rates and market movements. If the market value of the portfolio
securities (or the currencies in which they are denominated) upon which call
options have been written increases, the Fund may receive a lower total return
from the portion of its portfolio upon which calls have been written than it
would have had such calls not been written. 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
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security (or the currency in which it is denominated) increase, but has retained
the risk of loss should the price of the underlying security (currency) decline.
The covered put writer also retains the risk of loss should the market value of
the underlying security (currency) 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 (currency) at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting over-the-counter option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered call
option writer may not be able to sell (exchange) an underlying security
(currency) at a time when it might otherwise be advantageous to do so. A covered
put option writer who is unable to effect a closing purchase transaction or to
purchase an offsetting over-the-counter option would continue to bear the risk
of decline in the market price of the underlying security (currency) until the
option expires or is exercised. In addition, a covered put writer would be
unable to utilize the amount held in cash or U.S. Government or other liquid
portfolio securities as security for the put option for other investment
purposes until the exercise or expiration of the option.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option Exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer. However, the Fund may
be able to purchase an offsetting option which does not close out its position
as a writer but constitutes an asset of equal value to the obligation under the
option written. If the Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to maintain
the securities subject to the call, or the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can be
entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an Exchange or
the Options Clearing Corporation ("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.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the instruments underlying interest rate futures
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, futures or options thereon, the Fund could experience
delays and/or losses in liquidating open
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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.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities 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. Another such risk is that prices of interest rate
futures contracts may not move in tandem with the changes in prevailing interest
rates against which the Fund seeks a hedge. A correlation may also be distorted
by the fact that the futures market is dominated by short-term traders seeking
to profit from the difference between a contract or security price objective and
their cost of borrowed funds. Such distortions are generally minor and would
diminish as the contract approached maturity.
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 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, among others, 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." Options on stock indexes provide the Fund with a
means of protecting the Fund against the risk of market wide price movements. If
the Investment Manager and/or the Sub-Advisor anticipate 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
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the extent of the increase in the value of the put option. If the Investment
Manager and/or the Sub-Advisor anticipate 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 be able to write put options on stock indexes only if such
positions are covered by cash, U.S. Government securities or other liquid
portfolio securities equal to the aggregate exercise price of the puts, which
cover is held for the Fund in a segregated account maintained for it by the
Fund's Custodian. All call options on stock indexes written by the Fund will be
covered either by a portfolio of stocks substantially replicating the movement
of the index underlying the call option or by holding a separate call option on
the same stock index with a strike price no higher than the strike price of the
call option sold by the Fund.
RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are
settled in cash, call writers such as the Fund cannot provide in advance for
their potential settlement obligations by acquiring and holding the underlying
securities. A call writer can offset some of the risk of its writing position by
holding a diversified portfolio of stocks similar to those on which the
underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the securities
held will vary from the value of the index. Even if an index call writer could
assemble a stock portfolio that exactly reproduced the composition of the
underlying index, the writer still would not be fully covered from a risk
standpoint because of the "timing risk" inherent in writing index options. When
an index option is exercised, the amount of cash that the holder is entitled to
receive is determined by the difference between the exercise price and the
closing index level on the date when the option is exercised. As with other
kinds of options, the writer will not learn that it has been assigned until the
next business day, at the earliest. The time lag between exercise and notice of
assignment poses no risk for the writer of a covered call on a specific
underlying security, such as a common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as of a
fixed time in the past. So long as the writer already owns the underlying
security, it can satisfy its settlement obligations by simply delivering it, and
the risk that its value may have declined since the exercise date is borne by
the exercising holder. In contrast, even if the writer of an index call holds
stocks that exactly match the composition of the underlying index, it will not
be able to satisfy its assignment obligations by delivering those stocks against
payment of the exercise price. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date; and by the time it
learns that it has been assigned, the index may have declined, with a
corresponding decrease in the value of its stock portfolio. This "timing risk"
is an inherent limitation on the ability of index call writers to cover their
risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
FUTURES CONTRACTS. The Fund may purchase and sell interest rate and stock
index futures contracts ("futures contracts") that are traded on U.S. and
foreign commodity exchanges on such underlying securities as U.S. Treasury
bonds, notes and bills ("interest rate" futures), on the U.S. dollar and foreign
currencies, 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).
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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 fall, 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 futures contracts on the U.S. dollar and on
foreign currencies to hedge against an anticipated rise or decline in the value
of the U.S. dollar or foreign currency in which a portfolio security of the Fund
is denominated vis-a-vis another currency.
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 and currency 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. 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 sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of equity 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 liquid portfolio
securities equal to approximately 2% of the contract amount. Initial margin
requirements are established by the Exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits called "variation margin", with
the Fund's Custodian, in the account in the name of the broker, which are
reflective of price fluctuations in the futures contract. Currently, interest
rates futures contracts can be purchased on debt securities such as U.S.
Treasury Bills and Bonds,
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U.S. Treasury Notes with maturities between 6 1/2 and 10 years, GNMA
Certificates and Bank Certificates of Deposit.
CURRENCY FUTURES. Generally, foreign currency futures provide for the
delivery of a specified amount of a given currency, on the exercise date, for a
set exercise price denominated in U.S. dollars or other currency. Foreign
currency futures contracts would be entered into for the same reason and under
the same circumstances as forward foreign currency exchange contracts. The
Investment Manager and/ or the Sub-Advisor will assess such factors as cost
spreads, liquidity and transaction costs in determining whether to utilize
futures contracts or forward contracts in their foreign currency transactions
and hedging strategy. Currently, currency futures exist for, among other foreign
currencies, the Japanese yen, German mark, Canadian dollar, British pound, Swiss
franc and European currency unit.
Purchasers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. Further, settlement of a foreign currency
futures contract must occur within the country issuing the underlying currency.
Thus, the Fund must accept or make delivery of the underlying currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and may be
required to pay any fees, taxes or charges associated with such delivery which
are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the Fund will
not purchase or write options on foreign currency futures contracts unless and
until, in the Investment Manager's and/or the Sub-Advisor's opinion, the market
for such options has developed sufficiently that the risks in connection with
such options are not greater than the risks in connection with transactions in
the underlying foreign currency.
INDEX FUTURES CONTRACTS. 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. 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 Moody's Investment-Grade
Corporate Bond Index on the Chicago Board of Trade and the Value Line Stock
Index on the Kansas City 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),
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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
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
in accordance with the limitation described above. If the CFTC changes its
regulations so that the Fund would be permitted more latitude 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
successful use of futures and related options depends on the ability of the
Investment Manager and/or the Sub-Advisor to accurately predict market, interest
rate and currency movements. As stated in the Prospectus the Fund may sell a
futures contract to protect against the decline in the value of securities (or
the currency in which they are denominated) held by the Fund. However, it is
possible that the futures market may advance and the value of securities (or the
currency in which they are denominated) held in the portfolio of the Fund may
decline. If this occurred, the Fund would lose money on the futures contract and
also experience a decline in value of its portfolio securities. However, while
this could occur for a very brief period or to a very small degree, over time
the value of a diversified portfolio will tend to move in the same direction as
the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, (or the currency in which they are
denominated) and the value of such securities decreases, then the Fund may
determine not to invest in the securities as planned and will realize a loss on
the futures contract that is not offset by a reduction in the price of the
securities.
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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 liquid portfolio securities 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.
If the Fund maintains a short position in a futures contract or has sold a
call option on a futures contract, it will cover this position by holding, in a
segregated account maintained at its Custodian, cash, U.S. Government securities
or other 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.
Exchanges may limit the amount by which the price of 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. In the event of adverse price movements, the Fund would
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 delivery of the instruments underlying interest rate futures contracts
it holds at a time when it is disadvantageous to do so. The inability to close
out options and futures positions could also have an adverse impact on the
Fund's ability to effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign exchanges.
Greater margin requirements may limit the Fund's ability to enter into certain
commodity transactions on foreign exchanges. Moreover, differences in clearance
and delivery requirements on foreign exchanges may occasion delays in the
settlement of the Fund's transactions effected on foreign exchanges.
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" in the Prospectus and
the Statement of Additional Information.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volitility of portfolio securities (and the currencies in which they
are denominated) is that the prices of securities and indexes subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash prices of the Fund's portfolio securities (and the
currencies in which they are denominated). Another such risk is that prices of
interest rate futures contracts may not move in tandem with the changes in
prevailing interest rates against which the Fund seeks a hedge. A correlation
may also be distorted (a) temporarily, by short-term traders seeking to profit
from the difference between a contract or security price objective and their
cost of borrowed funds; (b) by investors in futures contracts electing to close
out their contracts through offsetting transactions rather than meet margin
deposit requirements; (c) by investors in futures contracts opting to make or
take delivery of underlying securities rather than engage in closing
transactions, thereby reducing liquidity of the futures market; and (d)
temporarily, by speculators who view the deposit requirements in the futures
markets as less onerous than margin requirements in the cash market. Due to the
possibility
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<PAGE>
of price distortion in the futures market and because of the imperfect
correlation between movements in the prices of securities and movements in the
prices of futures contracts, a correct forecast of interest rate trends may
still not result in a successful hedging transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Fund
may invest. In the event a liquid market does not exist, it may not be possible
to close out a futures position, and in the event of adverse price movements,
the Fund would continue to be required to make daily cash payments of variation
margin. In addition, limitations imposed by an exchange or board of trade on
which futures contracts are traded may compel or prevent the Fund from closing
out a contract which may result in reduced gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to make
or take delivery of the underlying securities 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.
The Investment Manager and the Sub-Advisor have substantial experience in
the use of the investment techniques described above under the heading "Options
and Futures Transactions," which techniques require skills different from those
needed to select the portfolio securities underlying various options and futures
contracts.
NEW INSTRUMENTS. New futures contracts, options and other financial
products and various combinations thereof continue to be developed. The Fund may
invest in any such futures, options or products as may be developed, to the
extent consistent with its investment objective and applicable regulatory
requirements.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate will not exceed
100%. A 100% turnover rate would occur, for example, if 100% of the securities
held in the Fund's portfolio (excluding all securities whose maturities at
acquisition were one year or less) were sold and replaced within one year.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund.
The Fund may not:
1. Purchase or sell real estate or interests therein, although the Fund
may purchase securities of issuers which engage in real estate operations
and securities secured by real estate or interests therein.
2. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
3. Borrow money, except that the Fund, (i) may borrow from a bank for
temporary or emergency purposes and (ii) may engage in reverse repurchase
agreements and dollar rolls, in amounts
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<PAGE>
not exceeding 5% (taken at the lower of cost or current value) of its total
assets (not including the amount borrowed).
4. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(3). For the purpose of this restriction, collateral arrangements with
respect to the writing of options and collateral arrangements with respect
to initial or variation margin for futures are not deemed to be pledges of
assets.
5. Issue senior securities as defined in the Act, except insofar as the
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase or reverse repurchase agreement; (b) purchasing
any securities on a when-issued or delayed delivery basis; (c) purchasing or
selling futures contracts, forward foreign exchange contracts or options;
(d) borrowing money in accordance with restrictions described above; or (e)
lending portfolio securities.
6. Make loans of money or securities, except: (a) by the purchase of
publicly distributed 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.
7. Make short sales of securities.
8. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the purchase
of a security on margin.
9. 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.
10. Invest for the purpose of exercising control or management of any
other issuer.
11. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets or in accordance with the provisions of Section 12(d) of the Act and
any Rules promulgated thereunder.
12. Purchase or sell commodities or commodities contracts except that
the Fund may purchase or sell futures contracts or options on futures.
In addition, as a nonfundamental policy, the Fund may not invest in other
investment companies in reliance on Sections 12(d)(1)(F), 12(d)(1)(G) or
12(d)(1)(J) of the Act.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
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
- --------------------------------------------------------------------------------
Subject to the general supervision of the Trustees, the Investment Manager
and the Sub-Advisor are 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 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
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<PAGE>
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. For the fiscal period April 26, 1996
(commencement of operations) through May 31, 1996 and the fiscal years ended May
31, 1997 and May 31, 1998, the Fund paid brokerage commissions in the amount of
$871,345, $205,275 and $74,116, respectively.
The Investment Manager and the Sub-Advisor currently serve as investment
advisers to a number of clients, including other investment companies, and may
in the future act as investment adviser to others. It is the practice of the
Investment Manager and the Sub-Advisor 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 and the Sub-Advisor 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 and the Sub-Advisor rely upon their 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, and 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.
In seeking to implement the Fund's policies, the Investment Manager and the
Sub-Advisor effect transactions with those brokers and dealers who the
Investment Manager and the Sub-Advisor believe provide the most favorable prices
and are capable of providing efficient executions. If the Investment Manager
and/or the Sub-Advisor believe 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 and/or the Sub-Advisor. 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 and the
Sub-Advisor from brokers and dealers may be of benefit to them in the management
of accounts of some of their 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/or the Sub-Advisor and thereby
reduce their expenses, it is of indeterminable value and the fees paid to the
Investment Manager and the Sub-Advisor are not reduced by any amount that may be
attributable to the value of such services. During the fiscal
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<PAGE>
year ended May 31, 1998, the Fund did not pay any brokerage commissions because
of research services provided.
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.
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 and/or affiliated broker-dealers of the
Sub-Advisor, i.e.; Morgan Grenfell Asia and Partners Securities Pte. Limited and
Morgan Grenfell Asia Securities (Hong Kong Limited). 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 DWR to receive no more than
the remuneration which would be expected to be received by an unaffiliated
broker in a commensurate arm's-length transaction. Furthermore, the Board of
Trustees of the Fund, including a majority of the Trustees who are not
"interested" persons of the Fund, as defined in the Act, have adopted procedures
which are reasonably designed to provide that any commissions, fees or other
remuneration paid to 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 period June 1, 1997 through May 31,
1998, the Fund paid a total of $8,553 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 11.54% 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 5.69% of the aggregate dollar value of all
portfolio transcations of the Fund during the period for which commissions were
paid.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
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 dealer agreement with DWR, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into similar agreements with other selected dealers ("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, a Distribution Agreement (the "Distribution Agreement") appointing the
Distributor exclusive distributor of the Fund's shares and providing for the
Distributor to bear distribution expenses not borne by the Fund. By its terms,
the Distribution Agreement 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
33
<PAGE>
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 shares, 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 Fund's 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 $7,949, $1,041,983 and $1,117,070 in
contingent deferred sales charges from Class B for the fiscal period April 26,
1996 (commencement of operations) through May 31, 1996 and during the fiscal
years ended May 31, 1997 and May 31, 1998, respectively, (b) approximately $0
and $368 in contingent deferred sales charges from Class A and Class C,
respectively, for the fiscal year ended May 31, 1998, and (c) approximately
$6,525 in front-end sales charges from Class A for the fiscal year ended May 31,
1998, none of which was retained by the Distributor.
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 adopted by a vote of the Trustees of the Fund on February 15,
1996 at a meeting of the Trustees called for the purpose of voting on such Plan.
The vote included the vote of a majority of the Trustees of the Fund who are not
"interested persons" of the Fund (as defined in the Act) and who have no direct
or indirect financial interest in the operation of the Plan (the "Independent
12b-1 Trustees"). In making their decision to adopt the Plan, the Trustees
requested from the Distributor and received such information as they deemed
necessary to make an informed determination as to whether or not adoption of the
Plan was in the best interests of the shareholders of the Fund. After due
consideration of the information received, the Trustees, including the
Independent 12b-1 Trustees, determined that adoption of the Plan would benefit
the shareholders of the Fund. MSDW Advisors, as sole shareholder of the Fund,
approved the Plan on February 28, 1996, whereupon the Plan went into effect. At
their meeting held on June 30, 1997, the Trustees, including a majority of the
Independant 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
34
<PAGE>
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 $1,807,418. This
amount is equal to 1.00% 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 $505 and $6,449, respectively, which amounts are equal to 0.24% and 1.00% 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 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.
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
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 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
35
<PAGE>
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 share 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.
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,
$22,819,579 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)
9.59% ($2,187,746)--advertising and promotional expenses; (ii) 1.39%
($317,777)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 89.02% ($20,314,056)--other expenses, including the
gross sales credit and the carrying charge, of which 7.76% ($1,576,880)
represents carrying charges, 37.33% ($7,582,935) 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 54.91% ($11,154,241) 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
36
<PAGE>
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
$16,172,790 as of 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, 1997, 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 Trustees requested and received from
the Distributor and reviewed all the information which they 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 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 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
- --------------------------------------------------------------------------------
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 on each day that the New York
Stock Exchange is open (or, on days when the New York Stock Exchange closes
prior to 4:00 p.m., at such earlier time), and on each other day in which there
is a sufficient degree of trading in the Fund's investments to affect the net
asset value, except that the net asset value may not be computed on a day on
which no orders to purchase, or tenders to sell or redeem, Fund shares have been
received. The New York Stock Exchange currently observes the following holidays:
New Year's Day; Reverend Dr. Martin Luther King, Jr. Day; President's Day; Good
Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and
Christmas Day.
37
<PAGE>
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 60
days, whereupon they will be valued at amortized cost using their value on the
61st day unless the Trustees determine such does not reflect the securities'
market value, in which case these securities will be valued at their fair value
as determined by the Trustees. Listed options on debt securities are valued at
the latest sale price on the exchange on which they are listed unless no sales
of such options have taken place that day, in which case they will be valued at
the mean between their latest bid and asked prices. Unlisted options on debt
securities and all options on equity securities are valued at the mean between
their latest bid and asked prices. Futures are valued at the latest sale price
on the commodities exchange on which they trade unless the Trustees determine
that such price does not reflect their market value, in which case they will be
valued at their fair value as determined by the Trustees. All other securities
and other assets are valued at their fair value as determined in good faith
under procedures established by and under the supervision of the Trustees.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
RIGHT OF ACCUMULATION. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other 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
38
<PAGE>
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 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
39
<PAGE>
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 OF
PAYMENT MADE AMOUNT REDEEMED
- ------------------------------------------------------------------------------------------ --------------------------
<S> <C>
First..................................................................................... 5.0%
Second.................................................................................... 4.0%
Third..................................................................................... 3.0%
Fourth.................................................................................... 2.0%
Fifth..................................................................................... 2.0%
Sixth..................................................................................... 1.0%
Seventh and thereafter.................................................................... None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund 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 OF
PAYMENT MADE AMOUNT REDEEMED
- ------------------------------------------------------------------------------------------ --------------------------
<S> <C>
First..................................................................................... 2.0%
Second.................................................................................... 2.0%
Third..................................................................................... 1.0%
Fourth and thereafter..................................................................... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain 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
40
<PAGE>
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 charge, 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 the Distributor, which will be
forwarded to the shareholder, 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-SM-. 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 a Morgan Stanley Dean Witter
Fund other than Morgan Stanley Dean Witter Japan Fund or in another Class of
Morgan Stanley Dean Witter Japan 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 Morgan Stanley Dean Witter Japan 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-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a 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 on 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 the net asset value next determined after receipt by the
Transfer Agent, 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
41
<PAGE>
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 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" 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 an 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 account, within five business days after the date of
redemption. The Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for Federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the sales charges which may be applicable
to purchases 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 nomination to the Transfer Agent. In
addition, the party and/or the address to which the 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,
a shareholder may make additional investments in any Class of shares of the Fund
for which they qualify at any time by sending a check in any amount, not less
than $100, payable to Morgan Stanley Dean Witter Japan 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.
42
<PAGE>
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, and five Morgan Stanley Dean Witter Funds which are money market
funds (the foregoing eight 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 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 holding
period or "year since purchase payment made" is frozen. When shares are redeemed
out of the Exchange Fund, they will be subject to a CDSC which would be based
upon the period of time the shareholder held shares in a Morgan Stanley Dean
Witter Multi-Class Fund or in Global Short-Term. However, 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. 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 from the Exchange Fund, with
no CDSC being imposed on such exchange. The holding period previously frozen
when shares were first exchanged for shares of the Exchange Fund resumes on the
last day of the month in which shares of a 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.
43
<PAGE>
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 CDSC, the
amount which represents the current net asset value of shares at the time of the
exchange which were (i) purchased more than one, three or six years (depending
on the CDSC schedule applicable to the shares) prior to the exchange, (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 shares, 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 to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase payment
for such shares, and the amount of purchase payment for the exchanged non-Free
Shares will be equal to the lesser of (a) the prorated amount of the purchase
payment for, or (b) the current net asset value of, those exchanged non-Free
Shares. Based upon the procedures described in the 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 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 as low as $5,000. The
minimum
44
<PAGE>
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 for 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.
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") 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 acceptance 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
45
<PAGE>
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 a
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 week-ends 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 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.
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 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 and state 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 and state personal income tax purposes but will be applied to
adjust the cost basis of the shares acquired upon reinstatement.
46
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and, if the Fund makes an election, the shareholders would include
such undistributed gains in their income and shareholders will be able to claim
their share of the tax paid by the Fund as a credit against their individual
federal income tax.
Any dividends declared in the last quarter of any calendar year which are
paid in the following calendar year prior to February 1 will be deemed received
by the shareholder in the prior year.
Gains or losses on sales of securities by the Fund will generally be
long-term capital gains or losses if the securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be generally short-term capital 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 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.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes,
including information as to the portion taxable as ordinary income, the portion
taxable as long-term capital gains, and the amount, if any, of dividends
eligible for the Federal dividends received deduction available to corporations.
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.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized net long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable. Therefore, an investor should consider the
tax implications of purchasing Fund shares immediately prior to a distribution
record date.
47
<PAGE>
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.
The Fund may elect to retain net capital gains and pay corporate income tax
thereon. In such event, each shareholder of record on the last day of the Fund's
taxable year would be required to include in income for tax purposes such
shareholder's proportionate share of the Fund's undistributed net capital gain.
In addition, each shareholder would be entitled to credit such shareholder's
proportionate share of the tax paid by the Fund against federal income tax
liabilities, to claim refunds to the extent that the credit exceeds such
liabilities, and to increase the basis of his shares held for federal income tax
purposes by an amount equal to 65% of such shareholder's proportionate share of
the undistributed net capital gain.
Dividends, interest and capital gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim United States foreign tax credits or
deductions with respect to such taxes, subject to certain provisions and
limitations contained in the Code. If more than 50% of the Fund's total assets
at the close of its fiscal year consist of securities of foreign corporations,
the Fund would be eligible and would determine whether or not to file an
election with the Internal Revenue Service pursuant to which shareholders of the
Fund will be required to include their respective pro rata portions of such
withholding taxes in their United States income tax returns as gross income,
treat such respective pro rata portions as taxes paid by them, and deduct such
respective pro rata portions in computing their taxable income or,
alternatively, use them as foreign tax credits against their United States
income taxes. If the Fund does elect to file the election with the Internal
Revenue Service, the Fund will report annually to its shareholders the amount
per share of such withholding.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in stock,
securities or foreign currencies are currently considered to be qualifying
income for purposes of determining whether the Fund qualifies as a regulated
investment company. It is currently unclear, however, who will be treated as the
issuer of certain foreign currency instruments or how foreign currency options,
futures, or forward foreign currency contracts will be valued for purposes of
the regulated investment company diversification requirements applicable to the
Fund. The Fund may request a private letter ruling from the Internal Revenue
Service on some or all of these issues.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (I.E.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts," and from unlisted options
will be treated as ordinary income or loss under Code Section 988. Also, certain
foreign exchange gains or losses derived with respect to foreign fixed-income
securities are also subject to Section 988 treatment. In general, therefore,
Code Section 988 gains or losses will increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Additionally, if Code Section 988
48
<PAGE>
losses exceed other investment company taxable income during a taxable year, the
Fund would not be able to make any ordinary dividend distributions.
