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Filed Pursuant to Rule 497(c)
Registration File No.: 333-29721
PROSPECTUS
OCTOBER 30, 1998
Morgan Stanley Dean Witter S&P 500 Index Fund (the "Fund") is an
open-end, diversified management investment company whose investment objective
is to provide investment results that, before expenses, correspond to the total
return (i.e., the combination of capital changes and income) of the Standard &
Poor's (Registered Trademark) 500 Composite Stock Price Index (the "S&P 500
Index"). The Fund seeks to meet its investment objective by investing, under
normal circumstances, at least 80% of the value of its total assets in common
stocks included in the S&P 500 Index in approximately the same weightings as
the Index. (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 October 30, 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/ 7
Investment Objective and Policies/ 7
Risk Considerations and
Investment Practices/ 9
Investment Restrictions/ 12
Purchase of Fund Shares/ 12
Shareholder Services/ 23
Redemptions and Repurchases/ 27
Dividends, Distributions and Taxes/ 28
Performance Information/ 29
Additional Information/ 29
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
S&P 500 Index Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
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PROSPECTUS SUMMARY
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The The Fund is organized as a trust, commonly known as a
Fund Massachusetts business trust, and is an open-end,
diversified management investment company. The Fund invests
primarily in common stocks included in the Standard & Poor's
(Registered Trademark) 500 Composite Stock Price Index (the
"S&P 500 Index").
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Shares Shares of beneficial interest with $0.01 par value (see page
Offered 29). The Fund offers four Classes of shares, each with a
different combination of sales charges, ongoing fees and
other features (see pages 12-22).
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Minimum The minimum initial investment for each Class is $1,000
Purchase ($100 if the account is opened through EasyInvest(service
mark)). Class D shares are only available to persons
investing $5 million ($25 million for certain qualified
plans) or more and to certain other limited categories of
investors. For the purpose of meeting the minimum $5 million
(or $25 million) investment for Class D shares, and subject
to the $1,000 minimum initial investment for each Class of
the Fund, an investor's existing holdings of Class A shares
and shares of funds for which Morgan Stanley Dean Witter
Advisors Inc. serves as investment manager ("Morgan Stanley
Dean Witter Funds") that are sold with a front-end sales
charge, and concurrent investments in Class D shares of the
Fund and other Morgan Stanley Dean Witter Funds that are
multiple class funds, will be aggregated. The minimum
subsequent investment is $100 (see page 12).
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Investment The investment objective of the Fund is to provide
Objective investment results that, before expenses, correspond to the
total return (i.e., the combination of capital changes and
income) of the S&P 500 Index (see page 7).
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Investment Morgan Stanley Dean Witter Advisors Inc., the Investment
Manager Manager of the Fund, and its wholly-owned subsidiary, Morgan
Stanley Dean Witter Services Company Inc., serve in various
investment management, advisory, management and
administrative capacities to 100 investment companies and
other portfolios with net assets under management of
approximately $113.7 billion at September 30, 1998 (see
page 7).
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Management The Investment Manager receives a monthly fee at the annual
Fee rate of 0.40% of the Fund's average daily net assets. The
Investment Manager has agreed on a permanent basis to assume
all expenses (except for brokerage and 12b-1 fees) and to
waive the compensation provided for in its Management
Agreement to the extent that such expenses and compensation
on an annualized basis exceed 0.50% of the daily net assets
of the Fund (see page 7).
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Distributor and Morgan Stanley Dean Witter Distributors Inc. is the
Distribution Distributor of the Fund's shares. The Fund has adopted a
Fee distribution plan 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 12
and 21).
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Alternative Four classes of shares are offered:
Purchase
Arrangements o 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
12, 16 and 21).
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2
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o Class B shares are offered without a front-end sales
charge, but will in most cases be subject to a CDSC (scaled
down from 5.0% to 1.0%) if redeemed within six years after
purchase. The CDSC will be imposed on any redemption of
shares if after such redemption the aggregate current value
of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments made during the
six years preceding the redemption. A different CDSC
schedule applies to investments by certain qualified plans.