If the Fund invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for U.S. tax purposes, the application of certain
technical tax provisions applying to such companies could result in the
imposition of federal income tax with respect to such investments at the Fund
level which could not be eliminated by distributions to shareholders. The U.S.
Treasury issued proposed regulation section 1.1291- 8 which establishes a
mark-to-market regime which allows investment companies investing in PFIC's to
avoid most, if not all, of the difficulties posed by the PFIC rules. In any
event, it is not anticipated that any taxes on the Fund with respect to
investments in PFIC's would be significant.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"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 the Fund's operations, if shorter than
any of the foregoing. The ending redeemable value is reduced by any CDSC at the
end of the one, five or ten year or other period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment, taking a root of the quotient (where the root is equivalent to the
number of years in the period) and subtracting 1 from the result. The average
annual total returns of Class B for the fiscal year ended May 31, 1998 and the
period April 26, 1996 (commencement of operations) through May 31, 1998 was
- -27.91% and -18.77%, 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 -30.49%, -27.80% and -26.64% 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 of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for Class A
or the deduction of the CDSC for each of Class B and Class C which, if
reflected, would reduce the performance quoted. For example, the average annual
total return of the Fund may be calculated in the manner described in the
preceding paragraph, but without deduction for any applicable sales charge.
Based on this calculation, the average annual total returns of Class B for the
fiscal year ended May 31, 1998 and the period April 26, 1996 (commencement of
operations) through May 31, 1998 were -24.12% and -17.58%, 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
49
<PAGE>
investment made at the beginning of the period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing aggregate total return involves a percentage obtained
by dividing the ending value (without reduction for any sales charge) by the
initial $1,000 investment and subtracting 1 from the result. Based on the
foregoing calculation, the total return of Class B for the fiscal year ended May
31, 1998 and the period April 26, 1996 (commencement of operations) through May
31, 1998 were -24.12% and -33.30%, 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 -26.64%, -27.07% and -26.64%,
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 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 (or declined) 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 $ 6,951 $ 35,213 $ 71,159
Class B 4/26/96 $ 6,670 $ 33,350 $ 66,700
Class C 7/28/97 $ 7,293 $ 36,465 $ 72,930
Class D 7/28/97 $ 7,336 $ 36,680 $ 73,360
</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
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
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, and they may at any time lengthen their own terms or make their
terms of unlimited duration and appoint their own successors, provided that
always at least a majority of the Trustees has been elected by the shareholders
of the Fund. Under certain circumstances the Trustees may be removed by action
of the Trustees. The shareholders also have the right to remove the Trustees
following a meeting called for that purpose requested in writing by the record
holders of not less than ten percent of the Fund's outstanding shares. The
voting rights of shareholders are not cumulative, so that holders of more than
50 percent of the shares voting can, if they choose, elect all Trustees being
selected, while the holders of the remaining shares would be unable to elect any
Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series. However, 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 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 or her own bad
faith, willful misfeasance, gross negligence, or reckless disregard of his or
her duties. It also provides that all third persons shall look solely to the
Fund's property for satisfaction of claims arising in connection with the
affairs of the Fund. With the exceptions stated, the Declaration of Trust
provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liabilities in connection with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of beneficial
interest. The Fund shall be of unlimited duration subject to the provisions in
the Declaration of Trust concerning termination by action of the shareholders.
50
<PAGE>
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, One Chase Plaza, New York, New York 10005, is the
Custodian of the Fund's assets. The Custodian has contracted with various
foreign banks and depositaries to hold portfolio securities of non-U.S. issuers
on behalf of the Fund. 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 of Morgan Stanley Dean Witter
Distributors Inc., the Fund's 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.
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 accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on 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 financial statements of the Fund for the year ended May 31, 1998
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.
51
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (92.4%)
AUTOMOBILES (5.5%)
253,000 Bridgestone Corp...................................................................... $ 5,757,868
156,000 Suzuki Motor Co., Ltd................................................................. 1,268,448
------------
7,026,316
------------
BANKING (3.8%)
291,000 Bank of Tokyo-Mitsubishi Ltd.......................................................... 2,986,496
121,000 Mitsubishi Trust & Banking............................................................ 1,071,876
142,000 Sumitomo Trust & Banking.............................................................. 745,538
------------
4,803,910
------------
BUILDING & CONSTRUCTION (0.7%)
120,000 National House Industrial............................................................. 950,666
------------
BUSINESS & PUBLIC SERVICES (4.5%)
27,000 Asatsu Inc............................................................................ 533,777
129,000 Mitsubishi Logistic................................................................... 1,272,812
70,000 Secom Co.............................................................................. 3,967,591
------------
5,774,180
------------
BUSINESS EQUIPMENT (2.0%)
233,000 Ricoh Co., Ltd........................................................................ 2,510,393
------------
CHEMICALS (6.0%)
640,000 Asahi Chemical Industrial Co., Ltd.................................................... 2,207,850
237,000 Nippon Zeon Co., Ltd.................................................................. 645,200
256,000 Shin-Etsu Chemical Co................................................................. 4,747,569
------------
7,600,619
------------
COMPUTER SOFTWARE & SERVICES (1.8%)
58 NTT Data Corp......................................................................... 2,322,506
------------
ELECTRICAL EQUIPMENT (17.4%)
318,000 Canon, Inc............................................................................ 7,557,796
279,000 Matsushita Electric Industrial Co., Ltd............................................... 4,360,317
157,000 Matsushita Electric Works............................................................. 1,310,501
191,000 Omron Corp............................................................................ 2,874,973
71,500 Sony Corp............................................................................. 6,024,847
------------
22,128,434
------------
ELECTRONICS (17.7%)
427,000 Furukawa Electric Co.................................................................. 1,353,115
34,000 Kyocera Corp.......................................................................... 1,655,311
215,000 Minebea Co., Ltd...................................................................... 2,200,324
80,000 Murata Manufacturing Co., Ltd......................................................... 2,321,930
308,000 NGK Insulators, Ltd................................................................... 2,768,340
125,000 Olympus Optical Co., Ltd.............................................................. 1,174,829
70,000 Rohm Co., Ltd......................................................................... 7,259,633
371,000 Sumitomo Electric Industries.......................................................... 3,866,309
------------
22,599,791
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ENGINEERING & CONSTRUCTION (2.3%)
290,000 Kajima Corp........................................................................... $ 776,954
116,000 Kandenko Co., Ltd..................................................................... 665,005
121,000 Kinden Corp........................................................................... 1,459,669
------------
2,901,628
------------
FINANCIAL SERVICES (2.0%)
29,000 Japan Associated Finance.............................................................. 887,649
156,000 Nomura Securities Co., Ltd............................................................ 1,696,507
------------
2,584,156
------------
INSURANCE (2.5%)
193,000 Sumitomo Marine & Fire................................................................ 1,070,292
225,000 Tokio Marine & Fire Insurance Co...................................................... 2,126,035
------------
3,196,327
------------
MACHINERY (3.9%)
153,000 Asahi Diamond Industries Co., Ltd..................................................... 685,387
1,212,000 Kawasaki Heavy Industries............................................................. 2,260,771
569,000 NSK Ltd............................................................................... 2,048,974
------------
4,995,132
------------
METALS (1.0%)
630,000 Mitsubishi Materials Corp............................................................. 1,225,063
------------
PHARMACEUTICALS (3.6%)
152,000 Banyu Pharmaceutical Co., Ltd......................................................... 1,823,781
117,000 Sankyo Co., Ltd....................................................................... 2,814,404
------------
4,638,185
------------
REAL ESTATE (2.8%)
207,000 Mitsubishi Estate Co., Ltd............................................................ 1,814,325
216,000 Mitsui Fudosan Co..................................................................... 1,743,867
------------
3,558,192
------------
RECREATION (1.8%)
25,000 H.I.S. Co., Ltd....................................................................... 396,111
48,500 Sony Music Entertainment Inc.......................................................... 1,945,589
------------
2,341,700
------------
RETAIL (6.2%)
82,900 Family Mart Co., Ltd.................................................................. 3,104,645
75,000 Ito-Yokado Co., Ltd................................................................... 3,727,044
55,000 York-Benimaru......................................................................... 1,105,149
------------
7,936,838
------------
STEEL & IRON (0.4%)
544,000 NKK Corp.............................................................................. 462,312
------------
TELECOMMUNICATIONS (5.5%)
595 DDI Corp.............................................................................. 1,705,510
645 Nippon Telegraph & Telephone Corp..................................................... 5,295,643
------------
7,001,153
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TEXTILES (0.7%)
319,000 Teijin Ltd............................................................................ $ 960,331
------------
TRANSPORTATION (0.3%)
115,000 Tobu Railway Co., Ltd................................................................. 325,495
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $158,338,621)........................................................ 117,843,327
------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY
AMOUNT IN
THOUSANDS
- -------------
<C> <S> <C>
PURCHASED PUT OPTIONS ON FOREIGN CURRENCY (4.4%)
JPY 6,939,576 August 11, 1998/JPY 123.48 (IDENTIFIED COST $1,517,400)............................ 5,586,280
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (1.8%)
U.S. GOVERNMENT AGENCY
$ 2,300 Federal Home Loan Mortgage Corp. 5.55% due 06/01/98 (AMORTIZED COST $2,300,000)....... 2,300,000
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $162,156,021) (b)........................................................ 98.6 % $ 125,729,607
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 1.4 1,769,903
------ -------------
NET ASSETS................................................................................ 100.0 % $ 127,499,510
------ -------------
------ -------------
</TABLE>
- ---------------------
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $11,619,822 and the
aggregate gross unrealized depreciation is $48,046,236, resulting in net
unrealized depreciation of $36,426,414.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT MAY 31, 1998:
<TABLE>
<CAPTION>
CONTRACTS
TO IN DELIVERY UNREALIZED
DELIVER EXCHANGE FOR DATE APPRECIATION
- --------------------------------------------
<S> <C> <C> <C>
$937,924 JPY 129,921,213 06/01/98 $2,229
$260,821 JPY 36,170,592 06/02/98 319
------
Total unrealized
appreciation.................. $2,548
------
------
</TABLE>
CURRENCY ABBREVIATION:
<TABLE>
<S> <C>
JPY Japanese Yen.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $162,156,021).............................................................. $125,729,607
Cash.......................................................................................... 748,489
Receivable for:
Investments sold.......................................................................... 640,651
Dividends................................................................................. 505,655
Shares of beneficial interest sold........................................................ 130,814
Deferred organizational expenses.............................................................. 116,373
Prepaid expenses and other assets............................................................. 76,398
------------
TOTAL ASSETS............................................................................. 127,947,987
------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased................................................. 151,036
Investment management fee................................................................. 111,034
Plan of distribution fee.................................................................. 110,573
Accrued expenses and other payables........................................................... 75,834
------------
TOTAL LIABILITIES........................................................................ 448,477
------------
NET ASSETS............................................................................... $127,499,510
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $213,250,030
Net unrealized depreciation................................................................... (36,468,480)
Undistributed net investment income........................................................... 611,788
Accumulated net realized loss................................................................. (49,893,828)
------------
NET ASSETS............................................................................... $127,499,510
------------
------------
CLASS A SHARES:
Net Assets.................................................................................... $126,203
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 18,775
NET ASSET VALUE PER SHARE................................................................ $6.72
------------
------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)........................................ $7.09
------------
------------
CLASS B SHARES:
Net Assets.................................................................................... $125,007,914
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 18,743,414
NET ASSET VALUE PER SHARE................................................................ $6.67
------------
------------
CLASS C SHARES:
Net Assets.................................................................................... $1,737,575
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 260,304
NET ASSET VALUE PER SHARE................................................................ $6.68
------------
------------
CLASS D SHARES:
Net Assets.................................................................................... $627,818
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 93,420
NET ASSET VALUE PER SHARE................................................................ $6.72
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1998*
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $196,241 foreign withholding tax)........................................... $ 1,148,888
Interest...................................................................................... 417,743
------------
TOTAL INCOME............................................................................. 1,566,631
------------
EXPENSES
Investment management fee..................................................................... 1,817,407
Plan of distribution fee (Class A shares)..................................................... 505
Plan of distribution fee (Class B shares)..................................................... 1,807,418
Plan of distribution fee (Class C shares)..................................................... 6,449
Transfer agent fees and expenses.............................................................. 470,568
Custodian fees................................................................................ 138,812
Registration fees............................................................................. 86,721
Shareholder reports and notices............................................................... 67,455
Professional fees............................................................................. 55,530
Organizational expenses....................................................................... 37,966
Trustees' fees and expenses................................................................... 10,337
Other......................................................................................... 10,536
------------
TOTAL EXPENSES........................................................................... 4,509,704
------------
NET INVESTMENT LOSS...................................................................... (2,943,073)
------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss on:
Investments............................................................................... (28,090,423)
Foreign exchange transactions............................................................. (318,323)
------------
NET LOSS................................................................................. (28,408,746)
------------
Net change in unrealized appreciation/depreciation on:
Investments............................................................................... (21,268,884)
Translation of forward foreign currency contracts, other assets and liabilities
denominated in foreign currencies....................................................... (75,287)
------------
NET DEPRECIATION......................................................................... (21,344,171)
------------
NET LOSS................................................................................. (49,752,917)
------------
NET DECREASE.................................................................................. $(52,695,990)
------------
------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE YEAR
MAY 31, ENDED
1998* MAY 31, 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss............................................................. $ (2,943,073) $ (4,281,589)
Net realized loss............................................................... (28,408,746) (17,458,743)
Net change in unrealized depreciation........................................... (21,344,171) (5,808,933)
------------ ------------
NET DECREASE............................................................... (52,695,990) (27,549,265)
Net decrease from transactions in shares of beneficial interest................. (59,523,451) (6,276,032)
------------ ------------
NET DECREASE............................................................... (112,219,441) (33,825,297)
NET ASSETS:
Beginning of period............................................................. 239,718,951 273,544,248
------------ ------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $611,788 AND $0,
RESPECTIVELY)............................................................... $127,499,510 $239,718,951
------------ ------------
------------ ------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Japan Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a non-diversified,
open-end management investment company. The Fund's investment objective is to
seek long-term capital appreciation. The Fund seeks to meet its investment
objective by investing primarily in securities of issuers located in Japan. The
Fund was organized as a Massachusetts business trust on January 22, 1996 and
commenced operations on April 26, 1996. 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 Japan Fund Morgan Stanley Dean Witter Japan Fund
Dean Witter InterCapital Inc. Morgan Stanley Dean Witter Advisors Inc.
Morgan Stanley Dean Witter Distributors
Dean Witter Distributors Inc. 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 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 Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager") or Morgan Grenfell Investment Services Limited
57
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED
(the "Sub-Advisor") that sale or bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Trustees (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); (4) certain portfolio securities may be valued by an
outside pricing service approved by the Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the securities valued by
such pricing service; and (5) short-term debt securities having a maturity date
of more than sixty days at time of purchase are valued on a mark-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. OPTION ACCOUNTING PRINCIPLES -- When the Fund purchases a call or put option,
the premium paid is recorded as an investment which is subsequently
marked-to-market to reflect the current market value. If a purchased option
expires, the Fund will realize a loss to the extent of the premium paid. If the
Fund enters into a closing sale transaction, a gain or loss is realized for the
difference between the proceeds from the sale and the cost of the option. If a
put option is exercised, the cost of the security or currency sold upon exercise
will be increased by the premium originally paid. If a call option is exercised,
the cost of the security purchased upon exercise will be increased by the
premium originally paid.
58
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED
E. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
F. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward foreign
currency contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized foreign currency gain or loss and in the Statement of
Assets and Liabilities as part of the related foreign currency denominated asset
or liability. The Fund records realized gains or losses on delivery of the
currency or at the time the forward contract is extinguished (compensated) by
entering into a closing transaction prior to delivery.
G. 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.
H. 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.
59
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED
I. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $200,000 and was 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 AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, calculated daily and payable monthly, by applying the
annual rate of 1.0% to the net assets of the Fund determined as of the close of
each business day.
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.
Under a Sub-Advisory Agreement between the Sub-Advisor and the Investment
Manager, the Sub-Advisor provides the Fund with investment advice and portfolio
management relating to the Fund's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for the services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Advisor monthly compensation equal to 40% of its monthly compensation.
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,
60
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED
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; 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 $16,172,790 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 0.24% 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 B shares and Class C shares of $1,117,070 and $368, respectively
and received $6,525 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.
61
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED
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 $11,918,607
and $63,364,718, respectively.
For the year ended May 31, 1998, the Fund incurred $8,553 in brokerage
commissions with Morgan Stanley & Co., an affiliate of the Investment Manager,
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 May 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $3,400.
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............................................................. 1,653,350 $ 11,512,949 -- --
Redeemed (1,634,575) (11,582,196) -- --
----------- -------------- ----------- -------------
Net increase (decrease) - Class A................................ 18,775 (69,247) -- --
----------- -------------- ----------- -------------
CLASS B SHARES
Sold............................................................. 8,327,661 65,197,758 13,534,303 $ 114,115,612
Redeemed......................................................... (16,855,398) (127,207,599) (14,718,440) (120,391,644)
----------- -------------- ----------- -------------
Net decrease - Class B........................................... (8,527,737) (62,009,841) (1,184,137) (6,276,032)
----------- -------------- ----------- -------------
CLASS C SHARES*
Sold............................................................. 272,435 1,993,277 -- --
Redeemed......................................................... (12,131) (85,899) -- --
----------- -------------- ----------- -------------
Net increase - Class C........................................... 260,304 1,907,378 -- --
----------- -------------- ----------- -------------
CLASS D SHARES*
Sold............................................................. 143,074 983,689 -- --
Redeemed......................................................... (49,654) (335,430) -- --
----------- -------------- ----------- -------------
Net increase - Class D........................................... 93,420 648,259
----------- -------------- ----------- -------------
Net decrease in Fund............................................. (8,155,238) $ (59,523,451) (1,814,137) $ (6,276,032)
----------- -------------- ----------- -------------
----------- -------------- ----------- -------------
</TABLE>
- ---------------------
* For the period July 28, 1997 (issue date) through May 31, 1998.
62
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED
6. FEDERAL INCOME TAX STATUS
At May 31, 1998, the Fund had a net capital loss carryover of approximately
$29,365,000 of which $448,000 will be available through May 31, 2005 and
$28,917,000 will be available through May 31, 2006 to offset future capital
gains to the extent provided by regulations.
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 $19,268,000 during fiscal 1998.
As of May 31, 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 foreign currency gains. To
reflect reclassifications arising from the permanent differences, paid-in-
capital was charged $37,966, accumulated net realized loss was charged
$3,516,895 and undistributed net investment income was credited $3,554,861.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage foreign currency exposure associated with foreign currency
denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
At May 31, 1998, there were outstanding forward contracts, used to facilitate
settlement of foreign currency denominated portfolio transactions.
8. SUBSEQUENT EVENT
In May 1998, the sub-advisor advised the Fund's Board of Directors and the
Investment Manager of its resignation as sub-advisor, effective at the close of
business on September 30, 1998. On June 2, 1998, the Board of Directors
unanimously recommended that a new sub-advisory agreement with Morgan Stanley
Asset Management Inc., an affiliate of the Investment Manager, be submitted to
shareholders for approval at a special meeting expected to be held in August
1998.
63
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN 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 FOR THE YEAR APRIL 26, 1996*
ENDED ENDED THROUGH
MAY 31, 1998**++ MAY 31, 1997 MAY 31, 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 8.79 $ 9.61 $ 10.00
------- ------ ------
Net investment loss..................... (0.13) (0.16) --
Net realized and unrealized loss........ (1.99) (0.66) (0.39)
------- ------ ------
Total from investment operations........ (2.12) (0.82) (0.39)
------- ------ ------
Net asset value, end of period.......... $ 6.67 $ 8.79 $ 9.61
------- ------ ------
------- ------ ------
TOTAL INVESTMENT RETURN+................ (24.12)% (8.53)% (3.90)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 2.48% 2.43% 2.84%(2)
Net investment loss..................... (1.62)% (1.77)% (0.52)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $125,008 $239,719 $273,544
Portfolio turnover rate................. 7% 25% --
Average commission rate paid............ $0.0093 $0.0227 $0.0424
</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
64
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN 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.................................. $ 9.16
------
Net investment income................................................. 0.05
Net realized and unrealized loss...................................... (2.49)
------
Total from investment operations...................................... (2.44)
------
Net asset value, end of period........................................ $ 6.72
------
------
TOTAL INVESTMENT RETURN+.............................................. (26.64)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.83%(2)
Net investment income................................................. 0.75%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $126
Portfolio turnover rate............................................... 7%
Average commission rate paid.......................................... $0.0093
</TABLE>
<TABLE>
<S> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.16
------
Net investment loss................................................... (0.07)
Net realized and unrealized loss...................................... (2.41)
------
Total from investment operations...................................... (2.48)
------
Net asset value, end of period........................................ $ 6.68
------
------
TOTAL INVESTMENT RETURN+.............................................. (27.07)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.52%(2)
Net investment loss................................................... (1.21)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,738
Portfolio turnover rate............................................... 7%
Average commission rate paid.......................................... $0.0093
</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
65
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN 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.................................. $ 9.16
-------
Net investment loss................................................... (0.01)
Net realized and unrealized loss...................................... (2.43)
-------
Total from investment operations...................................... (2.44)
-------
Net asset value, end of period........................................ $ 6.72
-------
-------
TOTAL INVESTMENT RETURN+.............................................. (26.64)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.60%(2)
Net investment loss................................................... (0.23)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $628
Portfolio turnover rate............................................... 7%
Average commission rate paid.......................................... $0.0093
</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
66
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER JAPAN 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 Japan
Fund (the "Fund"), formerly Dean Witter Japan 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, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
JULY 10, 1998
67
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
PART C OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
a) FINANCIAL STATEMENTS
(1) Financial statements and schedules, included in Prospectus (Part
A):
Page in
Prospectus
----------
Financial Highlights for the period April 26, 1996 through
May 31, 1996 and the years ended May 31, 1997 and 1998
(Class B) . . . . . . . . . . . . . . . . . . . . . . . . . 6
Financial Highlights for the period July 28, 1997 through
May 31, 1998 (Classes A, C, and D). . . . . . . . . . . . . 7
(2) Financial statements included in the Statement of Additional
Information (Part B):
Page in
SAI
---
Portfolio of Investments at May 31, 1998 . . . . . . . . 52
Statement of Assets and Liabilities at May 31, 1998 . . . . 54
Statement of Operations for the year ended May 31, 1998 . . 55
Statement of Changes in Net Assets for the years ended
May 31, 1997 and 1998 . . . . . . . . . . . . . . . . . . . 56
Notes to Financial Statements at May 31, 1998 . . . . . . . 57
Financial Highlights for the period April 26, 1996 through
May 31, 1996 and the years ended May 31, 1997 and
1998 (Class B). . . . . . . . . . . . . . . . . . . . . . . 64
Financial Highlights for the period July 28, 1997 through
May 31, 1998 (Classes A, C, and D). . . . . . . . . . . . . 65
(3) Financial statements included in Part C:
None
<PAGE>
(b) EXHIBITS
2. By-Laws of the Registrant, Amended and Restated as of October 23,
1997
5. Form of Investment Management agreement between the Registrant
and Morgan Stanley Dean Witter Advisors Inc.
6. Form of Distribution Agreement between Registrant and Morgan
Stanley Dean Witter Distributors Inc.
8. Form of Transfer Agency and Service Agreement between Registrant
and Morgan Stanley Dean Witter Trust FSB.
9. Form of Services Agreement between Morgan Stanley Dean Witter
Advisors Inc. and Morgan Stanley Dean Witter Services Company
Inc.
11. Consent of Independent Accountants.
16. Schedules for Computations of Performance Quotations.
18. Form of Multiple-Class Plan pursuant to Rule 18f-3.
27. Financial Data Schedules.
Other. Power of Attorney.
----------------------------------------------------------------------
All other exhibits were previously filed via EDGAR and are
hereby incorporated by reference.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
Item 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
(1) (2)
Number of Record Holders
Title of Class at June 30, 1998
-------------- ----------------
<S> <C>
Class A 24
Class B 26,211
Class C 221
Class D 4
</TABLE>
Item 27. INDEMNIFICATION
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not render them liable by reason of willful misfeasance, bad
faith or gross
<PAGE>
negligence in the performance of their duties or by reason of reckless disregard
of their obligations and duties to the Registrant. Trustees, officers,
employees and agents will be indemnified for the expense of litigation if it is
determined that they are entitled to indemnification against any liability
established in such litigation. The Registrant may also advance money for these
expenses provided that they give their undertakings to repay the Registrant
unless their conduct is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to indemnify him.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
See "The Fund and Its Management" in the Prospectus regarding the business
of the investment advisor. The following information is given regarding
officers of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"). MSDW
Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. The
principal address of the Morgan Stanley Dean Witter Funds is Two World Trade
Center, New York, New York 10048.
<PAGE>
The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:
Closed-End Investment Companies
- -------------------------------
(1) Dean Witter Government Income Trust
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) InterCapital California Insured Municipal Income Trust
(6) InterCapital California Quality Municipal Securities
(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) InterCapital New York Quality Municipal Securities
(14) InterCapital Quality Municipal Income Trust
(15) InterCapital Quality Municipal Investment Trust
(16) InterCapital Quality Municipal Securities
(17) Municipal Income Opportunities Trust
(18) Municipal Income Opportunities Trust II
(19) Municipal Income Opportunities Trust III
(20) Municipal Income Trust
(21) Municipal Income Trust II
(22) Municipal Income Trust III
(23) Municipal Premium Income Trust
(24) Morgan Stanley Dean Witter Prime Income Trust
Open-end Investment Companies
- -----------------------------
(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) Dean Witter Global Asset Allocation Fund
(6) Dean Witter Retirement Series
(7) Morgan Stanley Dean Witter American Value Fund
(8) Morgan Stanley Dean Witter Balanced Growth Fund
(9) Morgan Stanley Dean Witter Balanced Income Fund
(10) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(11) Morgan Stanley Dean Witter California Tax-Free Income Fund
(12) Morgan Stanley Dean Witter Capital Appreciation Fund
(13) Morgan Stanley Dean Witter Capital Growth Securities
(14) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(15) Morgan Stanley Dean Witter Convertible Securities Trust
(16) Morgan Stanley Dean Witter Developing Growth Securities Trust
(17) Morgan Stanley Dean Witter Diversified Income Trust
(18) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(19) Morgan Stanley Dean Witter Equity Fund
(20) Morgan Stanley Dean Witter European Growth Fund Inc.
(21) Morgan Stanley Dean Witter Federal Securities Trust
<PAGE>
(22) Morgan Stanley Dean Witter Financial Services Trust
(23) Morgan Stanley Dean Witter Fund of Funds
(24) Morgan Stanley Dean Witter Global Dividend Growth Securities
(25) Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Limited Term Municipal Trust
(38) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(39) Morgan Stanley Dean Witter Market Leader Trust
(40) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(41) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(42) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(43) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(44) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(45) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(46) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(47) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(48) Morgan Stanley Dean Witter S&P 500 Index Fund
(49) Morgan Stanley Dean Witter Select Dimensions Investment Series
(50) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(51) Morgan Stanley Dean Witter Short-Term Bond Fund
(52) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(53) Morgan Stanley Dean Witter Special Value 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
The term "TCW/DW Funds" refers to the following registered investment
companies:
Open-End Investment Companies
- -----------------------------
(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
<PAGE>
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust
Closed-End Investment Companies
- -------------------------------
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------
<S> <C>
Mitchell M. Merin Chairman and Director of Morgan Stanley Dean Witter
President, Chief Distributors Inc. ("MSDW Distributors") and Morgan
Executive Officer Stanley Director Dean Witter Trust FSB ("MSDW
and Director Trust"); President, Chief Executive Officer and Director of
Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services"); Executive Vice President and Director of Dean
Witter Reynolds Inc. ("DWR"); Director of SPS Transaction
Services, Inc. and various other Morgan Stanley Dean Witter
& Co. ("MSDW") subsidiaries.
Thomas C. Schneider Executive Vice President and Chief Strategic and
Executive Vice Administrative Officer of MSDW; Executive Vice
President and Chief President and Chief Financial Officer of MSDW
Financial Officer Services and MSDW Distributors; Director of DWR, MSDW
Distributors and MSDW.
Robert M. Scanlan President, Chief Operating Officer and Director of
President, Chief MSDW Services, Executive Vice President of MSDW
Operating Officer Distributors; Executive Vice President and Director of
and Director MSDW Trust; Vice President of the Morgan Stanley Dean Witter
Funds and the TCW/DW Funds.
Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter
Executive Vice President Funds and Director of MSDW Trust
and Chief Investment
Officer
Edward C. Oelsner, III
Executive Vice President
Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary, General Counsel and Director of MSDW
Secretary, General Services; Senior Vice President, Assistant Secretary
Counsel and Director and Assistant General Counsel of MSDW Distributors; Vice
President, Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds and the TCW/DW Funds.
<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------
<S> <C>
Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Mark Bavoso Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Richard Felegy
Senior Vice President
Edward F. Gaylor Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Robert S. Giambrone Senior Vice President of MSDW Services, MSDW
Senior Vice President Distributors and MSDW Trust and Director of MSDW Trust; Vice
President of the Morgan Stanley Dean Witter Funds and the
TCW/DW Funds.
Rajesh Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Margaret Iannuzzi
Senior Vice President
Jenny Beth Jones Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
John B. Kemp, III President of MSDW Distributors.
Senior Vice President
Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Jonathan R. Page Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Ira N. Ross Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------
<S> <C>
Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter Senior
Vice President Funds.
Jayne M. Stevlingson Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Paul D. Vance Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Ronald J. Worobel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Douglas Brown
First Vice President
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services; Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial Officer of
Treasurer the Morgan Stanley Dean Witter Funds and the
TCW/DW Funds.
Thomas Chronert
First Vice President
Rosalie Clough
First Vice President
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President and
First Vice President Assistant Secretary of MSDW Services; Assistant
and Assistant Secretary Secretary of the Morgan Stanley Dean
Witter Funds and the TCW/DW Funds.
Salvatore DeSteno Vice President of MSDW Services.
First Vice President
Michael Interrante First Vice President and Controller of MSDW Services;
First Vice President Assistant Treasurer of MSDW Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.
David Johnson
First Vice President
<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------
<S> <C>
Stanley Kapica
First Vice President
Carsten Otto First Vice President and Assistant Secretary of MSDW
First Vice President Services; Assistant Secretary of the Morgan Stanley
and Assistant Secretary Dean Witter Funds and the TCW/DW Funds.
Robert Zimmerman
First Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Nancy Belza
Vice President
Maurice Bendrihem
Vice President and
Assistant Controller
Frank Bruttomesso Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley
Assistant Secretary Dean Witter Funds and the TCW/DW Funds.
Ronald Caldwell
Vice President
Joseph Cardwell
Vice President
Philip Casparius
Vice President
David Dineen Vice President of Dean Witter Global Asset Allocation
Vice President Fund.
Bruce Dunn
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------
<S> <C>
Michael Durbin
Vice President
Sheila Finnerty
Vice President
Jeffrey D. Geffen
Vice President
Michael Geringer
Vice President
Ellen Gold
Vice President
Stephen Greenhut
Vice President
Sandra Grossman
Vice President
Peter W. Gurman
Vice President
Matthew Haynes Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Peter Hermann Vice President of various Morgan Stanley Dean Witter Vice
President Funds.
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
Christopher Jones
Vice President
Kevin Jung
Vice President
Carol Espejo Kane
Vice President
James P. Kastberg
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------
<S> <C>
Michelle Kaufman Vice President of various Morgan Stanley Dean Witter Vice
President Funds.
Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Thomas Lawlor
Vice President
Gerard J. Lian Vice President of various Morgan Stanley Dean Witter Vice
President Funds.
Nancy Login
Vice President
Steven MacNamara
Vice President
Catherine Maniscalco Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
Albert McGarity
Vice President
LouAnne D. McInnis Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley
Assistant Secretary Dean Witter Funds and the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
Mary Beth Mueller
Vice President
David Myers Vice President of Morgan Stanley Dean Witter Natural Vice
President Resource Development Securities Inc.
Richard Norris
Vice President
George Paoletti
Vice President
Anne Pickrell Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------
<S> <C>
Michael Roan
Vice President
John Roscoe
Vice President
Hugh Rose
Vice President
Robert Rossetti Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Ruth Rossi Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley
Assistant Secretary Dean Witter Funds and the TCW/DW Funds.
Carl F. Sadler
Vice President
Deborah Santaniello
Vice President
Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Robert Stearns
Vice President
Naomi Stein
Vice President
Kathleen H. Stromberg Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Marybeth Swisher
Vice President
Robert Vanden Assem
Vice President
James P. Wallin
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------
<S> <C>
John Wong
Vice President
</TABLE>
Item 29. PRINCIPAL UNDERWRITERS
Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant. MSDW Distributors
is also the principal underwriter of the following investment companies:
(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) Dean Witter Global Asset Allocation Fund
(6) Dean Witter Retirement Series
(7) Morgan Stanley Dean Witter American Value Fund
(8) Morgan Stanley Dean Witter Balanced Growth Fund
(9) Morgan Stanley Dean Witter Balanced Income Fund
(10) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(11) Morgan Stanley Dean Witter California Tax-Free Income Fund
(12) Morgan Stanley Dean Witter Capital Appreciation Fund
(13) Morgan Stanley Dean Witter Capital Growth Securities
(14) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(15) Morgan Stanley Dean Witter Convertible Securities Trust
(16) Morgan Stanley Dean Witter Developing Growth Securities Trust
(17) Morgan Stanley Dean Witter Diversified Income Trust
(18) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(19) Morgan Stanley Dean Witter Equity Fund
(20) Morgan Stanley Dean Witter European Growth Fund Inc.
(21) Morgan Stanley Dean Witter Federal Securities Trust
(22) Morgan Stanley Dean Witter Financial Services Trust
(23) Morgan Stanley Dean Witter Fund of Funds
(24) Morgan Stanley Dean Witter Global Dividend Growth Securities
(25) Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Limited Term Municipal Trust
<PAGE>
(38) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(39) Morgan Stanley Dean Witter Market Leader Trust
(40) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(41) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(42) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(43) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(44) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(45) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(46) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(47) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(48) Morgan Stanley Dean Witter Prime Income Trust
(49) Morgan Stanley Dean Witter S&P 500 Index 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 Strategist Fund
(54) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(55) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(56) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(57) Morgan Stanley Dean Witter U.S. Government Securities Trust
(58) Morgan Stanley Dean Witter Utilities Fund
(59) Morgan Stanley Dean Witter Value-Added Market Series
(60) Morgan Stanley Dean Witter Variable Investment Series
(61) Morgan Stanley Dean Witter World Wide Income Trust
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth
(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
(b) The following information is given regarding directors and officers of MSDW
Distributors not listed in Item 28 above. The principal address of MSDW
Distributors is Two World Trade Center, New York, New York 10048. None of
the following persons has any position or office with the Registrant.
Name Positions and Office with MSDW Distributors
- ---- -------------------------------------------
Richard M. DeMartini Director.
Christine Edwards Executive Vice President, Secretary Director and Chief
Legal Officer.
Michael T. Gregg Vice President and Assistant Secretary.
James F. Higgins Director.
<PAGE>
Name Positions and Office with MSDW Distributors
- ---- -------------------------------------------
Fredrick K. Kubler Senior Vice President, Assistant Secretary and Chief
Compliance Officer.
Philip J. Purcell Director.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service contract.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 29th day of July, 1998.
MORGAN STANLEY DEAN WITTER JAPAN FUND
By /s/ Barry Fink
------------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 3 has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
--------------------------- ---------------------- --------
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 07/29/98
--------------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 07/29/98
--------------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 07/29/98
--------------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
John L. Schroeder
By /s/ Stuart M. Strauss 07/29/98
--------------------------------
Stuart M. Strauss
Attorney-in-Fact
<PAGE>
EXHIBITS
2. By-Laws of the Registrant, Amended and Restated as of October 23, 1997
5. Form of Investment Management agreement between the Registrant and
Morgan Stanley Dean Witter Advisors Inc.
6. Form of Distribution Agreement between Registrant and Morgan Stanley
Dean Witter Distributors Inc.
8. Form of Transfer Agency and Service Agreement between Registrant and
Morgan Stanley Dean Witter Trust FSB.
9. Form of Services Agreement between Morgan Stanley Dean Witter Advisors
Inc. and Morgan Stanley Dean Witter Services Company Inc.
11. Consent of Independent Accountants.
16. Schedules for Computations of Performance Quotations.
18. Form of Multiple-Class Plan pursuant to Rule 18f-3.
27. Financial Data Schedules.
Other. Power of Attorney.
- --------------------------------------------------------------------------------
All other exhibits were previously filed via EDGAR and are hereby
incorporated by reference.
<PAGE>
BY-LAWS
OF
DEAN WITTER JAPAN FUND
AMENDED AND RESTATED AS OF OCTOBER 23, 1997
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 Dean Witter Japan Fund dated
January 22, 1996.
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.
<PAGE>
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 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, executed in writing by the Shareholder or his duly
authorized attorney-in-fact, for each Share of beneficial interest of the Trust
and for the fractional portion of one vote for each fractional Share entitled
to vote so registered in his name on the records of the Trust on the date fixed
as the record date for the determination of Shareholders entitled to vote at
such meeting. No proxy shall be valid after eleven months from its date, unless
otherwise provided in the proxy. At all meetings of Shareholders, unless the
voting is conducted by inspectors, all questions relating to the qualification
of voters and the validity of proxies and the acceptance or rejection of votes
shall be decided by the chairman of the meeting. Pursuant to a resolution of a
majority of the Trustees, proxies may be solicited in the name of one or more
Trustees or Officers of the Trust.
SECTION 3.6. VOTE REQUIRED. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority Shareholder
Vote.
SECTION 3.7. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the request
of any Shareholder or his proxy shall, appoint Inspectors of Election of the
meeting. In case any person appointed as Inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Trustees
in advance of the convening of the meeting or at the meeting by the person
acting as chairman. The Inspectors of Election shall determine the number of
Shares outstanding, the Shares represented at the meeting, the existence of a
quorum, the authenticity, validity and effect of proxies, shall receive votes,
ballots or consents, shall hear and determine all challenges and questions in
any way arising in connection with the right to vote, shall count and tabulate
all votes or consents, determine the results, and do such other acts as may be
proper to conduct the election or vote with fairness to all Shareholders. On
request of the chairman of the meeting, or of any Shareholder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
SECTION 3.8. INSPECTION OF BOOKS AND RECORDS. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under Section 32 of the Corporations Law of the
State of Massachusetts.
SECTION 3.9. ACTION BY SHAREHOLDERS WITHOUT MEETING. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
2
<PAGE>
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 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.
3
<PAGE>
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).
(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
4
<PAGE>
(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 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
5
<PAGE>
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.
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 President to the
extent provided by the Trustees with respect to officers appointed by the
President.
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.
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SECTION 6.6. THE CHAIRMAN. (a) The Chairman shall preside at all meetings
of the Shareholders and of the Trustees, 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.
SECTION 6.7. THE PRESIDENT. (a) The President shall be the chief executive
officer of the Trust; 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 one or more Vice Presidents such of his powers and
duties at such times and in such manner as he may deem advisable.
(b) In the absence of the Chairman, the President shall preside at all
meetings of the shareholders and the Board of Trustees; and he shall perform
such other duties as the Board of Trustees may from time to time preside.
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 President, 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 President 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 President.
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
President, 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 President, 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
President 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 President, 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
President, may from time to time prescribe.
SECTION 6.13. THE ASSISTANT TREASURERS. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order determined
by the Trustees or the President, 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 President, 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.
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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 President, or a Vice President, and countersigned by the Secretary
or an Assistant Secretary or the Treasurer and an Assistant Treasurer of the
Trust; shall be sealed with the seal; and shall contain such recitals as may be
required by law. Where any certificate is signed by a Transfer Agent or by a
Registrar, the signature of such officers and the seal may be facsimile,
printed or engraved. The Trust may, at its option, determine not to issue a
certificate or certificates to evidence Shares owned of record by any
Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Trust, such certificate or certificates shall,
nevertheless, be adopted by the Trust and be issued and delivered as though the
person or persons who signed such certificate or certificates or whose
facsimile signature or signatures shall appear therein had not ceased to be
such officer or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. The
Trustees may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Trust alleged to have
been lost, stolen or destroyed, upon satisfactory proof of such loss, theft, or
destruction; and the Trustees may, in their discretion, require the owner of
the lost, stolen or destroyed certificate, or his legal representative, to give
to the Trust and to such Registrar, Transfer Agent and/or Transfer Clerk as may
be authorized or required to countersign such new certificate or certificates,
a bond in such sum and of such type as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be
against them or any of them on account of or in connection with the alleged
loss, theft or destruction of any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. APPOINTMENT AND DUTIES. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at least
five million dollars ($5,000,000) as custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as
may be contained in these By-Laws and the 1940 Act:
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(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
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.
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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 Dean Witter Japan Fund, dated
January 22, 1996, a copy of which is on file in the office of the Secretary of
the Commonwealth of Massachusetts, provides that the name Dean Witter Japan
Fund refers to the Trustees under the Declaration collectively as Trustees, but
not as individuals or personally; and no Trustee, Shareholder, officer,
employee or agent of Dean Witter Japan Fund shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise, in connection with the
affairs of said Dean Witter Japan Fund, but the Trust Estate only shall be
liable.
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INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 31st day of May, 1997, and amended as of April 30,
1998, by and between Dean Witter Japan Fund, a Massachusetts business trust
(hereinafter called the "Fund"), and Dean Witter InterCapital Inc., a Delaware
corporation (hereinafter called the "Investment Manager"):
WHEREAS, The Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, The Investment Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, and engages in the business of acting as
investment adviser; and
WHEREAS, The Fund desires to retain the Investment Manager to render
management and investment advisory services in the manner and on the terms and
conditions hereinafter set forth; and
WHEREAS, The Investment Manager desires to be retained to perform services
on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
1. The Fund hereby retains the Investment Manager to act as investment
manager of the Fund and, subject to the supervision of the Board of Trustees, to
supervise the investment activities of the Fund as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager shall
obtain and evaluate such information and advice relating to the economy,
securities and commodities markets and securities and commodities as it deems
necessary or useful to discharge its duties hereunder; shall continuously manage
the assets of the Fund in a manner consistent with the investment objectives and
policies of the Fund; shall determine the securities and commodities to be
purchased, sold or otherwise disposed of by the Fund and the timing of such
purchases, sales and dispositions; and shall take such further action, including
the placing of purchase and sale orders on behalf of the Fund, as the Investment
Manager shall deem necessary or appropriate. The Investment Manager shall also
furnish to or place at the disposal of the Fund such of the information,
evaluations, analyses and opinions formulated or obtained by the Investment
Manager in the discharge of its duties as the Fund may, from time to time,
reasonably request.
2. The Investment Manager shall, at its own expense, enter into a
Sub-Advisory Agreement with a Sub-Adviser to make determinations as to the
securities and commodities to be purchased, sold or otherwise disposed of by the
Fund and the timing of such purchases, sales and dispositions and to take such
further action, including the placing of purchase and sale orders on behalf of
the Fund, as the Sub-Adviser, in consultation with the Investment Manager, shall
deem necessary or appropriate; provided that the Investment Manager shall be
responsible for monitoring compliance by such Sub-Adviser with the investment
policies and restrictions of the Fund and with such other limitations or
directions as the Trustees of the Fund may from time to time prescribe.
3. The Investment Manager shall, at its own expense, maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary or useful to the performance
of its obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of the Investment Manager shall be deemed to
include persons employed or otherwise retained by the Investment Manager to
furnish statistical and other factual data, advice regarding economic factors
and trends, information with respect to technical and scientific developments,
and such other information, advice and assistance as the Investment Manager may
desire. The Investment Manager shall, as agent for the Fund, maintain the Fund's
records and books of account (other than those maintained by the Fund's transfer
agent, registrar, custodian and other agencies). All such books and records so
maintained shall be the property of the Fund and, upon request therefor, the
Investment Manager shall surrender to the Fund such of the books and records so
requested.
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4. The Fund will, from time to time, furnish or otherwise make available to
the Investment Manager such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as the Investment
Manager may reasonably require in order to discharge its duties and obligations
hereunder.
5. The Investment Manager shall bear the cost of rendering the investment
management and supervisory services to be performed by it under this Agreement,
and shall, at its own expense, pay the compensation of the officers and
employees, if any, of the Fund who are also directors, officers or employees of
the Investment Manager, and provide such office space, facilities and equipment
and such clerical help and bookkeeping services as the Fund shall reasonably
require in the conduct of its business. The Investment Manager shall also bear
the cost of telephone service, heat, light, power and other utilities provided
to the Fund.
6. The Fund assumes and shall pay or cause to be paid all other expenses of
the Fund, including without limitation, fees pursuant to any plan of
distribution that the Fund may adopt; the charges and expenses of any registrar,
any custodian or depository appointed by the Fund for the safekeeping of its
cash, portfolio securities or commodities and other property, and any stock
transfer or dividend agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio transactions to which the
Fund is a party; all taxes, including securities or commodities issuance and
transfer taxes, and fees payable by the Fund to federal, state or other
governmental agencies; the cost and expense of engraving or printing
certificates representing shares of the Fund; all costs and expenses in
connection with the registration and maintenance of registration of the Fund and
its shares with the Securities and Exchange Commission and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel); 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
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 the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Trustees of the Fund who are not interested
persons (as defined in the Act) of the Fund or the Investment Manager, and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable 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 related thereto); and all other charges and costs of the
Fund's operation unless otherwise explicitly provided herein.
7. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Manager, the Fund shall pay to the
Investment Manager monthly compensation determined by applying the annual
rate of 1.0% to the Fund's daily net assets. Except as hereinafter set forth,
compensation under this Agreement shall be calculated and accrued daily and
the amounts of the daily accruals shall be paid monthly. Such calculations
shall be made by applying 1/365ths of the annual rates to the Fund's net
assets each day determined as of the close of business on that day or the
last previous business day. If this Agreement becomes effective subsequent to
the first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above.
Subject to the provisions of this paragraph 7, payment of the Investment
Manager's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by this paragraph 7.
8. In the event the operating expenses of the Fund, including amounts
payable to the Investment Manager pursuant to paragraph 6 hereof, for any fiscal
year ending on a date on which this Agreement is in effect, exceed the expense
limitations applicable to the Fund imposed by state securities laws or
regulations
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thereunder, as such limitations may be raised or lowered from time to time, the
Investment Manager shall reduce its management fee to the extent of such excess
and, if required, pursuant to any such laws or regulations, will reimburse the
Fund for annual operating expenses in excess of any expense limitation that may
be applicable; provided, however, there shall be excluded from such expenses the
amount of any interest, taxes, brokerage commissions, distribution fees and
extraordinary expenses (including but not limited to legal claims and
liabilities and litigations costs and any indemnification related thereto) paid
or payable by the Fund. Such reduction, if any, shall be computed and accrued
daily, shall be settled on a monthly basis, and shall be based upon the expense
limitation applicable to the Fund as at the end of the last business day of the
month. Should two or more such expense limitations be applicable as at the end
of the last business day of the month, that expense limitation which results in
the largest reduction in the Investment Manager's fee shall be applicable.
For purposes of this provision, should any applicable expense limitation be
based upon the gross income of the Fund, such gross income shall include, but
not be limited to, interest on debt securities in the Fund's portfolio accrued
to and including the last day of the Fund's fiscal year, and dividends declared
on equity securities in the Fund's portfolio, the record dates for which fall on
or prior to the last day of such fiscal year, but shall not include gains from
the sale of securities.
9. The Investment Manager will use its best efforts in the supervision and
management of the investment activities of the Fund, but in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, the Investment Manager shall not be liable to the Fund or
any of its investors for any error of judgment or mistake of law or for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors.
10. Nothing contained in this Agreement shall prevent the Investment Manager
or any affiliated person of the Investment Manager from acting as investment
adviser or manager for any other person, firm or corporation and shall not in
any way bind or restrict the Investment Manager or any such affiliated person
from buying, selling or trading any securities or commodities for their own
accounts or for the account of others for whom they may be acting. Nothing in
this Agreement shall limit or restrict the right of any Director, officer or
employee of the Investment Manager to engage in any other business or to devote
his or her time and attention in part to the management or other aspects of any
other business whether of a similar or dissimilar nature.
11. This Agreement shall remain in effect until April 30, 1999 and from year
to year thereafter provided such continuance is approved at least annually by
the vote of holders of a majority, as defined in the Investment Company Act of
1940, as amended (the "Act"), of the outstanding voting securities of the Fund
or by the Trustees of the Fund; provided, that in either event such continuance
is also approved annually by the vote of a majority of the Trustees of the Fund
who are not parties to this Agreement or "interested persons" (as defined in the
Act) of any such party, which vote must be cast in person at a meeting called
for the purpose of voting on such approval; provided, however, that (a) the Fund
may, at any time and without the payment of any penalty, terminate this
Agreement upon thirty days' written notice to the Investment Manager, either by
majority vote of the Trustees of the Fund or by the vote of a majority of the
outstanding voting securities of the Fund; (b) this Agreement shall immediately
terminate in the event of its assignment (to the extent required by the Act and
the rules thereunder) unless such automatic terminations shall be prevented by
an exemptive order of the Securities and Exchange Commission; and (c) the
Investment Manager may terminate this Agreement without payment of penalty on
thirty days' written notice to the Fund. Any notice under this Agreement shall
be given in writing, addressed and delivered, or mailed post-paid, to the other
party at the principal office of such party.
12. This Agreement may be amended by the parties without the vote or consent
of the shareholders of the Fund to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or if they
deem it necessary to conform this Agreement to the requirements of applicable
federal laws or regulations, but neither the Fund nor the Investment Manager
shall be liable for failing to do so.
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13. This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Act, the latter shall control.
14. The Investment Manager and the Fund each agree that the name "Dean
Witter," which comprises a component of the Fund's name, is a property right of
Dean Witter Reynolds Inc. The Fund agrees and consents that (i) it will only use
the name "Dean Witter" as a component of its name and for no other purpose, (ii)
it will not purport to grant to any third party the right to use the name "Dean
Witter" for any purpose, (iii) the Investment Manager or its parent, Morgan
Stanley Dean Witter & Co., or any corporate affiliate of the Investment
Manager's parent, may use or grant to others the right to use the name "Dean
Witter," or any combination or abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial purpose, including a grant of
such right to any other investment company, (iv) at the request of the
Investment Manager or its parent, the Fund will take such action as may be
required to provide its consent to the use of the name "Dean Witter," or any
combination or abbreviation thereof, by the Investment Manager or its parent or
any corporate affiliate of the Investment Manager's parent, or by any person to
whom the Investment Manager or its parent or any corporate affiliate of the
Investment Manager's parent shall have granted the right to such use, and (v)
upon the termination of any investment advisory agreement into which the
Investment Manager and the Fund may enter, or upon termination of affiliation of
the Investment Manager with its parent, the Fund shall, upon request by the
Investment Manager or its parent, cease to use the name "Dean Witter" as a
component of its name, and shall not use the name, or any combination or
abbreviation thereof, as a part of its name or for any other commercial purpose,
and shall cause its officers, trustees and shareholders to take any and all
actions which the Investment Manager or its parent may request to effect the
foregoing and to reconvey to the Investment Manager or its parent any and all
rights to such name.
15. The Declaration of Trust establishing Dean Witter Japan Fund, dated
January 22, 1996, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name Dean Witter Japan Fund refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of Dean
Witter Japan Fund shall be held to any personal liability, nor shall resort be
had to their private property for the satisfaction of any obligation or claim or
otherwise, in connection with the affairs of said Dean Witter Japan Fund, but
the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on April 30, 1998 in New York, New York.
<TABLE>
<S> <C>
DEAN WITTER JAPAN FUND
By: /s/ BARRY FINK
.................................
Attest:
/s/ FRANK BRUTTOMESSO
...................................
DEAN WITTER INTERCAPITAL INC.
By: /s/ CHARLES A. FIUMEFREDDO
.................................
Attest:
/s/ MARILYN K. CRANNEY
...................................
</TABLE>
4
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 28th day of July, 1997, and amended as of June 22,
1998, between each of the open-end investment companies to which Morgan Stanley
Dean Witter Advisors Inc. acts as investment manager, that are listed on
Schedule A, as may be amended from time to time (each, a "Fund" and
collectively, the "Funds"), and Morgan Stanley Dean Witter Distributors Inc., a
Delaware corporation (the "Distributor").
W I T N E S S E T H:
WHEREAS, each Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and it is in the
interest of each Fund to offer its shares for sale continuously, and
WHEREAS, each Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of each Fund's transferable
shares, of $0.01 par value (the "Shares"), to commence on the date listed above,
in order to promote the growth of each Fund and facilitate the distribution of
its shares.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. APPOINTMENT OF THE DISTRIBUTOR.
(a) Each Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Fund to sell Shares to the public on the terms set forth
in this Agreement and that Fund's prospectus and the Distributor hereby accepts
such appointment and agrees to act hereunder. Each Fund, during the term of this
Agreement, shall sell Shares to the Distributor upon the terms and conditions
set forth herein.
(b) The Distributor agrees to purchase Shares, as principal for its own
account, from each Fund and to sell Shares as principal to investors, and
securities dealers, including Dean Witter Reynolds Inc. ("DWR"), an affiliate of
the Distributor, upon the terms described herein and in that Fund's prospectus
(the "Prospectus") and statement of additional information included in the
Fund's registration statement (the "Registration Statement") most recently filed
from time to time with the Securities and Exchange Commission (the "SEC") and
effective under the Securities Act of 1933, as amended (the "1933 Act"), and the
1940 Act or as the Prospectus may be otherwise amended or supplemented and filed
with the SEC pursuant to Rule 497 under the 1933 Act.
SECTION 2. EXCLUSIVE NATURE OF DUTIES. The Distributor shall be the
exclusive principal underwriter and distributor of each Fund, except that the
exclusive rights granted to the Distributor to sell the Shares shall not apply
to Shares issued by each Fund: (i) in connection with the merger or
consolidation of any other investment company or personal holding company with
the Fund or the acquisition by purchase or otherwise of all (or substantially
all) the assets or the outstanding shares of any such company by the Fund; (ii)
pursuant to reinvestment of dividends or capital gains distributions; or (iii)
pursuant to the reinstatement privilege afforded redeeming shareholders.
SECTION 3. PURCHASE OF SHARES FROM EACH FUND. The Shares are offered in
four classes (each, a "Class"), as described in the Prospectus, as amended or
supplemented from time to time.
(a) The Distributor shall have the right to buy from each Fund the Shares of
the particular class needed, but not more than the Shares needed (except for
clerical errors in transmission), to fill unconditional orders for Shares of the
applicable class placed with the Distributor by investors or securities dealers.
The price which the Distributor shall pay for the Shares so purchased from the
Fund shall be the net asset value, determined as set forth in the Prospectus,
used in determining the public offering price on which such orders were based.
(b) The Shares are to be resold by the Distributor at the public offering
price of Shares of the applicable class as set forth in the Prospectus, to
investors or to securities dealers, including DWR, who
1
<PAGE>
have entered into selected dealer agreements with the Distributor upon the terms
and conditions set forth in Section 7 hereof ("Selected Dealers").
(c) Each Fund shall have the right to suspend the sale of the Shares at
times when redemption is suspended pursuant to the conditions set forth in
Section 4(f) hereof. Each Fund shall also have the right to suspend the sale of
the Shares if trading on the New York Stock Exchange shall have been suspended,
if a banking moratorium shall have been declared by federal or New York
authorities, or if there shall have been some other extraordinary event which,
in the judgment of a Fund, makes it impracticable to sell its Shares.
(d) Each Fund, or any agent of a Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by a Fund; provided, however, that a Fund
will not arbitrarily or without reasonable cause refuse to accept orders for the
purchase of Shares. The Distributor will confirm orders upon their receipt, and
each Fund (or its agent) upon receipt of payment therefor and instructions will
deliver share certificates for such Shares or a statement confirming the
issuance of Shares. Payment shall be made to the Fund in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Fund (or its agent).
(e) With respect to Shares sold by any Selected Dealer, the Distributor is
authorized to direct each Fund's transfer agent to receive instructions directly
from the Selected Dealer on behalf of the Distributor as to registration of
Shares in the names of investors and to confirm issuance of the Shares to such
investors. The Distributor is also authorized to instruct the transfer agent to
receive payment directly from the Selected Dealer on behalf of the Distributor,
for prompt transmittal to each Fund's custodian, of the purchase price of the
Shares. In such event the Distributor shall obtain from the Selected Dealer and
maintain a record of such registration instructions and payments.
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES.
(a) Any of the outstanding Shares of a Fund may be tendered for redemption
at any time, and each Fund agrees to redeem its Shares so tendered in accordance
with the applicable provisions set forth in its Prospectus. The price to be paid
to redeem the Shares shall be equal to the net asset value determined as set
forth in the Prospectus less any applicable contingent deferred sales charge
("CDSC"). Upon any redemption of Shares the Fund shall pay the total amount of
the redemption price in New York Clearing House funds in accordance with
applicable provisions of the Prospectus.
(b) The redemption by a Fund of any of its Class A Shares purchased by or
through the Distributor will not affect the applicable front-end sales charge
secured by the Distributor or any Selected Dealer in the course of the original
sale, except that if any Class A Shares are tendered for redemption within seven
business days after the date of the confirmation of the original purchase, the
right to the applicable front-end sales charge shall be forfeited by the
Distributor and the Selected Dealer which sold such Shares.
(c) The proceeds of any redemption of Class A, Class B or Class C Shares
shall be paid by each Fund as follows: (i) any applicable CDSC shall be paid to
the Distributor or to the Selected Dealer, or, when applicable, pursuant to the
Rules of the Association of the National Association of Securities Dealers, Inc.
("NASD"), retained by the Fund and (ii) the balance shall be paid to the
redeeming shareholders, in each case in accordance with applicable provisions of
its Prospectus in New York Clearing House funds. The Distributor is authorized
to direct a Fund to pay directly to the Selected Dealer any CDSC payable by a
Fund to the Distributor in respect of Class A, Class B, or Class C Shares sold
by the Selected Dealer to the redeeming shareholders.
(d) The Distributor is authorized, as agent for the Fund, to repurchase
Shares, represented by a share certificate which is delivered to any office of
the Distributor in accordance with applicable provisions set forth in each
Fund's Prospectus. The Distributor shall promptly transmit to the transfer agent
of the Fund for redemption all Shares so delivered. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Fund's transfer
agent in connection with all such repurchases.
2
<PAGE>
(e) The Distributor is authorized, as agent for each Fund, to repurchase
Shares held in a shareholder's account with a Fund for which no share
certificate has been issued, upon the telephonic request of the shareholders, or
at the discretion of the Distributor. The Distributor shall promptly transmit to
the transfer agent of the Fund, for redemption, all such orders for repurchase
of Shares. Payment for Shares repurchased may be made by a Fund to the
Distributor for the account of the shareholder. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Fund's transfer
agent in connection with all such repurchases.
(f) Redemption of its Shares or payment by a Fund may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for a Fund fairly to determine the value of its net assets, or
during any other period when the SEC, by order, so permits.
(g) With respect to its Shares tendered for redemption or repurchase by any
Selected Dealer on behalf of its customers, the Distributor is authorized to
instruct the transfer agent of a Fund to accept orders for redemption or
repurchase directly from the Selected Dealer on behalf of the Distributor and to
instruct the Fund to transmit payments for such redemptions and repurchases
directly to the Selected Dealer on behalf of the Distributor for the account of
the shareholder. The Distributor shall obtain from the Selected Dealer, and
shall maintain, a record of such orders. The Distributor is further authorized
to obtain from the Fund, and shall maintain, a record of payment made directly
to the Selected Dealer on behalf of the Distributor.
SECTION 5. DUTIES OF THE FUND.
(a) Each Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of its Shares, including one
certified copy, upon request by the Distributor, of all financial statements
prepared by the Fund and examined by independent accountants. Each Fund shall,
at the expense of the Distributor, make available to the Distributor such number
of copies of its Prospectus as the Distributor shall reasonably request.
(b) Each Fund shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares and to register Shares under the 1933 Act, to the end that
there will be available for sale such number of Shares as investors may
reasonably be expected to purchase.
(c) Each Fund shall use its best efforts to pay the filing fees for an
appropriate number of its Shares to be sold under the securities laws of such
states as the Distributor and the Fund may approve. Any qualification to sell
its Shares in a state may be withheld, terminated or withdrawn by a Fund at any
time in its discretion. As provided in Section 8(c) hereof, such filing fees
shall be paid by the Fund. The Distributor shall furnish any information and
other material relating to its affairs and activities as may be required by a
Fund in connection with the sale of its Shares in any state.
(d) Each Fund shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of its annual and
interim reports.
SECTION 6. DUTIES OF THE DISTRIBUTOR.
(a) The Distributor shall sell shares of each Fund through DWR and may sell
shares through other securities dealers and its own Financial Advisors, and
shall devote reasonable time and effort to promote sales of the Shares, but
shall not be obligated to sell any specific number of Shares. The services of
the Distributor hereunder are not exclusive and it is understood that the
Distributor may act as principal underwriter for other registered investment
companies, so long as the performance of its obligations hereunder is not
impaired thereby. It is also understood that Selected Dealers, including DWR,
may also sell shares for other registered investment companies.
3
<PAGE>
(b) Neither the Distributor nor any Selected Dealer shall give any
information or make any representations, other than those contained in the
Registration Statement or related Prospectus and any sales literature
specifically approved by the appropriate Fund.
(c) The Distributor agrees that it will at all times comply with the
applicable terms and limitations of the Rules of the Association of the NASD.
SECTION 7. SELECTED DEALERS AGREEMENTS.
(a) The Distributor shall have the right to enter into selected dealer
agreements with Selected Dealers for the sale of Shares. In making agreements
with Selected Dealers, the Distributor shall act only as principal and not as
agent for a Fund. Shares sold to Selected Dealers shall be for resale by such
dealers only at the public offering price set forth in the Prospectus. With
respect to Class A Shares, in such agreement the Distributor shall have the
right to fix the portion of the applicable front-end sales charge which may be
allocated to the Selected Dealers.
(b) Within the United States, the Distributor shall offer and sell Shares
only to Selected Dealers that are members in good standing of the NASD.
(c) The Distributor shall adopt and follow procedures, as approved by each
Fund, for the confirmation of sales of its Shares to investors and Selected
Dealers, the collection of amounts payable by investors and Selected Dealers on
such sales, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the NASD, as such requirements may from time
to time exist.
SECTION 8. PAYMENT OF EXPENSES.
(a) Each Fund shall bear all costs and expenses of the Fund, including fees
and disbursements of legal counsel including counsel to the Directors/Trustees
of each Fund who are not interested persons (as defined in the 1940 Act) of the
Fund or the Distributor, and independent accountants, in connection with the
preparation and filing of any required Registration Statements and Prospectuses
and all amendments and supplements thereto, and the expense of preparing,
printing, mailing and otherwise distributing prospectuses and statements of
additional information, annual or interim reports or proxy materials to
shareholders.
(b) The Distributor shall bear all expenses incurred by it in connection
with its duties and activities under this Agreement including the payment to
Selected Dealers of any sales commissions, service fees and other expenses for
sales of a Fund's Shares (except such expenses as are specifically undertaken
herein by a Fund) incurred or paid by Selected Dealers, including DWR. The
Distributor shall bear the costs and expenses of preparing, printing and
distributing any supplementary sales literature used by the Distributor or
furnished by it for use by Selected Dealers in connection with the offering of
the Shares for sale. Any expenses of advertising incurred in connection with
such offering will also be the obligation of the Distributor. It is understood
and agreed that, so long as a Fund's Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act ("Rule 12b-1 Plan") continues in effect, any expenses
incurred by the Distributor hereunder may be paid in accordance with the terms
of such Rule 12b-1 Plan.
(c) Each Fund shall pay the filing fees, and, if necessary or advisable in
connection therewith, bear the cost and expense of qualifying each Fund as a
broker or dealer, in such states of the United States or other jurisdictions as
shall be selected by the Fund and the Distributor pursuant to Section 5(c)
hereof and the cost and expenses payable to each such state for continuing to
offer Shares therein until the Fund decides to discontinue selling Shares
pursuant to Section 5(c) hereof.
SECTION 9. INDEMNIFICATION.
(a) Each Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith) arising by reason of any person acquiring
any Shares, which may be based upon the 1933 Act, or on any other statute or at
common law, on the ground that the Registration Statement or related Prospectus
and Statement of Additional Information, as from time to time amended
4
<PAGE>
and supplemented, or the annual or interim reports to shareholders of a Fund,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished to the Fund in connection
therewith by or on behalf of the Distributor; provided, however, that in no case
(i) is the indemnity of a Fund in favor of the Distributor and any such
controlling persons to be deemed to protect the Distributor or any such
controlling persons thereof against any liability to a Fund or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties or by reason of reckless disregard of its
obligations and duties under this Agreement; or (ii) is a Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or any such controlling persons, as the case may be, shall have
notified the Fund in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon the Distributor or uch controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. Each Fund will be entitled to participate
at its own expense in the defense, or, if it so elects, to assume the defense,
of any such suit brought to enforce any such liability, but if a Fund elects to
assume the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons, defendant
or defendants in the suit. In the event the Fund elects to assume the defense of
any such suit and retain such counsel, the Distributor or such controlling
person or persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, but, in case the Fund does
not elect to assume the defense of any such suit, it will reimburse the
Distributor or such controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and expenses of any counsel retained by them.
Each Fund shall promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its officers or
Directors/Trustees in connection with the issuance or sale of the Shares.
(b) (i) The Distributor shall indemnify and hold harmless each Fund and each
of its Directors/ Trustees and officers and each person, if any, who controls
the Fund against any loss, liability, claim, damage, or expense described in the
indemnity contained in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity with,
information furnished to a Fund in writing by or on behalf of the Distributor
for use in connection with the Registration Statement or related Prospectus and
Statement of Additional Information, as from time to time amended, or the annual
or interim reports to shareholders.
(ii) The Distributor shall indemnify and hold harmless each Fund and
each Fund's transfer agent, individually and in its capacity as the Fund's
transfer agent, from and against any claims, damages and liabilities which arise
as a result of actions taken pursuant to instructions from, or on behalf of, the
Distributor to: (1) redeem all or a part of shareholder accounts in the Fund
pursuant to Section 4(g) hereof and pay the proceeds to, or as directed by, the
Distributor for the account of each shareholder whose Shares are so redeemed;
and (2) register Shares in the names of investors, confirm the issuance thereof
and receive payment therefor pursuant to Section 3(e) hereof.
(iii) In case any action shall be brought against a Fund or any person
so indemnified by this Section 9(b) in respect of which indemnity may be sought
against the Distributor, the Distributor shall have the rights and duties given
to a Fund, and the Fund and each person so indemnified shall have the rights and
duties given to the Distributor, by the provisions of subsection (a) of this
Section 9.
(c) If the indemnification provided for in this Section 9 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to herein, then each indemnifiying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
benefits received by a Fund on the one hand and the Distributor on the other
from the
5
<PAGE>
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of a Fund on the one hand and the Distributor on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by a Fund on the one hand and the Distributor on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Fund bear to the total
compensation received by the Distributor, in each case as set forth in the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by a Fund or the Distributor and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Each Fund and the Distributor agree that it would not be
just and equitable ifcontribution were determined by pro rata allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to above. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to above shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such claim. Notwithstanding the
provisions of this subsection (c), the Distributor shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Shares distributed by it to the public were offered to the public exceeds
the amount of any damages which it has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
SECTION 10. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement
shall remain in force until April 30, 1999, and thereafter, but only so long as
such continuance is specifically approved at least annually by (i) the Board of
Directors/Trustees of each Fund, or by the vote of a majority of the outstanding
voting securities of the Fund, cast in person or by proxy, and (ii) a majority
of those Directors/ Trustees who are not parties to this Agreement or interested
persons of any such party and who have no direct or indirect financial interest
in this Agreement or in the operation of the Fund's Rule 12b-1 Plan or in any
agreement related thereto, cast in person at a meeting called for the purpose of
voting upon such approval.