Class B shares are also subject to a 12b-1 fee assessed at
the annual rate of 1.0% of the average daily net assets of
Class B. Class B shares convert to Class A shares
approximately ten years after the date of the original
purchase (see pages 12, 18 and 21).
o Class C shares are offered without a front-end sales
charge, but will in most cases be subject to a CDSC of 1.0%
if redeemed within one year after purchase. The Fund is
authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the
Fund's Class C shares and servicing shareholder accounts
pursuant to the Fund's 12b-1 Plan. Reimbursement may in no
event exceed an amount equal to payments at an annual rate
of 1.0% of average daily net assets of the Class (see pages
12, 20 and 21).
o Class D shares are offered only to investors meeting an
initial investment minimum of $5 million ($25 million for
certain qualified plans) and to certain other limited
categories of investors. Class D shares are offered without
a front-end sales charge or CDSC and are not subject to any
12b-1 fee (see pages 12, 20 and 21).
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Dividends Dividends from net investment income and distributions from
and net capital gains, if any, are paid at least once each year.
Capital Gains The Fund may, however, determine to retain all or part of
Distributions any net long-term capital gains in any year for
reinvestment. Dividends and capital gains distributions paid
on shares of a Class are automatically reinvested in
additional shares of the same Class at net asset value
unless the shareholder elects to receive cash. Shares
acquired by dividend and distribution reinvestment will not
be subject to any sales charge or CDSC (see pages 23 and 28).
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Redemption Shares are redeemable by the shareholder at net asset value
less any applicable CDSC on Class A, Class B or Class C
shares. An account may be involuntarily redeemed if the
total value of the account is less than $100 or, if the
account was opened through EasyInvest(service mark), if
after twelve months the shareholder has invested less than
$1,000 in the account (see page 27).
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Risk An investment in the Fund should be considered a long-term
Considerations holding and subject to all the risks associated with
investing in equity securities. The market value of the
Fund's portfolio securities and, therefore, the Fund's net
asset value per share, will increase or decrease due to a
variety of economic, market or political factors which
cannot be predicted. The Fund operates as a "straight" index
fund and will therefore not be actively managed; as such,
the adverse performance of a portfolio security will
ordinarily not result in the elimination of the security
from the Fund's portfolio. The Fund may enter into
repurchase agreements, may lend its portfolio securities and
may utilize transactions involving stock index futures which
may be considered speculative in nature and may involve
greater risks than those customarily assumed by other
investment companies which do not invest in such
instruments. An investment in shares of the Fund should not
be considered a complete investment program and is not
appropriate for all investors. Investors should carefully
consider their ability to assume these risks and the risks
outlined under the heading "Risk Considerations and
Investment Practices" (page 9) before making an investment
in the Fund.
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The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
3
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of the
Fund will incur. The annualized fees and expenses set forth in the table below
are based on the expenses and fees for the fiscal year ended August 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+ ....................................... 0.26% 0.26% 0.26% 0.26%
12b-1 Fees (5) (6) ..................................... 0.25% 1.00% 1.00% None
Other Expenses+ ........................................ 0.24% 0.24% 0.24% 0.24%
Total Fund Operating Expenses+ ......................... 0.75% 1.50% 1.50% 0.50%
</TABLE>
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+ The Investment Manager has agreed on a permanent basis to assume all
expenses (except for brokerage and 12b-1 fees) and to waive the
compensation provided for in its Investment Management Agreement to the
extent that such expenses and compensation on an annualized basis exceed
0.50% of the daily net assets of the Fund. The fees and expenses
disclosed above reflect the assumption of such expenses and waiver of
compensation by the Investment Manager.
(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) 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").
(6) Upon conversion of Class B shares to Class A shares, such shares will be
subject to the lower 12b-1 fee applicable to Class A shares. No sales
charge is imposed at the time of conversion of Class B shares to Class A
shares. Class C shares do not have a conversion feature and, therefore,
are subject to an ongoing 1.00% distribution fee (see "Purchase of Fund
Shares--Alternative Purchase Arrangements").