This Agreement may be terminated at any time without the payment of any
penalty, by the Directors/ Trustees of a Fund, by a majority of the
Directors/Trustees of a Fund who are not interested persons of the Fund and who
have no direct or indirect financial interest in this Agreement, or by vote of a
majority of the outstanding voting securities of a Fund, or by the Distributor,
on sixty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested person," when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
SECTION 11. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the
Directors/Trustees of a Fund, or by the vote of a majority of outstanding voting
securities of a Fund, and (ii) a majority of those Directors/Trustees of a Fund
who are not parties to this Agreement or interested persons of any such party
and who have no direct or indirect financial interest in this Agreement or in
any Agreement related to the Fund's Rule 12b-1 Plan, cast in person at a meeting
called for the purpose of voting on such approval.
SECTION 12. ADDITIONAL FUNDS. If at any time another Fund desires to
appoint the Distributor as its principal underwriter and distributor under this
Agreement, it shall notify the Distributor in writing. If the Distributor is
willing to serve as the Fund's principal underwriter and distributor under this
Agreement, it shall notify the Fund in writing, whereupon such other Fund shall
become a Fund hereunder.
SECTION 13. GOVERNING LAW. This Agreement shall be construed in accordance
with the law of the State of New York and the applicable provisions of the 1940
Act. To the extent the applicable law of the
6
<PAGE>
State of New York, or any of the provisions herein, conflicts with the
applicable provisions of the 1940 Act, the latter shall control.
SECTION 14. PERSONAL LIABILITY. With respect to any Fund that is organized
as an unincorporated business trust under the laws of the Commonwealth of
Massachusetts, its Declaration of the Trust (each, a "Declaration") is on file
in the office of the Secretary of the Commonwealth of Massachusetts. Each
Declaration provides that the name of the Fund refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of any Fund shall be held to
any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim or otherwise, in connection with the
affairs of any Fund, but the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on June 22, 1998 in New York, New York.
ON BEHALF OF THE FUNDS SET FORTH ON
SCHEDULE A, ATTACHED HERETO
By: ..................................
MORGAN STANLEY DEAN WITTER
DISTRIBUTORS INC.
By: ..................................
7
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
SCHEDULE A
AT JULY 22, 1998
<TABLE>
<S> <C>
1) Morgan Stanley Dean Witter American Value Fund
2) Morgan Stanley Dean Witter Balanced Growth Fund
3) Morgan Stanley Dean Witter Balanced Income Fund
4) Morgan Stanley Dean Witter California Tax-Free Income Fund
5) Morgan Stanley Dean Witter Capital Appreciation Fund
6) Morgan Stanley Dean Witter Capital Growth Securities
7) Morgan Stanley Dean Witter Competitive Edge Fund
8) Morgan Stanley Dean Witter Convertible Securities Trust
9) Morgan Stanley Dean Witter Developing Growth Securities Trust
10) Morgan Stanley Dean Witter Diversified Income Trust
11) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
12) Morgan Stanley Dean Witter Equity Fund
13) Morgan Stanley Dean Witter European Growth Fund Inc.
14) Morgan Stanley Dean Witter Federal Securities Trust
15) Morgan Stanley Dean Witter Financial Services Trust
16) Morgan Stanley Dean Witter Fund of Funds
17) Dean Witter Global Asset Allocation Fund
18) Morgan Stanley Dean Witter Global Dividend Growth Securities
19) Morgan Stanley Dean Witter Global Utilities Fund
20) Morgan Stanley Dean Witter Growth Fund
21) Morgan Stanley Dean Witter Health Sciences Trust
22) Morgan Stanley Dean Witter High Yield Securities Inc.
23) Morgan Stanley Dean Witter Income Builder Fund
24) Morgan Stanley Dean Witter Information Fund
25) Morgan Stanley Dean Witter Intermediate Income Securities
26) Morgan Stanley Dean Witter International SmallCap Fund
27) Morgan Stanley Dean Witter Japan Fund
28) Morgan Stanley Dean Witter Market Leader Trust
29) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
30) Morgan Stanley Dean Witter Mid-Cap Growth Fund
31) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
32) Morgan Stanley Dean Witter New York Tax-Free Income Fund
33) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
34) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
35) Morgan Stanley Dean Witter Research Fund
36) Morgan Stanley Dean Witter Special Value Fund
37) Morgan Stanley Dean Witter S&P 500 Index Fund
38) Morgan Stanley Dean Witter S&P 500 Select Fund
39) Morgan Stanley Dean Witter Strategist Fund
40) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
41) Morgan Stanley Dean Witter U.S. Government Securities Trust
42) Morgan Stanley Dean Witter Utilities Fund
43) Morgan Stanley Dean Witter Value-Added Market Series
44) Morgan Stanley Dean Witter Value Fund
45) Morgan Stanley Dean Witter Worldwide High Income Fund
46) Morgan Stanley Dean Witter World Wide Income Trust
</TABLE>
8
<PAGE>
AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
with
MORGAN STANLEY DEAN WITTER TRUST FSB
[open-end funds]
<PAGE>
TABLE OF CONTENTS
PAGE
Article 1 Terms of Appointment. . . . . . . . . . . . . . . . . . . .1
Article 2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . .5
Article 3 Representations and Warranties of MSDW TRUST. . . . . . . .6
Article 4 Representations and Warranties of the Fund. . . . . . . . .7
Article 5 Duty of Care and Indemnification. . . . . . . . . . . . . .7
Article 6 Documents and Covenants of the Fund and MSDW TRUST. . . . 10
Article 7 Duration and Termination of Agreement . . . . . . . . . . 13
Article 8 Assignment. . . . . . . . . . . . . . . . . . . . . . . . 14
Article 9 Affiliations. . . . . . . . . . . . . . . . . . . . . . . 14
Article 10 Amendment . . . . . . . . . . . . . . . . . . . . . . . . 15
Article 11 Applicable Law. . . . . . . . . . . . . . . . . . . . . . 15
Article 12 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 15
Article 13 Merger of Agreement . . . . . . . . . . . . . . . . . . . 17
Article 14 Personal Liability. . . . . . . . . . . . . . . . . . . . 17
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AMENDED AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the 22nd day of June, 1998
by and between each of the Funds listed on the signature pages hereof, each of
such Funds acting severally on its own behalf and not jointly with any of such
other Funds (each such Fund hereinafter referred to as the "Fund"), each such
Fund having its principal office and place of business at Two World Trade
Center, New York, New York, 10048, and MORGAN STANLEY DEAN WITTER TRUST FSB
("MSDW TRUST"), a federally chartered savings bank, having its principal office
and place of business at Harborside Financial Center, Plaza Two, Jersey City,
New Jersey 07311.
WHEREAS, the Fund desires to appoint MSDW TRUST as its transfer agent,
dividend disbursing agent and shareholder servicing agent and MSDW TRUST desires
to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 TERMS OF APPOINTMENT; DUTIES OF MSDW TRUST
1.1 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints MSDW TRUST to act as, and MSDW
TRUST agrees to act as, the transfer agent for each series and class of shares
of the Fund, whether now or hereafter authorized or issued ("Shares"), dividend
disbursing agent and shareholder servicing agent in
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connection with any accumulation, open-account or similar plans provided to the
holders of such Shares ("Shareholders") and set out in the currently effective
prospectus and statement of additional information ("prospectus") of the Fund,
including without limitation any periodic investment plan or periodic withdrawal
program.
1.2 MSDW TRUST agrees that it will perform the following
services:
(a) In accordance with procedures established from time to
time by agreement between the Fund and MSDW TRUST, MSDW TRUST shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation therefor to the
custodian of the assets of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number
of Shares and issue certificates therefor or hold such Shares in book form in
the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any redemption, pay over or cause to
be paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
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(v) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on
purchases and/or redemptions of Shares of the Fund as such charges may be
reflected in the prospectus;
(viii) Maintain records of account for and advise the Fund
and its Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain
pursuant to Rule 17Ad-10(e) under the Securities Exchange Act of 1934 ("1934
Act") a record of the total number of Shares of the Fund which are authorized,
based upon data provided to it by the Fund, and issued and outstanding. MSDW
TRUST shall also provide to the Fund on a regular basis the total number of
Shares that are authorized, issued and outstanding and shall notify the Fund in
case any proposed issue of Shares by the Fund would result in an overissue. In
case any issue of Shares would result in an overissue, MSDW TRUST shall refuse
to issue such Shares and shall not countersign and issue any certificates
requested for such Shares. When recording the issuance of Shares, MSDW TRUST
shall have no obligation to take cognizance of any Blue Sky laws relating to the
issue of sale of such Shares, which functions shall be the sole responsibility
of the Fund.
(b) In addition to and not in lieu of the services set forth
in the above paragraph (a), MSDW TRUST shall:
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<PAGE>
(i) perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, shareholder servicing agent in
connection with dividend reinvestment, accumulation, open-account or similar
plans (including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing appropriate forms required with respect to
dividends and distributions by federal tax authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders and providing Shareholder account information;
(ii) open any and all bank accounts which may be necessary or
appropriate in order to provide the foregoing services; and
(iii) provide a system that will enable the Fund to monitor the
total number of Shares sold in each State or other jurisdiction.
(c) In addition, the Fund shall:
(i) identify to MSDW TRUST in writing those transactions and
assets to be treated as exempt from Blue Sky reporting for each State; and
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<PAGE>
(ii) verify the inclusion on the system prior to activation of
each State in which Fund shares may be sold and thereafter monitor the daily
purchases and sales for shareholders in each State. The responsibility of MSDW
TRUST for the Fund's status under the securities laws of any State or other
jurisdiction is limited to the inclusion on the system of each State as to which
the Fund has informed MSDW TRUST that shares may be sold in compliance with
state securities laws and the reporting of purchases and sales in each such
State to the Fund as provided above and as agreed from time to time by the Fund
and MSDW TRUST.
(d) MSDW TRUST shall provide such additional services and
functions not specifically described herein as may be mutually agreed between
MSDW TRUST and the Fund. Procedures applicable to such services may be
established from time to time by agreement between the Fund and MSDW TRUST.
Article 2 FEES AND EXPENSES
2.1 For performance by MSDW TRUST pursuant to this Agreement,
each Fund agrees to pay MSDW TRUST an annual maintenance fee for each
Shareholder account and certain transactional fees, if applicable, as set out in
the respective fee schedule attached hereto as Schedule A. Such fees and
out-of-pocket expenses and advances identified under Section 2.2 below may be
changed from time to time subject to mutual written agreement between the Fund
and MSDW TRUST.
2.2 In addition to the fees paid under Section 2.1 above, the
Fund agrees to reimburse MSDW TRUST for out of pocket expenses in connection
with the services rendered
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<PAGE>
by MSDW TRUST hereunder. In addition, any other expenses incurred by MSDW TRUST
at the request or with the consent of the Fund will be reimbursed by the Fund.
2.3 The Fund agrees to pay all fees and reimbursable expenses
within a reasonable period of time following the mailing of the respective
billing notice. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all Shareholder accounts shall be advanced to MSDW TRUST by
the Fund upon request prior to the mailing date of such materials.
Article 3 REPRESENTATIONS AND WARRANTIES OF MSDW TRUST
MSDW TRUST represents and warrants to the Fund that:
3.1 It is a federally chartered savings bank whose principal
office is in New Jersey.
3.2 It is and will remain registered with the U.S. Securities
and Exchange Commission ("SEC") as a Transfer Agent pursuant to the requirements
of Section 17A of the 1934 Act.
3.3 It is empowered under applicable laws and by its charter
and By-Laws to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
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<PAGE>
Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to MSDW TRUST that:
4.1 It is a corporation duly organized and existing and in
good standing under the laws of Delaware or Maryland or a trust duly organized
and existing and in good standing under the laws of Massachusetts, as the case
may be.
4.2 It is empowered under applicable laws and by its Articles
of Incorporation or Declaration of Trust, as the case may be, and under its
By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings necessary to authorize it to
enter into and perform this Agreement have been taken.
4.4 It is an investment company registered with the SEC under
the Investment Company Act of 1940, as amended (the "1940 Act").
4.5 A registration statement under the Securities Act of 1933
(the "1933 Act") is currently effective and will remain effective, and
appropriate state securities law filings have been made and will continue to be
made, with respect to all Shares of the Fund being offered for sale.
Article 5 DUTY OF CARE AND INDEMNIFICATION
5.1 MSDW TRUST shall not be responsible for, and the Fund
shall indemnify and hold MSDW TRUST harmless from and against, any and all
losses, damages, costs,
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<PAGE>
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of MSDW TRUST or its agents or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of
this Agreement, or which arise out of the Fund's lack of good faith, negligence
or willful misconduct or which arise out of breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by MSDW TRUST or its agents or
subcontractors of information, records and documents which (i) are received by
MSDW TRUST or its agents or subcontractors and furnished to it by or on behalf
of the Fund, and (ii) have been prepared and/or maintained by the Fund or any
other person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by MSDW TRUST or its
agents or subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the securities
or Blue Sky laws of any State or other jurisdiction that notice of offering of
such Shares in such State or other jurisdiction or in violation of any stop
order or other determination or ruling by any federal agency or any State or
other jurisdiction with respect to the offer or sale of such Shares in such
State or other jurisdiction.
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<PAGE>
5.2 MSDW TRUST shall indemnify and hold the Fund harmless from
or against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by MSDW TRUST as a result of the lack of good faith,
negligence or willful misconduct of MSDW TRUST, its officers, employees or
agents.
5.3 At any time, MSDW TRUST may apply to any officer of the
Fund for instructions, and may consult with legal counsel to the Fund, with
respect to any matter arising in connection with the services to be performed by
MSDW TRUST under this Agreement, and MSDW TRUST and its agents or subcontractors
shall not be liable and shall be indemnified by the Fund for any action taken or
omitted by it in reliance upon such instructions or upon the opinion of such
counsel. MSDW TRUST, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Fund, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided to MSDW TRUST or its agents or subcontractors by machine
readable input, telex, CRT data entry or other similar means authorized by the
Fund, and shall not be held to have notice of any change of authority of any
person, until receipt of written notice thereof from the Fund. MSDW TRUST, its
agents and subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper manual or
facsimile signature of the officers of the Fund, and the proper countersignature
of any former transfer agent or registrar, or of a co-transfer agent or
co-registrar.
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<PAGE>
5.4 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes.
5.5 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement or
for any act or failure to act hereunder.
5.6 In order that the indemnification provisions contained in
this Article 5 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 DOCUMENTS AND COVENANTS OF THE FUND AND MSDW TRUST
6.1 The Fund shall promptly furnish to MSDW TRUST the
following, unless previously furnished to Dean Witter Trust Company, the prior
transfer agent of the Fund:
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<PAGE>
(a) If a corporation:
(i) A certified copy of the resolution of the Board of
Directors of the Fund authorizing the appointment of MSDW TRUST and the
execution and delivery of this Agreement;
(ii) A certified copy of the Articles of Incorporation and By-
Laws of the Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board of Directors
designating persons authorized to give instructions on behalf of the Fund and
signature cards bearing the signature of any officer of the Fund or any other
person authorized to sign written instructions on behalf of the Fund;
(iv) A specimen of the certificate for Shares of the Fund in
the form approved by the Board of Directors, with a certificate of the Secretary
of the Fund as to such approval;
(b) If a business trust:
(i) A certified copy of the resolution of the Board of
Trustees of the Fund authorizing the appointment of MSDW TRUST and the execution
and delivery of this Agreement;
(ii) A certified copy of the Declaration of Trust and By-Laws
of the Fund and all amendments thereto;
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<PAGE>
(iii) Certified copies of each vote of the Board of Trustees
designating persons authorized to give instructions on behalf of the Fund and
signature cards bearing the signature of any officer of the Fund or any other
person authorized to sign written instructions on behalf of the Fund;
(iv) A specimen of the certificate for Shares of the Fund in
the form approved by the Board of Trustees, with a certificate of the Secretary
of the Fund as to such approval;
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the 1933
Act or the 1940 Act;
(d) All account application forms or other documents relating
to Shareholder accounts and/or relating to any plan, program or service offered
or to be offered by the Fund; and
(e) Such other certificates, documents or opinions as MSDW
TRUST deems to be appropriate or necessary for the proper performance of its
duties.
6.2 MSDW TRUST hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Fund for safekeeping of
Share certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
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<PAGE>
6.3 MSDW TRUST shall prepare and keep records relating to the
services to be performed hereunder, in the form and manner as it may deem
advisable and as required by applicable laws and regulations. To the extent
required by Section 31 of the 1940 Act, and the rules and regulations
thereunder, MSDW TRUST agrees that all such records prepared or maintained by
MSDW TRUST relating to the services performed by MSDW TRUST hereunder are the
property of the Fund and will be preserved, maintained and made available in
accordance with such Section 31 of the 1940 Act, and the rules and regulations
thereunder, and will be surrendered promptly to the Fund on and in accordance
with its request.
6.4 MSDW TRUST and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential and shall not be voluntarily disclosed to
any other person except as may be required by law or with the prior consent of
MSDW TRUST and the Fund.
6.5 In case of any request or demands for the inspection of
the Shareholder records of the Fund, MSDW TRUST will endeavor to notify the Fund
and to secure instructions from an authorized officer of the Fund as to such
inspection. MSDW TRUST reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 7 DURATION AND TERMINATION OF AGREEMENT
7.1 This Agreement shall remain in full force and effect until
August 1,
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<PAGE>
2000 and from year-to-year thereafter unless terminated by either party as
provided in Section 7.2 hereof.
7.2 This Agreement may be terminated by the Fund on 60 days
written notice, and by MSDW TRUST on 90 days written notice, to the other party
without payment of any penalty.
7.3 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and other
materials will be borne by the Fund. Additionally, MSDW TRUST reserves the
right to charge for any other reasonable fees and expenses associated with such
termination.
Article 8 ASSIGNMENT
8.1 Except as provided in Section 8.3 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
8.2 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
8.3 MSDW TRUST may, in its sole discretion and without further
consent by the Fund, subcontract, in whole or in part, for the performance of
its obligations and duties hereunder with any person or entity including but not
limited to companies which are affiliated with MSDW TRUST; PROVIDED, HOWEVER,
that such person or entity has and maintains the qualifications, if any,
required to perform such obligations and duties, and that MSDW TRUST
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<PAGE>
shall be as fully responsible to the Fund for the acts and omissions of any
agent or subcontractor as it is for its own acts or omissions under this
Agreement.
Article 9 AFFILIATIONS
9.1 MSDW TRUST may now or hereafter, without the consent of or
notice to the Fund, function as transfer agent and/or shareholder servicing
agent for any other investment company registered with the SEC under the 1940
Act and for any other issuer, including without limitation any investment
company whose adviser, administrator, sponsor or principal underwriter is or may
become affiliated with Morgan Stanley Dean Witter & Co. or any of its direct or
indirect subsidiaries or affiliates.
9.2 It is understood and agreed that the Directors or Trustees
(as the case may be), officers, employees, agents and shareholders of the Fund,
and the directors, officers, employees, agents and shareholders of the Fund's
investment adviser and/or distributor, are or may be interested in MSDW TRUST as
directors, officers, employees, agents and shareholders or otherwise, and that
the directors, officers, employees, agents and shareholders of MSDW TRUST may be
interested in the Fund as Directors or Trustees (as the case may be), officers,
employees, agents and shareholders or otherwise, or in the investment adviser
and/or distributor as directors, officers, employees, agents, shareholders or
otherwise.
Article 10 AMENDMENT
10.1 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Directors or the Board of Trustees (as the case may be) of the
Fund.
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Article 11 APPLICABLE LAW
11.1 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the State of New
York.
Article 12 MISCELLANEOUS
12.1 In the event that one or more additional investment
companies managed or administered by Morgan Stanley Dean Witter Advisors Inc. or
any of its affiliates ("Additional Funds") desires to retain MSDW TRUST to act
as transfer agent, dividend disbursing agent and/or shareholder servicing agent,
and MSDW TRUST desires to render such services, such services shall be provided
pursuant to a letter agreement, substantially in the form of Exhibit A hereto,
between MSDW TRUST and each Additional Fund.
12.2 In the event of an alleged loss or destruction of any
Share certificate, no new certificate shall be issued in lieu thereof, unless
there shall first be furnished to MSDW TRUST an affidavit of loss or non-receipt
by the holder of Shares with respect to which a certificate has been lost or
destroyed, supported by an appropriate bond satisfactory to MSDW TRUST and the
Fund issued by a surety company satisfactory to MSDW TRUST, except that MSDW
TRUST may accept an affidavit of loss and indemnity agreement executed by the
registered holder (or legal representative) without surety in such form as MSDW
TRUST deems appropriate indemnifying MSDW TRUST and the Fund for the issuance of
a replacement certificate, in cases where the alleged loss is in the amount of
$1,000 or less.
12.3 In the event that any check or other order for payment of
money on the
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account of any Shareholder or new investor is returned unpaid for any reason,
MSDW TRUST will (a) give prompt notification to the Fund's distributor
("Distributor") (or to the Fund if the Fund acts as its own distributor) of such
non-payment; and (b) take such other action, including imposition of a
reasonable processing or handling fee, as MSDW TRUST may, in its sole
discretion, deem appropriate or as the Fund and, if applicable, the Distributor
may instruct MSDW TRUST.
12.4 Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Fund or to MSDW TRUST shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Fund:
[Name of Fund]
Two World Trade Center
New York, New York 10048
Attention: General Counsel
To MSDW TRUST:
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
Attention: President
Article 13 MERGER OF AGREEMENT
13.1 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
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Article 14 PERSONAL LIABILITY
14.1 In the case of a Fund organized as a Massachusetts
business trust, a copy of the Declaration of Trust of the Fund is on file with
the Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Board of Trustees of the Fund
as Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund; provided, however, that
the Declaration of Trust of the Fund provides that the assets of a particular
Series of the Fund shall under no circumstances be charged with liabilities
attributable to any other Series of the Fund and that all persons extending
credit to, or contracting with or having any claim against, a particular Series
of the Fund shall look only to the assets of that particular Series for payment
of such credit, contract or claim.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Agreement to be executed in their names and on their behalf by and
through their duly authorized officers, as of the day and year first above
written.
MORGAN STANLEY DEAN WITTER FUNDS
MONEY MARKET FUNDS
1. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Morgan Stanley Dean Witter U.S. Government Money Market Trust
4. Active Assets Government Securities Trust
5. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
6. Active Assets Tax-Free Trust
7. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
8. Morgan Stanley Dean Witter New York Municipal Money Market Trust
9. Active Assets California Tax-Free Trust
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EQUITY FUNDS
10. Morgan Stanley Dean Witter American Value Fund
11. Morgan Stanley Dean Witter Mid-Cap Growth Fund
12. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
13. Morgan Stanley Dean Witter Capital Growth Securities
14. Morgan Stanley Dean Witter Global Dividend Growth Securities
15. Morgan Stanley Dean Witter Income Builder Fund
16. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
17. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
18. Morgan Stanley Dean Witter Developing Growth Securities Trust
19. Morgan Stanley Dean Witter Health Sciences Trust
20. Morgan Stanley Dean Witter Capital Appreciation Fund
21. Morgan Stanley Dean Witter Information Fund
22. Morgan Stanley Dean Witter Value-Added Market Series
23. Morgan Stanley Dean Witter European Growth Fund Inc.
24. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
25. Morgan Stanley Dean Witter International SmallCap Fund
26. Morgan Stanley Dean Witter Japan Fund
27. Morgan Stanley Dean Witter Utilities Fund
28. Morgan Stanley Dean Witter Global Utilities Fund
29. Morgan Stanley Dean Witter Special Value Fund
30. Morgan Stanley Dean Witter Financial Services Trust
31. Morgan Stanley Dean Witter Market Leader Trust
32. Morgan Stanley Dean Witter Fund of Funds
33. Morgan Stanley Dean Witter S&P 500 Index Fund
34. Morgan Stanley Dean Witter Competitive Edge Fund
35. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
36. Morgan Stanley Dean Witter Equity Fund
37. Morgan Stanley Dean Witter Growth Fund
BALANCED FUNDS
38. Morgan Stanley Dean Witter Balanced Growth Fund
39. Morgan Stanley Dean Witter Balanced Income Trust
ASSET ALLOCATION FUNDS
40. Morgan Stanley Dean Witter Strategist Fund
41. Dean Witter Global Asset Allocation Fund
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FIXED INCOME FUNDS
42. Morgan Stanley Dean Witter High Yield Securities Inc.
43. Morgan Stanley Dean Witter High Income Securities
44. Morgan Stanley Dean Witter Convertible Securities Trust
45. Morgan Stanley Dean Witter Intermediate Income Securities
46. Morgan Stanley Dean Witter Short-Term Bond Fund
47. Morgan Stanley Dean Witter World Wide Income Trust
48. Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
49. Morgan Stanley Dean Witter Diversified Income Trust
50. Morgan Stanley Dean Witter U.S. Government Securities Trust
51. Morgan Stanley Dean Witter Federal Securities Trust
52. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53. Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
54. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
55. Morgan Stanley Dean Witter Limited Term Municipal Trust
56. Morgan Stanley Dean Witter California Tax-Free Income Fund
57. Morgan Stanley Dean Witter New York Tax-Free Income Fund
58. Morgan Stanley Dean Witter Hawaii Municipal Trust
59. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
60. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
SPECIAL PURPOSE FUNDS
61. Dean Witter Retirement Series
62. Morgan Stanley Dean Witter Variable Investment Series
63. Morgan Stanley Dean Witter Select Dimensions Investment Series
TCW/DW FUNDS
64. TCW/DW North American Government Income Trust
65. TCW/DW Latin American Growth Fund
66. TCW/DW Income and Growth Fund
67. TCW/DW Small Cap Growth Fund
68. TCW/DW Total Return Trust
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69. TCW/DW Global Telecom Trust
70. TCW/DW Mid-Cap Equity Trust
71. TCW/DW Emerging Markets Opportunities Trust
By:
----------------------------------
Barry Fink
Vice President and General Counsel
ATTEST:
- -----------------------
Assistant Secretary
MORGAN STANLEY DEAN WITTER TRUST FSB
By:
--------------------------
John Van Heuvelen
President
ATTEST:
- -----------------------
Executive Vice President
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<PAGE>
EXHIBIT A
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
Gentlemen:
The undersigned, Morgan Stanley Dean Witter Japan Fund a
Massachusetts business trust (the "Fund"), desires to
employ and appoint Morgan Stanley Dean Witter Trust FSB ("MSDW TRUST") to act as
transfer agent for each series and class of shares of the Fund, whether now or
hereafter authorized or issued ("Shares"), dividend disbursing agent and
shareholder servicing agent, registrar and agent in connection with any
accumulation, open-account or similar plan provided to the holders of Shares,
including without limitation any periodic investment plan or periodic withdrawal
plan.
The Fund hereby agrees that, in consideration for the payment by the
Fund to MSDW TRUST of fees as set out in the fee schedule attached hereto as
Schedule A, MSDW TRUST shall provide such services to the Fund pursuant to the
terms and conditions set forth in the Transfer Agency and Service Agreement
annexed hereto, as if the Fund was a signatory thereto.
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<PAGE>
Please indicate MSDW TRUST's acceptance of employment and appointment
by the Fund in the capacities set forth above by so indicating in the space
provided below.
Very truly yours,
Morgan Stanley Dean Witter
Japan Fund
By:
----------------------------------
Barry Fink
Vice President and General Counsel
ACCEPTED AND AGREED TO:
MORGAN STANLEY DEAN WITTER TRUST FSB
By:
-----------------------
Its:
----------------------
Date:
---------------------
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SCHEDULE A
Fund: Morgan Stanley Dean Witter Japan Fund
Fees: (1) Annual Maintenance fee of $12.65 per shareholder account, payable
monthly.
(2) A fee equal to 1/12 of the fee set forth in (1) above, for
providing Forms 1099 for accounts closed during the year, payable
following the end of the calendar year.
(3) Out-of-pocket expenses in accordance with Section 2.2 of the
Agreement
(4) Fees for additional services not set forth in this Agreement
shall be as negotiated between the parties.
<PAGE>
SERVICES AGREEMENT
AGREEMENT made as of the 17th day of April, 1995, and amended as of June 22,
1998, by and between Morgan Stanley Dean Witter Advisors Inc., a Delaware
corporation (herein referred to as "MSDW Advisors"), and Morgan Stanley Dean
Witter Services Company Inc., a Delaware corporation (herein referred to as
"MSDW Services").
WHEREAS, MSDW Advisors has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement") with
certain investment companies as set forth on Schedule A (each such investment
company being herein referred to as a "Fund" and, collectively, as the "Funds")
pursuant to which MSDW Advisors is to perform, or supervise the performance of,
among other services, administrative services for the Funds (and, in the case of
Funds with multiple portfolios, the Series or Portfolios of the Funds (such
Series and Portfolio being herein individually referred to as "a Series" and,
collectively, as "the Series"));
WHEREAS, MSDW Advisors desires to retain MSDW Services to perform the
administrative services as described below; and
WHEREAS, MSDW Services desires to be retained by MSDW Advisors to perform
such administrative services:
Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. MSDW Services agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, MSDW
Services shall (i) administer the Fund's business affairs and supervise the
overall day-to-day operations of the Fund (other than rendering investment
advice); (ii) provide the Fund with full administrative services, including the
maintenance of certain books and records, such as journals, ledger accounts and
other records required under the Investment Company Act of 1940, as amended (the
"Act"), the notification to the Fund and MSDW Advisors of available funds for
investment, the reconciliation of account information and balances among the
Fund's custodian, transfer agent and dividend disbursing agent and MSDW
Advisors, and the calculation of the net asset value of the Fund's shares; (iii)
provide the Fund with the services of persons competent to perform such
supervisory, administrative and clerical functions as are necessary to provide
effective operation of the Fund; (iv) oversee the performance of administrative
and professional services rendered to the Fund by others, including its
custodian, transfer agent and dividend disbursing agent, as well as accounting,
auditing and other services; (v) provide the Fund with adequate general office
space and facilities; (vi) assist in the preparation and the printing of the
periodic updating of the Fund's registration statement and prospectus (and, in
the case of an open-end Fund, the statement of additional information), tax
returns, proxy statements, and reports to its shareholders and the Securities
and Exchange Commission; and (vii) monitor the compliance of the Fund's
investment policies and restrictions.
In the event that MSDW Advisors enters into an Investment Management
Agreement with another investment company, and wishes to retain MSDW Services to
perform administrative services hereunder, it shall notify MSDW Services in
writing. If MSDW Services is willing to render such services, it shall notify
MSDW Advisors in writing, whereupon such other Fund shall become a Fund as
defined herein.
2. MSDW Services shall, at its own expense, maintain such staff and employ
or retain such personnel and consult with such other persons as it shall from
time to time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of MSDW Services shall be deemed to include
officers of MSDW Services and persons employed or otherwise retained by MSDW
Services (including officers and employees of MSDW Advisors, with the consent of
MSDW Advisors) to furnish services, statistical and other factual data,
information with respect to technical and scientific developments, and such
other information, advice and assistance as MSDW Services may desire. MSDW
Services shall maintain each Fund's records and books of account
1
98NYC8262
<PAGE>
(other than those maintained by the Fund's transfer agent, registrar, custodian
and other agencies). All such books and records so maintained shall be the
property of the Fund and, upon request therefor, MSDW Services shall surrender
to MSDW Advisors or to the Fund such of the books and records so requested.
3. MSDW Advisors will, from time to time, furnish or otherwise make
available to MSDW Services such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as MSDW Services
may reasonably require in order to discharge its duties and obligations to the
Fund under this Agreement or to comply with any applicable law and regulation or
request of the Board of Directors/Trustees of the Fund.
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by MSDW Services, MSDW Advisors shall pay to MSDW Services
monthly compensation calculated daily (in the case of an open-end Fund) or
weekly (in the case of a closed-end Fund) by applying the annual rate or rates
set forth on Schedule B to the net assets of each Fund. Except as hereinafter
set forth, (i) in the case of an open-end Fund, compensation under this
Agreement shall be calculated by applying 1/365th of the annual rate or rates to
the Fund's or the Series' daily net assets determined as of the close of
business on that day or the last previous business day and (ii) in the case of a
closed-end Fund, compensation under this Agreement shall be calculated by
applying the annual rate or rates to the Fund's average weekly net assets
determined as of the close of the last business day of each week. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth on Schedule B. Subject to the
provisions of paragraph 5 hereof, payment of MSDW Services' compensation for the
preceding month shall be made as promptly as possible after completion of the
computations contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to MSDW Advisors pursuant to the Investment Management Agreement, for
any fiscal year ending on a date on which this Agreement is in effect, exceed
the expense limitations applicable to the Fund and/or any Series thereof imposed
by state securities laws or regulations thereunder, as such limitations may be
raised or lowered from time to time, or, in the case of InterCapital Income
Securities Inc. or Morgan Stanley Dean Witter Variable Investment Series or any
Series thereof, the expense limitation specified in the Fund's Investment
Management Agreement, the fee payable hereunder shall be reduced on a pro rata
basis in the same proportion as the fee payable by the Fund under the Investment
Management Agreement is reduced.
6. MSDW Services shall bear the cost of rendering the administrative
services to be performed by it under this Agreement, and shall, at its own
expense, pay the compensation of the officers and employees, if any, of the Fund
employed by MSDW Services, and such clerical help and bookkeeping services as
MSDW Services shall reasonably require in performing its duties hereunder.
7. MSDW Services will use its best efforts in the performance of
administrative activitives on behalf of each Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, MSDW Services shall not be liable to the Fund or any of
its investors for any error of judgment or mistake of law or for any act or
omission by MSDW Services or for any losses sustained by the Fund or its
investors. It is understood that, subject to the terms and conditions of the
Investment Management Agreement between each Fund and MSDW Advisors, MSDW
Advisors shall retain ultimate responsibility for all services to be performed
hereunder by MSDW Services. MSDW Services shall indemnify MSDW Advisors and hold
it harmless from any liability that MSDW Advisors may incur arising out of any
act or failure to act by MSDW Services in carrying out its responsibilities
hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, MSDW Services, and in any person
controlling, controlled by or under common control with MSDW Services, and that
MSDW Services and any person controlling, controlled by or under common control
with MSDW
2
<PAGE>
Services may have an interest in the Fund. It is also understood that MSDW
Services and any affiliated persons thereof or any persons controlling,
controlled by or under common control with MSDW Services have and may have
advisory, management, administration service or other contracts with other
organizations and persons, and may have other interests and businesses, and
further may purchase, sell or trade any securities or commodities for their own
accounts or for the account of others for whom they may be acting.
9. This Agreement shall continue until April 30, 1999, and thereafter shall
continue automatically for successive periods of one year unless terminated by
either party by written notice delivered to the other party within 30 days of
the expiration of the then-existing period. Notwithstanding the foregoing, this
Agreement may be terminated at any time, by either party on 30 days' written
notice delivered to the other party. In the event that the Investment Management
Agreement between any Fund and MSDW Advisors is terminated, this Agreement will
automatically terminate with respect to such Fund.
10. This Agreement may be amended or modified by the parties in any manner
by written agreement executed by each of the parties hereto.
11. This Agreement may be assigned by either party with the written consent
of the other party.
12. This Agreement shall be construed and interpreted in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on June 22, 1998 in New York, New York.
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER ADVISORS INC.
By:
-------------------------------------
Attest:
- -------------------------------
MORGAN STANLEY DEAN WITTER SERVICES COMPANY
INC.
By:
-------------------------------------
Attest:
- -------------------------------
</TABLE>
3
<PAGE>
SCHEDULE A
DEAN WITTER FUNDS
AS AMENDED AS OF JULY 22, 1998
OPEN-END FUNDS
<TABLE>
<C> <S>
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. Dean Witter Retirement Series
6. Morgan Stanley Dean Witter American Value Fund
7. Morgan Stanley Dean Witter Balanced Growth Fund
8. Morgan Stanley Dean Witter Balanced Income Fund
9. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
10. Morgan Stanley Dean Witter California Tax-Free Income Fund
11. Morgan Stanley Dean Witter Capital Appreciation Fund
12. Morgan Stanley Dean Witter Capital Growth Securities
13. Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" Portfolio
14. Morgan Stanley Dean Witter Convertible Securities Trust
15. Morgan Stanley Dean Witter Developing Growth Securities Trust
16. Morgan Stanley Dean Witter Diversified Income Trust
17. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
18. Morgan Stanley Dean Witter Equity Fund
19. Morgan Stanley Dean Witter European Growth Fund Inc.
20. Morgan Stanley Dean Witter Federal Securities Trust
21. Morgan Stanley Dean Witter Financial Services Trust
22. Morgan Stanley Dean Witter Fund of Funds
(i) Domestic Portfolio
(ii) International Portfolio
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.
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
</TABLE>
A-1
<PAGE>
<TABLE>
<C> <S>
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. Morgan Stanley Dean Witter Select Dimensions Investment Series
(i) American Value Portfolio
(ii) Balanced Growth Portfolio
(iii) Developing Growth Portfolio
(iv) Diversified Income Portfolio
(v) Dividend Growth Portfolio
(vi) Emerging Markets Portfolio
(vii) Global Equity Portfolio
(viii) Growth Portfolio
(ix) Mid-Cap Growth Portfolio
(x) Money Market Portfolio
(xi) North American Government Securities Portfolio
(xii) Utilities Portfolio
(xiii) Value-Added Market Portfolio
48. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
49. Morgan Stanley Dean Witter U.S. Government Money Market Trust
50. Morgan Stanley Dean Witter Utilities Fund
51. Morgan Stanley Dean Witter Short-Term Bond Fund
52. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53. Morgan Stanley Dean Witter Special Value Fund
54. Morgan Stanley Dean Witter Strategist Fund
55. Morgan Stanley Dean Witter S&P 500 Index Fund
56. Morgan Stanley Dean Witter S&P 500 Select Fund
57. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
58. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
59. Morgan Stanley Dean Witter U.S. Government Securities Trust
60. Morgan Stanley Dean Witter Value-Added Market Series
61. Morgan Stanley Dean Witter Value Fund
62. Morgan Stanley Dean Witter Variable Investment Series
(i) Capital Appreciation Portfolio
(ii) Capital Growth Portfolio
(iii) Competitive Edge "Best Ideas" Portfolio
(iv) Dividend Growth Portfolio
(v) Equity Portfolio
(vi) European Growth Portfolio
(vii) Global Dividend Growth Portfolio
(viii) High Yield Portfolio
(ix) Income Builder Portfolio
(x) Money Market Portfolio
(xi) Quality Income Plus Portfolio
(xii) Pacific Growth Portfolio
(xiii) S&P 500 Index Portfolio
(xiv) Strategist Portfolio
(xv) Utilities Portfolio
63. Morgan Stanley Dean Witter World Wide Income Trust
64. Morgan Stanley Dean Witter Worldwide High Income Fund
65. Dean Witter Global Asset Allocation Fund
</TABLE>
A-2
<PAGE>
<TABLE>
<C> <S>
CLOSED-END FUNDS
66. High Income Advantage Trust
67. High Income Advantage Trust II
68. High Income Advantage Trust III
69. InterCapital Income Securities Inc.
70. Dean Witter Government Income Trust
71. InterCapital Insured Municipal Bond Trust
72. InterCapital Insured Municipal Trust
73. InterCapital Insured Municipal Income Trust
74. InterCapital California Insured Municipal Income Trust
75. InterCapital Insured Municipal Securities
76. InterCapital Insured California Municipal Securities
77. InterCapital Quality Municipal Investment Trust
78. InterCapital Quality Municipal Income Trust
79. InterCapital Quality Municipal Securities
80. InterCapital California Quality Municipal Securities
81. InterCapital New York Quality Municipal Securities
</TABLE>
A-3
<PAGE>
SCHEDULE B
MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES
AS AMENDED AS OF JUNE 22, 1998
Monthly compensation calculated daily by applying the following annual rates
to a fund's daily net assets:
<TABLE>
<S> <C>
FIXED INCOME FUNDS
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Balanced Income Fund
Morgan Stanley Dean Witter 0.055% of the portion of the daily net assets not
California Tax-Free Income Fund exceeding $500 million; 0.0525% of the portion of the
daily net assets exceeding $500 million but not exceeding
$750 million; 0.050% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.0475% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.25 billion; and
0.045% of the portion of the daily net assets exceeding
$1.25 billion.
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not
Convertible Securities Trust exceeding $750 million; 0.055% of the portion of the
daily net assets exceeding $750 million but not exceeding
$1 billion; 0.050% of the portion of the daily net assets
of the exceeding $1 billion but not exceeding $1.5
billion; 0.0475% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2 billion;
0.045% of the portion of the daily net assets exceeding
$2 billion but not exceeding $3 billion; and 0.0425% of
the portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.040% of the daily net assets.
Diversified Income Trust
Morgan Stanley Dean Witter 0.055% of the portion of the daily net assets not
Federal Securities Trust exceeding $1 billion; 0.0525% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.5
billion; 0.050% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2 billion;
0.0475% of the portion of the daily net assets exceeding
$2 billion but not exceeding $2.5 billion; 0.045% of the
portion of the daily net assets exceeding $2.5 billion
but not exceeding $5 billion; 0.0425% of the portion of
the daily net assets exceeding $5 billion but not
exceeding $7.5 billion; 0.040% of the portion of the
daily net assets exceeding $7.5 billion but not exceeding
$10 billion; 0.0375% of the portion of the daily net
assets exceeding $10 billion but not exceeding $12.5
billion; and 0.035% of the portion of the daily net
assets exceeding $12.5 billion.
Morgan Stanley Dean Witter Global 0.055% of the portion of the daily net assets not
Short-Term Income Fund Inc. exceeding $500 million; and 0.050% of the portion of the
daily net assets exceeding $500 million.
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Hawaii 0.035% of the daily net assets.
Municipal Trust
Morgan Stanley Dean Witter High 0.050% of the portion of the daily net assets not
Yield Securities Inc. exceeding $500 million; 0.0425% of the portion of the
daily net assets exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.035% of the portion of the daily net assets
exceeding $1 billion but not exceeding $2 billion;
0.0325% of the portion of the daily net assets exceeding
$2 billion but not exceeding $3 billion; and 0.030% of
the portion of daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not
Intermediate Income Securities exceeding $500 million; 0.050% of the portion of the
daily net assets exceeding $500 million but not exceeding
$750 million; 0.040% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; and 0.030% of the portion of the daily net
assets exceeding $1 billion.
Morgan Stanley Dean Witter 0.035% of the daily net assets.
Intermediate Term
U.S. Treasury Trust
Morgan Stanley Dean Witter 0.050% of the daily net assets.
Limited Term Municipal Trust
Morgan Stanley Dean Witter Multi- 0.035% of the daily net assets.
State Municipal Series Trust
(10 Series)
Morgan Stanley Dean Witter New 0.055% of the portion of the daily net assets not
York Tax-Free Income Fund exceeding $500 million; and 0.0525% of the portion of the
daily net assets exceeding $500 million.
Morgan Stanley Dean Witter 0.065% of the daily net assets.
Retirement Series--Intermediate
Income Securities Series
U.S. Government Securities 0.065% of the daily net assets.
Series
Morgan Stanley Dean Witter Select 0.039% of the daily net assets.
Dimensions Investment Series--
North American Government
Securities Portfolio
Morgan Stanley Dean Witter Select 0.050% of the daily net assets.
Municipal Reinvestment Fund
Morgan Stanley Dean Witter Short- 0.070% of the daily net assets.
Term Bond Fund
Morgan Stanley Dean Witter Short- 0.035% of the daily net assets.
Term U.S. Treasury Trust
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Tax- 0.050% of the portion of the daily net assets not
Exempt Securities Trust exceeding $500 million; 0.0425% of the portion of the
daily net assets exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; and 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.25
billion; .0325% of the portion of the daily net assets
exceeding $1.25 billion.
Morgan Stanley Dean Witter U.S. 0.050% of the portion of the daily net assets not
Government Securities Trust exceeding $1 billion; 0.0475% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.5
billion; 0.045% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2 billion;
0.0425% of the portion of the daily net assets exceeding
$2 billion but not exceeding $2.5 billion; 0.040% of the
portion of the daily net assets exceeding $2.5 billion
but not exceeding $5 billion; 0.0375% of the portion of
the daily net assets exceeding $5 billion but not
exceeding $7.5 billion; 0.035% of the portion of the
daily net assets exceeding $7.5 billion but not exceeding
$10 billion; 0.0325% of the portion of the daily net
assets exceeding $10 billion but not exceeding $12.5
billion; and 0.030% of the portion of the daily net
assets exceeding $12.5 billion.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not
Variable Investment exceeding $500 million; and 0.0425% of the daily net
Series--High Yield Portfolio assets exceeding $500 million.
Quality Income Plus Portfolio 0.050% of the portion of the daily the net assets up to
$500 million; and 0.045% of the portion of the daily net
assets exceeds $500 million.
Morgan Stanley Dean Witter World 0.075% of the portion of the daily net assets up to $250
Wide Income Trust million; 0.060% of the portion of the daily net assets
exceeding $250 million but not exceeding $500 million;
0.050% of the portion of the daily net assets of the
exceeding $500 million but not exceeding $750 million;
0.040% of the portion of the daily net assets exceeding
$750 million but not exceeding $1 billion; and 0.030% of
the portion of the daily net assets exceeding $1 billion.
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Worldwide High Income Fund
EQUITY FUNDS
Morgan Stanley Dean Witter 0.0625% of the portion of the daily net assets not
American Value Fund exceeding $250 million; 0.050% of the portion of the
daily net assets exceeding $250 million but not exceeding
$2.25 billion; 0.0475% of the portion of the daily net
assets exceeding $2.25 billion but not exceeding $3.5
billion; 0.0450% of the portion of the daily net assets
exceeding $3.5 billion but not exceeding $4.5 billion;
and 0.0425% of the portion of the daily net assets
exceeding $4.5 billion.
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Balanced Growth Fund
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not
Capital Appreciation Fund exceeding $500 million; and 0.0725% of the portion of the
daily net assets exceeding $500 million.
Morgan Stanley Dean Witter 0.065% of the portion of the daily net assets not
Capital Growth Securities exceeding $500 million; 0.055% of the portion exceeding
$500 million but not exceeding $1 billion; 0.050% of the
portion of the daily net assets exceeding $1 billion but
not exceeding $1.5 billion; and 0.0475% of the portion of
the daily net assets exceeding $1.5 billion.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not
Developing Growth Securities exceeding $500 million; and 0.0475% of the portion of the
Trust daily net assets exceeding $500 million.
Morgan Stanley Dean Witter 0.0625% of the portion of the daily net assets not
Dividend Growth Securities Inc. exceeding $250 million; 0.050% of the portion of the
daily net assets exceeding $250 million but not exceeding
$1 billion; 0.0475% of the portion of the daily net
assets exceeding $1 billion but not exceeding $2 billion;
0.045% of the portion of the daily net assets exceeding
$2 billion but not exceeding $3 billion; 0.0425% of the
portion of the daily net assets exceeding $3 billion but
not exceeding $4 billion; 0.040% of the portion of the
daily net assets exceeding $4 billion but not exceeding
$5 billion; 0.0375% of the portion of the daily net
assets exceeding $5 billion but not exceeding $6 billion;
0.035% of the portion of the daily net assets exceeding
$6 billion but not exceeding $8 billion; 0.0325% of the
portion of the daily net assets exceeding $8 billion but
not exceeding $10 billion; 0.030% of the portion of the
daily net assets exceeding $10 billion but not exceeding
$15 billion; and 0.0275% of the portion of the daily net
assets exceeding $15 billion.
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not
European Growth Fund Inc. exceeding $500 million; 0.057% of the portion of the
daily net assets exceeding $500 million but not exceeding
$2 billion; and 0.054% of the portion of the daily net
assets exceeding $2 billion.
Morgan Stanley Dean Witter 0.075% of the daily net assets.
Financial Services Trust
Morgan Stanley Dean Witter Fund
of Funds-
Domestic Portfolio None
International Portfolio None
Dean Witter Global Asset 0.070% of the daily net assets.
Allocation Fund
</TABLE>
B-4
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Global 0.075% of the portion of the daily net assets not
Dividend Growth Securities exceeding $1 billion; 0.0725% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.5
billion; 0.070% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2.5 billion;
0.0675% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3.5 billion; 0.0650% of
the portion of the daily net assets exceeding $3.5
billion but not exceeding $4.5 billion; and 0.0625% of
the portion of the daily net assets exceeding $4.5
billion.
Morgan Stanley Dean Witter Global 0.065% of the portion of the daily net assets not
Utilities Fund exceeding $500 million; and 0.0625% of the portion of the
daily net assets exceeding $500 million.
Morgan Stanley Dean Witter Health 0.10% of the portion of daily net assets not exceeding
Sciences Trust $500 million; and 0.095% of the portion of daily net
assets exceeding $500 million.
Morgan Stanley Dean Witter Income 0.075% of the portion of the net assets not exceeding
Builder Fund $500 million; and 0.0725% of the portion of daily net
assets exceeding $500 million.
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not
Information Fund exceeding $500 million; and 0.0725% of the portion of the
daily net assets exceeding $500 million.
Morgan Stanley Dean Witter 0.075% of the daily net assets.
International SmallCap Fund
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Japan Fund
Morgan Stanley Dean Witter Market 0.075% of the daily net assets.
Leader Trust
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not
Mid-Cap Growth Fund exceeding $500 million; and 0.0725% of the portion of the
daily net assets exceeding $500 million.
Morgan Stanley Dean Witter 0.0625% of the portion of the daily net assets not
Natural Resource Development exceeding $250 million and 0.050% of the portion of the
Securities Inc. daily net assets exceeding $250 million.
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not
Pacific Growth Fund Inc. exceeding $1 billion; 0.057% of the portion of the daily
net assets exceeding $1 billion but not exceeding $2
billion; and 0.054% of the portion of the daily net
assets exceeding $2 billion.
Morgan Stanley Dean Witter 0.080% of the daily net assets.
Precious Metals and
Minerals Trust
</TABLE>
B-5
<PAGE>
<TABLE>
<S> <C>
Dean Witter Retirement Series--
American Value Series 0.085% of the daily net assets.
Capital Growth Series 0.085% of the daily net assets.
Dividend Growth Series 0.075% of the daily net assets.
Global Equity Series 0.10% of the daily net assets.
Strategist Series 0.085% of the daily net assets.
Utilities Series 0.075% of the daily net assets.
Value Added Market Series 0.050% of the daily net assets.
Morgan Stanley Dean Witter Select
Dimensions Investment Series--
American Value Portfolio 0.0625% of the daily net assets.
Balanced Growth Portfolio 0.065% of the daily net assets.
Developing Growth Portfolio 0.050% of the daily net assets.
Diversified Income Portfolio 0.040% of the daily net assets.
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not
exceeding $500 million; and 0.050% of the portion of the
daily net assets exceeding $500 million.
Emerging Markets Portfolio 0.075% of the daily net assets.
Global Equity Portfolio 0.10% of the daily net assets.
Growth Portfolio 0.048% of the daily net assets.
Mid-Cap Growth Portfolio 0.075% of the daily net assets
Utilities Portfolio 0.065% of the daily net assets.
Value-Added Market Portfolio 0.050% of the daily net assets.
Morgan Stanley Dean Witter 0.075% of the daily net assets.
Special Value Fund
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not
Strategist Fund exceeding $500 million; 0.055% of the portion of the
daily net assets exceeding $500 million but not exceeding
$1 billion; 0.050% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion;
0.0475% of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2.0 billion; and 0.045%
of the portion of the daily net assets exceeding $2.0
billion.
Morgan Stanley Dean Witter 0.040% of the daily net assets.
S&P 500 Index Fund
Morgan Stanley Dean Witter 0.065% of the portion of the daily net assets not
Utilities Fund exceeding $500 million; 0.055% of the portion of the
daily net assets exceeding $500 million but not exceeding
$1 billion; 0.0525% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5
billion; 0.050% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2.5 billion;
0.0475% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3.5 billion; 0.045% of
the portion of the daily net assets exceeding $3.5 but
not exceeding $5 billion; and 0.0425% of the daily net
assets exceeding $5 billion.
</TABLE>
B-6
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Value- 0.050% of the portion of the daily net assets not
Added Market Series exceeding $500 million; 0.45% of the portion of the daily
net assets exceeding $500 million but not exceeding $1
billion; 0.0425% of the portion of the daily net assets
exceeding $1.0 billion but not exceeding $2.0 billion;
and 0.040% of the portion of the daily net assets
exceeding $2 billion.
Morgan Stanley Dean Witter
Variable Investment Series--
Capital Appreciation Portfolio 0.075% of the daily net assets.
Capital Growth Portfolio 0.065% of the daily net assets.
Competitive Edge "Best Ideas" 0.065% of the daily net assets.
Portfolio
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not
exceeding $500 million; and 0.050% of the portion of the
daily net assets exceeding $500 million but not exceeding
$1 billion; 0.0475% of the portion of the daily net
assets exceeding $1.0 billion but not exceeding $2.0
billion; and 0.045% of the portion of the daily net
assets exceeding $2 billion.
Equity Portfolio 0.050% of the portion of the daily net assets not
exceeding $1 billion; and 0.0475% of the portion of the
daily net assets exceeding $1 billion.
European Growth Portfolio 0.060% of the portion of the daily net assets not
exceeding $500 million; and 0.057% of the portion of the
daily net assets exceeding $500 million.
Income Builder Portfolio 0.075% of the daily net assets.
S&P 500 Index Portfolio 0.040% of the daily net assets.
Strategist Portfolio 0.050% of the daily net assets.
Utilities Portfolio 0.065% of the portion of the daily net assets not
exceeding $500 million and 0.055% of the portion of the
daily net assets exceeding $500 million.
Morgan Stanley Dean Witter 0.065% of the portion of the daily net assets not
Competitive Edge Fund, "BEST exceeding $1.5 billion; and 0.0625% of the portion of the
IDEAS" Portfolio daily net assets exceeding $1.5 billion.
Morgan Stanley Dean Witter 0.051% of the daily net assets.
Equity Fund
Morgan Stanley Dean Witter Growth 0.048% of the portion of daily net assets not exceeding
Fund $750 million; 0.045% of the portion of daily net assets
exceeding $750 million but not exceeding $1.5 billion;
and 0.042% of the portion of daily net assets exceeding
$1.5 billion.
Morgan Stanley Dean Witter 0.075 of the daily net assets.
Mid-Cap Dividend Growth Fund
</TABLE>
B-7
<PAGE>
<TABLE>
<S> <C>
MONEY MARKET FUNDS
Active Assets Trusts: 0.050% of the portion of the daily net assets not
(1) Active Assets Money Trust exceeding $500 million; 0.0425% of the portion of the
(2) Active Assets Tax-Free daily net assets exceeding $500 million but not exceeding
Trust $750 million; 0.0375% of the portion of the daily net
(3) Active Assets California assets exceeding $750 million but not exceeding $1
Tax-Free Trust billion; 0.035% of the portion of the daily net assets
(4) Active Assets Government exceeding $1 billion but not exceeding $1.5 billion;
Securities Trust 0.0325% of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030% of the
portion of the daily net assets exceeding $2 billion but
not exceeding $2.5 billion; 0.0275% of the portion of the
daily net assets exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of the daily net
assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not
California Tax-Free Daily exceeding $500 million; 0.0425% of the portion of the
Income Trust daily net assets exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.035% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030% of the
portion of the daily net assets exceeding $2 billion but
not exceeding $2.5 billion; 0.0275% of the portion of the
daily net assets exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of the daily net
assets exceeding $3 billion.
Morgan Stanley Dean Witter Liquid 0.050% of the portion of the daily net assets not
Asset Fund Inc. exceeding $500 million; 0.0425% of the portion of the
daily net assets exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.035% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.35 billion;
0.0325% of the portion of the daily net assets exceeding
$1.35 billion but not exceeding $1.75 billion; 0.030% of
the portion of the daily net assets exceeding $1.75
billion but not exceeding $2.15 billion; 0.0275% of the
portion of the daily net assets exceeding $2.15 billion
but not exceeding $2.5 billion; 0.025% of the portion of
the daily net assets exceeding $2.5 billion but not
exceeding $15 billion; 0.0249% of the portion of the
daily net assets exceeding $15 billion but not exceeding
$17.5 billion; and 0.0248% of the portion of the daily
net assets exceeding $17.5 billion.
</TABLE>
B-8
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not
New York Municipal Money exceeding $500 million; 0.0425% of the portion of the
Market Trust daily net assets exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.035% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030% of the
portion of the daily net assets exceeding $2 billion but
not exceeding $2.5 billion; 0.0275% of the portion of the
daily net assets exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of the daily net
assets exceeding $3 billion.
Dean Witter Retirement Series--
Liquid Asset Series 0.050% of the daily net assets.
U.S. Government Money 0.050% of the daily net assets.
Market Series
Morgan Stanley Dean Witter Select
Dimensions Investment Series--
Money Market Portfolio 0.050% of the daily net assets.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not
Tax-Free Daily Income Trust exceeding $500 million; 0.0425% of the portion of the
daily net assets exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.035% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030% of the
portion of the daily net assets exceeding $2 billion but
not exceeding $2.5 billion; 0.0275% of the portion of the
daily net assets exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of the daily net
assets exceeding $3 billion.
Morgan Stanley Dean Witter U.S. 0.050% of the portion of the daily net assets not
Government Money Market Trust exceeding $500 million; 0.0425% of the portion of the
daily net assets exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.035% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030% of the
portion of the daily net assets exceeding $2 billion but
not exceeding $2.5 billion; 0.0275% of the portion of the
daily net assets exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of the daily net
assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.050% of the daily net assets.
Variable Investment Series--
Money Market Portfolio
</TABLE>
B-9
<PAGE>
Monthly compensation calculated weekly by applying the following annual
rates to a fund's weekly net assets:
<TABLE>
<S> <C>
CLOSED-END FUNDS
Dean Witter Government 0.060% of the average weekly net assets.
Income Trust
High Income Advantage Trust 0.075% of the portion of the average weekly net assets
not exceeding $250 million; 0.060% of the portion of
average weekly net assets exceeding $250 million and not
exceeding $500 million; 0.050% of the portion of average
weekly net assets exceeding $500 million and not
exceeding $750 million; 0.040% of the portion of average
weekly net assets exceeding $750 million and not
exceeding $1 billion; and 0.030% of the portion of
average weekly net assets exceeding $1 billion.
High Income Advantage Trust II 0.075% of the portion of the average weekly net assets
not exceeding $250 million; 0.060% of the portion of
average weekly net assets exceeding $250 million and not
exceeding $500 million; 0.050% of the portion of average
weekly net assets exceeding $500 million and not
exceeding $750 million; 0.040% of the portion of average
weekly net assets exceeding $750 million and not
exceeding $1 billion; and 0.030% of the portion of
average weekly net assets exceeding $1 billion.
High Income Advantage Trust III 0.075% of the portion of the average weekly net assets
not exceeding $250 million; 0.060% of the portion of
average weekly net assets exceeding $250 million and not
exceeding $500 million; 0.050% of the portion of average
weekly net assets exceeding $500 million and not
exceeding $750 million; 0.040% of the portion of the
average weekly net assets exceeding $750 million and not
exceeding $1 billion; and 0.030% of the portion of
average weekly net assets exceeding $1 billion.
InterCapital Income Securities 0.050% of the average weekly net assets.
Inc.
InterCapital Insured Municipal 0.035% of the average weekly net assets.
Bond Trust
InterCapital Insured Municipal 0.035% of the average weekly net assets.
Trust
InterCapital Insured Municipal 0.035% of the average weekly net assets.
Income Trust
InterCapital California Insured 0.035% of the average weekly net assets.
Municipal Income Trust
InterCapital Quality Municipal 0.035% of the average weekly net assets.
Investment Trust
InterCapital New York Quality 0.035% of the average weekly net assets.
Municipal Securities
InterCapital Quality Municipal 0.035% of the average weekly net assets.
Income Trust
</TABLE>
B-10
<PAGE>
<TABLE>
<S> <C>
InterCapital Quality Municipal 0.035% of the average weekly net assets.
Securities
InterCapital California Quality 0.035% of the average weekly net assets.
Municipal Securities
InterCapital Insured Municipal 0.035% of the average weekly net assets.
Securities
InterCapital Insured California 0.035% of the average weekly net assets.
Municipal Securities
</TABLE>
B-11
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 3 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
July 10, 1998, relating to the financial statements and financial highlights of
Morgan Stanley Dean Witter Japan Fund, formerly Dean Witter Japan Fund, which
appears in such Statement of Additional Information, and to the incorporation
by reference of our report into the Prospectus which constitutes part of this
Registration Statement. We also consent to the references to us under the
headings "Independent Accountants" and "Experts" in such Statement of
Additional Information and to the reference to us under the heading
"Financial Highlights" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
July 27, 1998
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
DEAN WITTER JAPAN FUND(A)
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF AGGREGATE NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-May-98 TOTAL RETURN YEARS - n TOTAL RETURN - T
- ----------------- ------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C>
28-Jul-97 $695.10 -30.49% 0.84 NA
</TABLE>
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-May-98 RETURN - TR YEARS - n TOTAL RETURN - t
- ----------------- ------------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
28-Jul-97 $733.60 -26.64% 0.84 NA
</TABLE>
(D) GROWTH OF $10,000*
(E) GROWTH OF $50,000*
(F) GROWTH OF $100,000*
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT-G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- --------------- ----------------------- --------------------- ----------------------- -------------------------
<S> <C> <C> <C> <C>
28-Jul-97 -26.64 $6,951 $35,213 $71,159
*INITIAL INVESTMENT $9,475, $48,000 & 97,000 RESPECTIVELY REFLECTS A 5.25%, 4% & 3% SALES CHARGE
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
DEAN WITTER JAPAN FUND(B)
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF NUMBER OF AVERAGE ANNUAL CUMULATIVE
INVESTED - P 31-May-98 YEARS - n COMPOUND RETURN - T TOTAL RETURN
- ----------------- ------------- ----------- ---------------------- --------------------
<S> <C> <C> <C> <C>
31-May-97 $720.90 1.00 -27.91% -27.91%
26-Apr-96 $647.00 2.09 -18.77% -35.30%
</TABLE>
(B) AVERAGE ANNUAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
<TABLE>
<CAPTION>
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-May-98 RETURN - TR YEARS - n COMPOUND RETURN - t
- ----------------- ------------- ----------- ----------------- ------------------------
<S> <C> <C> <C> <C>
31-May-97 $758.80 -24.12% 1.00 -24.12%
26-Apr-96 $667.00 -33.30% 2.09 -17.58%
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G$ 50,000 INVESTMEN $100,000 INVESTMENT - G
- ----------- ----------- ---------------------- ------------------ -------------------------
<S> <C> <C> <C> <C>
26-Apr-96 -33.30 $6,670 $33,350 $66,700
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
DEAN WITTER JAPAN FUND(C)
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF AGGREGATE NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-May-98 TOTAL RETURN YEARS - n TOTAL RETURN - T
- ----------------- ------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C>
28-Jul-97 $722.00 -27.80% 0.84 NA
</TABLE>
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-May-98 RETURN - TR YEARS - n TOTAL RETURN - t
- ----------------- ------------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
28-Jul-97 $729.30 -27.07% 0.84 NA
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT-G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- --------------- --------------------- --------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
28-Jul-97 -27.07 $7,293 $36,465 $72,930
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
DEAN WITTER JAPAN FUND(D)
(A) TOTAL RETURN (NO LOAD FUND)
(B) AVERAGE ANNUAL TOTAL RETURNS (NO LOAD FUND)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(A) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-May-98 RETURN - TR YEARS - n COMPOUND RETURN - t
- ----------------- ------------- ----------- ----------------- ------------------------
<S> <C> <C> <C> <C>
28-Jul-97 $733.60 -26.64% 0.84 NA
</TABLE>
(C) GROWTH OF $10,000
(D) GROWTH OF $50,000
(E) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
$10,000 TOTAL (C) GROWTH OF (D) GROWTH OF (E) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT- G $50,000 INVESTMENT- G $100,000 INVESTMENT- G
- --------------- ------------- --------------------- ------------------ ---------------------------
<S> <C> <C> <C> <C>
28-Jul-97 -26.64 $7,336 $36,680 $73,360
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
INTRODUCTION
This plan (the "Plan") is adopted pursuant to Rule 18f-3(d) of the
Investment Company Act of 1940, as amended (the "1940 Act"), effective as of
July 28, 1997, and amended as of June 22, 1998. The Plan relates to shares of
the open-end investment companies to which Morgan Stanley Dean Witter Advisors
Inc. acts as investment manager, that are listed on Schedule A, as may be
amended from time to time (each, a "Fund" and collectively, the "Funds"). The
Funds are distributed pursuant to a system (the "Multiple Class System") in
which each class of shares (each, a "Class" and collectively, the "Classes") of
a Fund represents a pro rata interest in the same portfolio of investments of
the Fund and differs only to the extent outlined below.
I. DISTRIBUTION ARRANGEMENTS
One or more Classes of shares of the Funds are offered for purchase by
investors with the sales load structures described below. In addition, pursuant
to Rule 12b-1 under the 1940 Act, the Funds have each adopted a Plan of
Distribution (the "12b-1 Plan") under which shares of certain Classes are
subject to the service and/or distribution fees ("12b-1 fees") described below.
1. CLASS A SHARES
Class A shares are offered with a front-end sales load ("FESL"). The
schedule of sales charges applicable to a Fund and the circumstances under which
the sales charges are subject to reduction are set forth in each Fund's current
prospectus. As stated in each Fund's current prospectus, Class A shares may be
purchased at net asset value (without a FESL): (i) in the case of certain large
purchases of such shares; and (ii) by certain limited categories of investors,
in each case, under the circumstances and conditions set forth in each Fund's
current prospectus. Class A shares purchased at net asset value may be subject
to a contingent deferred sales charge ("CDSC") on redemptions made within one
year of purchase. Further information relating to the CDSC, including the manner
in which it is calculated, is set forth in paragraph 6 below. Class A shares are
also subject to payments under each Fund's 12b-1 Plan to reimburse Morgan
Stanley Dean Witter Distributors Inc., Dean Witter Reynolds Inc. ("DWR"), its
affiliates and other broker-dealers for distribution expenses incurred by them
specifically on behalf of the Class, assessed at an annual rate of up to 0.25%
of average daily net assets. The entire amount of the 12b-1 fee represents a
service fee within the meaning of National Association of Securities Dealers,
Inc. ("NASD") guidelines.
2. CLASS B SHARES
Class B shares are offered without a FESL, but will in most cases be subject
to a six-year declining CDSC which is calculated in the manner set forth in
paragraph 6 below. Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a three-year declining CDSC
which is calculated in the manner set forth in paragraph 6 below. The schedule
of CDSC charges applicable to each Fund is set forth in each Fund's current
prospectus. With the exception of certain of the Funds which have a different
formula described below (Morgan Stanley Dean Witter American Value Fund, Morgan
Stanley Dean Witter Natural Resource Development Securities Inc., Morgan Stanley
Dean Witter Strategist Fund and Morgan
1
<PAGE>
Stanley Dean Witter Dividend Growth Securities Inc.)(1), Class B shares are also
subject to a fee under each Fund's respective 12b-1 Plan, assessed at the annual
rate of up to 1.0% of either: (a) the lesser of (i) the average daily aggregate
gross sales of the Fund's Class B shares since the inception of the Fund (not
including reinvestment 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 (ii)
the average daily net assets of Class B; or (b) the average daily net assets of
Class B. A portion of the 12b-1 fee equal to up to 0.25% of the Fund's average
daily net assets is characterized as a service fee within the meaning of the
NASD guidelines and the remaining portion of the 12b-1 fee, if any, is
characterized as an asset-based sales charge. Also, Class B shares have a
conversion feature ("Conversion Feature") under which such shares convert to
Class A shares after a certain holding period. Details of the Conversion Feature
are set forth in Section IV below.
3. CLASS C SHARES
Class C shares are offered without imposition of a FESL, but will in most
cases be subject to a CDSC of 1.0% on redemptions made within one year after
purchase. Further information relating to the CDSC is set forth in paragraph 6
below. In addition, Class C shares, under each Fund's 12b-1 Plan, are subject to
12b-1 payments to reimburse Morgan Stanley Dean Witter Distributors Inc., DWR,
its affiliates and other broker-dealers for distribution expenses incurred by
them specifically on behalf of the Class, assessed at the annual rate of up to
1.0% of the average daily net assets of the Class. A portion of the 12b-1 fee
equal to up to 0.25% of the Fund's average daily net assets is characterized as
a service fee within the meaning of NASD guidelines. Unlike Class B shares,
Class C shares do not have the Conversion Feature.
4. CLASS D SHARES
Class D shares are offered without imposition of a FESL, CDSC or a 12b-1 fee
for purchases of Fund shares by (i) investors meeting an initial minimum
investment requirement and (ii) certain other limited categories of investors,
in each case, as may be approved by the Boards of Directors/Trustees of the
Funds and as disclosed in each Fund's current prospectus.
5. ADDITIONAL CLASSES OF SHARES
The Boards of Directors/Trustees of the Funds have the authority to create
additional Classes, or change existing Classes, from time to time, in accordance
with Rule 18f-3 under the 1940 Act.
- ------------
(1)The payments under the 12b-1 Plan for each of Morgan Stanley Dean Witter
American Value Fund, Morgan Stanley Dean Witter Natural Resource Development
Securities Inc. and Morgan Stanley Dean Witter Dividend Growth Securities Inc.
are assessed 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's Plan (not including reinvestment of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the Plan's inception upon which a contingent
deferred sales charge has been imposed or waived, or (b) the average daily net
assets of Class B attributable to shares issued, net of related shares redeemed,
since inception of the Plan. The payments under the 12b-1 Plan for the Morgan
Stanley Dean Witter Strategist Fund are assessed at the annual rate of: (i) 1%
of the lesser of (a) the average daily aggregate gross sales of the Fund's Class
B shares since the effectiveness of the first amendment of the Plan on November
8, 1989 (not including reinvestment of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the effectiveness of the first amended Plan, upon
which a contingent deferred sales charge has been imposed or waived, or (b) the
average daily net assets of Class B attributable to shares issued, net of
related shares redeemed, since the effectiveness of the first amended Plan; plus
(ii) 0.25% of the average daily net assets of Class B attributable to shares
issued, net of related shares redeemed, prior to effectiveness of the first
amended Plan.
2
<PAGE>
6. CALCULATION OF THE CDSC
Any applicable CDSC is calculated based upon the lesser of net asset value
of the shares at the time of purchase or at the time of redemption. The CDSC
does not apply to amounts representing an increase in share value due to capital
appreciation and shares acquired through the reinvestment of dividends or
capital gains distributions. The CDSC schedule applicable to a Fund and the
circumstances in which the CDSC is subject to waiver are set forth in each
Fund's prospectus.
II. EXPENSE ALLOCATIONS
Expenses incurred by a Fund are allocated among the various Classes of
shares pro rata based on the net assets of the Fund attributable to each Class,
except that 12b-1 fees relating to a particular Class are 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 Fund's Board of Directors/Trustees.
III. CLASS DESIGNATION
All shares of the Funds held prior to July 28, 1997 (other than the shares
held by certain employee benefit plans established by DWR and its affiliate, SPS
Transaction Services, Inc., shares of Funds offered with a FESL, and shares of
Morgan Stanley Dean Witter Balanced Growth Fund and Morgan Stanley Dean Witter
Balanced Income Fund) have been designated Class B shares. Shares held prior to
July 28, 1997 by such employee benefit plans have been designated Class D
shares. Shares held prior to July 28, 1997 of Funds offered with a FESL have
been designated Class D shares. In addition, shares of Morgan Stanley Dean
Witter American Value Fund purchased prior to April 30, 1984, shares of Morgan
Stanley Dean Witter Strategist Fund purchased prior to November 8, 1989 and
shares of Morgan Stanley Dean Witter Natural Resource Development Securities
Inc. and Morgan Stanley Dean Witter Dividend Growth Securities Inc. purchased
prior to July 2, 1984 (with respect to such shares of each Fund, including such
proportion of shares acquired through reinvestment of dividends and capital
gains distributions as the total number of shares acquired prior to each of the
preceding dates in this sentence bears to the total number of shares purchased
and owned by the shareholder of that Fund) have been designated Class D shares.
Shares of Morgan Stanley Dean Witter Balanced Growth Fund and Morgan Stanley
Dean Witter Balanced Income Fund held prior to July 28, 1997 have been
designated Class C shares except that shares of Morgan Stanley Dean Witter
Balanced Growth Fund and Morgan Stanley Dean Witter Balanced Income Fund held
prior to July 28, 1997 that were acquired in exchange for shares of an
investment company offered with a CDSC have been designated Class B shares and
those that were acquired in exchange for shares of an investment company offered
with a FESL have been designated Class A shares.
IV. THE CONVERSION FEATURE
Class B shares held before May 1, 1997 will convert to Class A shares in
May, 2007, except that Class B shares which were purchased before July 28, 1997
by trusts for which Morgan Stanley Dean Witter Trust FSB ("MSDW Trust") provides
discretionary trustee services converted to Class A shares on August 29, 1997
(the CDSC was not applicable to such shares upon the conversion). In all other
instances, Class B shares of each Fund will automatically convert 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. Conversions will be effected once a month. The 10
year period will be 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. Except
as set forth below, 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 owned by the shareholder as
the total number of his or her Class B shares converting at the time bears to
the total number of outstanding Class B shares purchased and owned by the
shareholder. In the case of Class B shares held by a 401(k) plan or other plan
qualified under Section 401(a) of the Internal Revenue Code (the "Code") and
3
<PAGE>
for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement, all
Class B shares will convert to Class A shares on the conversion date of the
first shares of a Fund purchased by that plan. In the case of Class B shares
previously exchanged for shares of an "Exchange Fund" (as such term is defined
in the prospectus of each Fund), 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 Fund, the
holding period resumes on the last day of the month in which Class B shares are
reacquired.
Effectiveness of the Conversion Feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel to the effect that (i) the conversion of shares does not constitute a
taxable event under the 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 fees under the applicable Fund's 12b-1 Plan.
V. EXCHANGE PRIVILEGES
Shares of each Class may be exchanged for shares of the same Class of the
other Funds and for shares of certain other investment companies without the
imposition of an exchange fee as described in the prospectuses and statements of
additional information of the Funds. The exchange privilege of each Fund may be
terminated or revised at any time by the Fund upon such notice as may be
required by applicable regulatory agencies as described in each Fund's
prospectus.
VI. VOTING
Each Class shall have exclusive voting rights on any matter that relates
solely to its 12b-1 Plan, except that Class B shareholders will have the right
to vote on any proposed material increase in Class A's expenses, including
payments under the Class A 12b-1 Plan, if such proposal is submitted separately
to Class A shareholders. If the amount of expenses, including payments under the
Class A 12b-1 Plan, is increased materially without the approval of Class B
shareholders, the Fund will establish a new Class A for Class B shareholders
whose shares automatically convert on the same terms as applied to Class A
before the increase. In addition, each Class shall have separate voting rights
on any matter submitted to shareholders in which the interests of one Class
differ from the interests of any other Class.
4
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
SCHEDULE A
AT JULY 22, 1998
<TABLE>
<S> <C>
1) Morgan Stanley Dean Witter American Value Fund
2) Morgan Stanley Dean Witter Balanced Growth Fund
3) Morgan Stanley Dean Witter Balanced Income Fund
4) Morgan Stanley Dean Witter California Tax-Free Income Fund
5) Morgan Stanley Dean Witter Capital Appreciation Fund
6) Morgan Stanley Dean Witter Capital Growth Securities
7) Morgan Stanley Dean Witter Competitive Edge Fund
8) Morgan Stanley Dean Witter Convertible Securities Trust
9) Morgan Stanley Dean Witter Developing Growth Securities Trust
10) Morgan Stanley Dean Witter Diversified Income Trust
11) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
12) Morgan Stanley Dean Witter Equity Fund
13) Morgan Stanley Dean Witter European Growth Fund Inc.
14) Morgan Stanley Dean Witter Federal Securities Trust
15) Morgan Stanley Dean Witter Financial Services Trust
16) Morgan Stanley Dean Witter Fund of Funds
17) Dean Witter Global Asset Allocation Fund
18) Morgan Stanley Dean Witter Global Dividend Growth Securities
19) Morgan Stanley Dean Witter Global Utilities Fund
20) Morgan Stanley Dean Witter Growth Fund
21) Morgan Stanley Dean Witter Health Sciences Trust
22) Morgan Stanley Dean Witter High Yield Securities Inc.
23) Morgan Stanley Dean Witter Income Builder Fund
24) Morgan Stanley Dean Witter Information Fund
25) Morgan Stanley Dean Witter Intermediate Income Securities
26) Morgan Stanley Dean Witter International SmallCap Fund
27) Morgan Stanley Dean Witter Japan Fund
28) Morgan Stanley Dean Witter Market Leader Trust
29) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
30) Morgan Stanley Dean Witter Mid-Cap Growth Fund
31) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
32) Morgan Stanley Dean Witter New York Tax-Free Income Fund
33) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
34) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
35) Morgan Stanley Dean Witter Research Fund
36) Morgan Stanley Dean Witter Special Value Fund
37) Morgan Stanley Dean Witter S&P 500 Index Fund
38) Morgan Stanley Dean Witter S&P 500 Select Fund
39) Morgan Stanley Dean Witter Strategist Fund
40) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
41) Morgan Stanley Dean Witter U.S. Government Securities Trust
42) Morgan Stanley Dean Witter Utilities Fund
43) Morgan Stanley Dean Witter Value-Added Market Series
44) Morgan Stanley Dean Witter Value Fund
45) Morgan Stanley Dean Witter Worldwide High Income Fund
46) Morgan Stanley Dean Witter World Wide Income Trust
</TABLE>
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> MORGAN STANLEY DEAN WITTER JAPAN FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 162,156,021
<INVESTMENTS-AT-VALUE> 125,729,607
<RECEIVABLES> 1,277,120
<ASSETS-OTHER> 941,260
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127,947,987
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 448,477
<TOTAL-LIABILITIES> 448,477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 213,250,030
<SHARES-COMMON-STOCK> 18,775
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 611,788
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (49,893,828)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (36,468,480)
<NET-ASSETS> 126,203
<DIVIDEND-INCOME> 1,148,888
<INTEREST-INCOME> 417,743
<OTHER-INCOME> 0
<EXPENSES-NET> 4,509,704
<NET-INVESTMENT-INCOME> (2,943,073)
<REALIZED-GAINS-CURRENT> (28,408,746)
<APPREC-INCREASE-CURRENT> (21,344,171)
<NET-CHANGE-FROM-OPS> (52,695,990)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,653,350
<NUMBER-OF-SHARES-REDEEMED> (1,634,575)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (112,219,441)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (17,968,187)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,817,407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,509,704
<AVERAGE-NET-ASSETS> 246,533
<PER-SHARE-NAV-BEGIN> 9.16
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (2.49)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.72
<EXPENSE-RATIO> 1.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> MORGAN STANLEY DEAN WITTER JAPAN FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 162,156,021
<INVESTMENTS-AT-VALUE> 125,729,607
<RECEIVABLES> 1,277,120
<ASSETS-OTHER> 941,260
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127,947,987
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 448,477
<TOTAL-LIABILITIES> 448,477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 213,250,030
<SHARES-COMMON-STOCK> 18,743,414
<SHARES-COMMON-PRIOR> 27,271,151
<ACCUMULATED-NII-CURRENT> 611,788
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (49,893,828)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (36,468,480)
<NET-ASSETS> 125,007,914
<DIVIDEND-INCOME> 1,148,888
<INTEREST-INCOME> 417,743
<OTHER-INCOME> 0
<EXPENSES-NET> 4,509,704
<NET-INVESTMENT-INCOME> (2,943,073)
<REALIZED-GAINS-CURRENT> (28,408,746)
<APPREC-INCREASE-CURRENT> (21,344,171)
<NET-CHANGE-FROM-OPS> (52,695,990)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,327,661
<NUMBER-OF-SHARES-REDEEMED> 16,855,398
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (112,219,441)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (17,968,187)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,817,407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,509,704
<AVERAGE-NET-ASSETS> 180,741,779
<PER-SHARE-NAV-BEGIN> 8.79
<PER-SHARE-NII> (0.13)
<PER-SHARE-GAIN-APPREC> (1.99)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.67
<EXPENSE-RATIO> 2.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> MORGAN STANLEY DEAN WITTER JAPAN FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 162,156,021
<INVESTMENTS-AT-VALUE> 125,729,607
<RECEIVABLES> 1,277,120
<ASSETS-OTHER> 941,260
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127,947,987
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 448,477
<TOTAL-LIABILITIES> 448,477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 213,250,030
<SHARES-COMMON-STOCK> 260,304
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 611,788
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (49,893,828)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (36,468,480)
<NET-ASSETS> 1,737,575
<DIVIDEND-INCOME> 1,148,888
<INTEREST-INCOME> 417,743
<OTHER-INCOME> 0
<EXPENSES-NET> 4,509,704
<NET-INVESTMENT-INCOME> (2,943,073)
<REALIZED-GAINS-CURRENT> (28,408,746)
<APPREC-INCREASE-CURRENT> (21,344,171)
<NET-CHANGE-FROM-OPS> (52,695,990)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 272,435
<NUMBER-OF-SHARES-REDEEMED> 12,131
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (112,219,441)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (17,968,187)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,817,407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,509,704
<AVERAGE-NET-ASSETS> 769,223
<PER-SHARE-NAV-BEGIN> 9.16
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> (2.41)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.68
<EXPENSE-RATIO> 2.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> MORGAN STANLEY DEAN WITTER JAPAN FUND CLASS D
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 162,156,021
<INVESTMENTS-AT-VALUE> 125,729,607
<RECEIVABLES> 1,277,120
<ASSETS-OTHER> 941,260
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127,947,987
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 448,477
<TOTAL-LIABILITIES> 448,477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 213,250,030
<SHARES-COMMON-STOCK> 93,420
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 611,788
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (49,893,828)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (36,468,480)
<NET-ASSETS> 627,818
<DIVIDEND-INCOME> 1,148,888
<INTEREST-INCOME> 417,743
<OTHER-INCOME> 0
<EXPENSES-NET> 4,509,704
<NET-INVESTMENT-INCOME> (2,943,073)
<REALIZED-GAINS-CURRENT> (28,408,746)
<APPREC-INCREASE-CURRENT> (21,344,171)
<NET-CHANGE-FROM-OPS> (52,695,990)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 143,074
<NUMBER-OF-SHARES-REDEEMED> 49,654
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (112,219,441)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (17,968,187)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,817,407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,509,704
<AVERAGE-NET-ASSETS> 175,793
<PER-SHARE-NAV-BEGIN> 9.16
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> (2.43)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.72
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that WAYNE E. HEDIEN, whose signature
appears below, constitutes and appoints David M. Butowsky, Ronald M. Feiman and
Stuart M. Strauss, or either of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any and all
capacities, to sign any amendments to any registration statement of ANY OF THE
DEAN WITTER FUNDS SET FORTH ON SCHEDULE A ATTACHED HERETO, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, 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 either of them, may lawfully do or cause to be
done by virtue hereof.
Dated: September 1, 1997
-----------------
/s/ Wayne E. Hedien
---------------------
Wayne E. Hedien
<PAGE>
Schedule A
1. Active Assets Money Trust
2. Active Assets Tax-Free Trust
3. Active Assets Government Securities Trust
4. Active Assets California Tax-Free Trust
5. Dean Witter New York Municipal Money Market Trust
6. Dean Witter American Value Fund
7. Dean Witter Tax-Exempt Securities Trust
8. Dean Witter Tax-Free Daily Income Trust
9. Dean Witter Capital Growth Securities
10. Dean Witter U.S. Government Money Market Trust
11. Dean Witter Precious Metals and Minerals Trust
12. Dean Witter Developing Growth Securities Trust
13. Dean Witter World Wide Investment Trust
14. Dean Witter Value-Added Market Series
15. Dean Witter Utilities Fund
16. Dean Witter Strategist Fund
17. Dean Witter California Tax-Free Daily Income Trust
18. Dean Witter Convertible Securities Trust
19. Dean Witter Intermediate Income Securities
20. Dean Witter World Wide Income Trust
21. Dean Witter S&P 500 Index Fund
22. Dean Witter U.S. Government Securities Trust
23. Dean Witter Federal Securities Trust
24. Dean Witter Multi-State Municipal Series Trust
25. Dean Witter California Tax-Free Income Fund
26. Dean Witter New York Tax-Free Income Fund
27. Dean Witter Select Municipal Reinvestment Fund
28. Dean Witter Variable Investment Series
29. High Income Advantage Trust
30. High Income Advantage Trust II
31. High Income Advantage Trust III
32. InterCapital Insured Municipal Bond Trust
33. InterCapital Insured Municipal Trust
34. InterCapital Insured Municipal Income Trust
35. InterCapital Quality Municipal Investment Trust
36. InterCapital Quality Municipal Income Trust
37. Dean Witter Government Income Trust
38. Municipal Income Trust
39. Municipal Income Trust II
40. Municipal Income Trust III
41. Municipal Income Opportunities Trust
42. Municipal Income Opportunities Trust II
43. Municipal Income Opportunities Trust III
44. Municipal Premium Income Trust
45. Prime Income Trust
<PAGE>
46. Dean Witter Short-Term U.S. Treasury Trust
47. Dean Witter Diversified Income Trust
48. InterCapital California Insured Municipal Income Trust
49. Dean Witter Health Sciences Trust
50. Dean Witter Global Dividend Growth Securities
51. InterCapital Quality Municipal Securities
52. InterCapital California Quality Municipal Securities
53. InterCapital New York Quality Municipal Securities
54. Dean Witter Retirement Series
55. Dean Witter Limited Term Municipal Trust
56. Dean Witter Short-Term Bond Fund
57. Dean Witter Global Utilities Fund
58. InterCapital Insured Municipal Securities
59. InterCapital Insured California Municipal Securities
60. Dean Witter High Income Securities
61. Dean Witter National Municipal Trust
62. Dean Witter International SmallCap Fund
63. Dean Witter Mid-Cap Growth Fund
64. Dean Witter Select Dimensions Investment Series
65. Dean Witter Global Asset Allocation Fund
66. Dean Witter Balanced Growth Fund
67. Dean Witter Balanced Income Fund
68. Dean Witter Intermediate Term U.S. Treasury Trust
69. Dean Witter Hawaii Municipal Trust
70. Dean Witter Japan Fund
71. Dean Witter Capital Appreciation Fund
72. Dean Witter Information Fund
73. Dean Witter Fund of Funds
74. Dean Witter Special Value Fund
75. Dean Witter Income Builder Fund
76. Dean Witter Financial Services Trust
77. Dean Witter Market Leader Trust
78. Dean Witter Managers' Select Fund
79. Dean Witter Liquid Asset Fund Inc.
80. Dean Witter Natural Resource Development Securities Inc.
81. Dean Witter Dividend Growth Securities Inc.
82. Dean Witter European Growth Fund Inc.
83. Dean Witter Pacific Growth Fund Inc.
84. Dean Witter High Yield Securities Inc.
85. Dean Witter Global Short-Term Income Fund Inc.
86. InterCapital Income Securities Inc.
<PAGE>
DEAN WITTER FUNDS
I hereby (i) acknowledge appointment and election as Trustee of
each Dean Witter Fund named in the list annexed hereto (individually, a
"Trust"), (ii) accept such election as Trustee, and not individually, this
date, in accordance with the terms of the Declaration of Trust of each Trust,
and (iii) agree to be bound by the terms of the Declaration of Trust of each
Trust.
/s/ Wayne E. Hedien
------------------------------
Wayne E. Hedien, as Trustee
and not individually
Date: September 1, 1997
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On this 1st day of September 1997, Wayne E. Hedien, known to be the person
described in and who executed the foregoing instrument, personally appeared
before me and acknowledged the foregoing to be his free act and deed.
------------------------
Notary Public
<PAGE>
Massachusetts Business Trust
1. Active Assets Money Trust
2. Active Assets Tax-Free Trust
3. Active Assets Government Securities Trust
4. Active Assets California Tax-Free Trust
5. Dean Witter New York Municipal Money Market Trust
6. Dean Witter American Value Fund
7. Dean Witter Tax-Exempt Securities Trust
8. Dean Witter Tax-Free Daily Income Trust
9. Dean Witter Capital Growth Securities
10. Dean Witter U.S. Government Money Market Trust
11. Dean Witter Precious Metals and Minerals Trust
12. Dean Witter Developing Growth Securities Trust
13. Dean Witter World Wide Investment Trust
14. Dean Witter Value-Added Market Series
15. Dean Witter Utilities Fund
16. Dean Witter Strategist Fund
17. Dean Witter California Tax-Free Daily Income Trust
18. Dean Witter Convertible Securities Trust
19. Dean Witter Intermediate Income Securities
20. Dean Witter World Wide Income Trust
21. Dean Witter S&P 500 Index Fund
22. Dean Witter U.S. Government Securities Trust
23. Dean Witter Federal Securities Trust
24. Dean Witter Multi-State Municipal Series Trust
25. Dean Witter California Tax-Free Income Fund
26. Dean Witter New York Tax-Free Income Fund
27. Dean Witter Select Municipal Reinvestment Fund
28. Dean Witter Variable Investment Series
29. High Income Advantage Trust
30. High Income Advantage Trust II
31. High Income Advantage Trust III
32. InterCapital Insured Municipal Bond Trust
33. InterCapital Insured Municipal Trust
34. InterCapital Insured Municipal Income Trust
35. InterCapital Quality Municipal Investment Trust
36. InterCapital Quality Municipal Income Trust
37. Dean Witter Government Income Trust
38. Municipal Income Trust
39. Municipal Income Trust II
40. Municipal Income Trust III
41. Municipal Income Opportunities Trust
42. Municipal Income Opportunities Trust II
43. Municipal Income Opportunities Trust III
44. Municipal Premium Income Trust
45. Prime Income Trust
46. Dean Witter Short-Term U.S. Treasury Trust
47. Dean Witter Diversified Income Trust
<PAGE>
48. InterCapital California Insured Municipal Income Trust
49. Dean Witter Health Sciences Trust
50. Dean Witter Global Dividend Growth Securities
51. InterCapital Quality Municipal Securities
52. InterCapital California Quality Municipal Securities
53. InterCapital New York Quality Municipal Securities
54. Dean Witter Retirement Series
55. Dean Witter Limited Term Municipal Trust
56. Dean Witter Short-Term Bond Fund
57. Dean Witter Global Utilities Fund
58. InterCapital Insured Municipal Securities
59. InterCapital Insured California Municipal Securities
60. Dean Witter High Income Securities
61. Dean Witter National Municipal Trust
62. Dean Witter International SmallCap Fund
63. Dean Witter Mid-Cap Growth Fund
64. Dean Witter Select Dimensions Investment Series
65. Dean Witter Global Asset Allocation Fund
66. Dean Witter Balanced Growth Fund
67. Dean Witter Balanced Income Fund
68. Dean Witter Intermediate Term U.S. Treasury Trust
69. Dean Witter Hawaii Municipal Trust
70. Dean Witter Japan Fund
71. Dean Witter Capital Appreciation Fund
72. Dean Witter Information Fund
73. Dean Witter Fund of Funds
74. Dean Witter Special Value Fund
75. Dean Witter Income Builder Fund
76. Dean Witter Financial Services Trust
77. Dean Witter Market Leader Trust
78. Dean Witter Managers' Select Fund