4
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<TABLE>
<CAPTION>
Examples 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) a 5% annual return and (2)
redemption at the end of each time period:
Class A ............................................. $60 $75 $92 $141
Class B ............................................. $65 $77 $84 $179
Class C ............................................. $25 $47 $82 $179
Class D ............................................. $ 5 $16 $28 $ 63
You would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of
the period:
Class A ............................................. $60 $75 $92 $141
Class B ............................................. $15 $47 $64 $179
Class C ............................................. $15 $47 $82 $179
Class D ............................................. $ 5 $16 $28 $ 63
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF 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 (unaudited)
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The following ratios and per share data for a share of beneficial interest
outstanding throughout the 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.
<TABLE>
<CAPTION>
FOR THE PERIOD SEPTEMBER 26, 1997*
THROUGH AUGUST 31, 1998++
----------------------------------------
CLASS A CLASS B CLASS C CLASS D
SHARES SHARES SHARES SHARES
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PREFORMANCE:
Net asset value, beginning of period ... $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Net investment income .................. 0.10 0.02 0.02 0.12
Net realized and unrealized gain ....... 0.11 0.12 0.12 0.11
------ ------ ------ ------
Total from investment operations ....... 0.21 0.14 0.14 0.23
------ ------ ------ ------
Less dividends from net
investment income..................... (0.03) (0.01) (0.01) (0.03)
------ ------ ------ ------
Net asset value, end of period ......... $10.18 $10.13 $10.13 $10.20
====== ====== ====== ======
TOTAL INVESTMENT RETURN+(1) ............ 2.05% 1.38% 1.37% 2.30%
RATIOS TO AVERAGE NET ASSETS(2)(3)(4):
Expenses ............................... 0.75% 1.50% 1.50% 0.50%
Net investment income .................. 0.91% 0.16% 0.16% 1.16%
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands ......................... $28,719 $536,349 $40,730 $14,186
Portfolio turnover rate(1) ............. 1% 1% 1% 1%
</TABLE>
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* Commencement of operations.
++ The per share amounts were computed using an average of shares outstanding.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized
(2) Annualized
(3) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and the net investment
income ratios would have been 0.89% and 0.77%, respectively, for Class A
shares, 1.64% and 0.02%, respectively, for Class B shares and 1.64% and
0.02%, respectively, for Class C shares and 0.64% and 1.02%, respectively,
for Class D shares.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses.
6
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THE FUND AND ITS MANAGEMENT
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Morgan Stanley Dean Witter S&P 500 Index Fund (formerly named Dean
Witter S&P 500 Index Fund) (the "Fund") is an open-end, diversified management
investment company. The Fund is a trust of the type commonly known as a
"Massachusetts business trust" and was organized under the laws of The
Commonwealth of Massachusetts on June 18, 1997.
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 100
investment companies, 28 of which are listed on the New York Stock Exchange,
with combined assets of approximately $109.6 billion at September 30, 1998. The
Investment Manager also manages portfolios of pension plans, other institutions
and individuals which aggregated approximately $4.1 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. MSDW Advisors has retained MSDW Services to perform the
aforementioned administrative services for the Fund.
The Fund's Trustees review the various services provided by the
Investment Manager to ensure that the Fund's general investment policies and
programs are being properly carried out and that administrative services are
being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the
Fund and for expenses of the Fund incurred by the Investment Manager, the Fund
pays the Investment Manager monthly compensation calculated daily by applying
the annual rate of 0.40% to the Fund's net assets. The Investment Manager has
agreed on a permanent basis to assume all expenses (except for brokerage and
12b-1 fees) and to waive the compensation provided for in its Management
Agreement to the extent that such expenses and compensation on an annualized
basis exceed 0.50% of the daily net assets of the Fund.
The Fund's expenses include: the fee of the Investment Manager; the fee
pursuant to the Plan of Distribution (see "Purchase of Fund Shares"); taxes;
transfer agent, custodian, auditing fees; certain legal fees, and printing and
other expenses relating to the Fund's operations which are not expressly
assumed by the Investment Manager under its Investment Management Agreement
with the Fund.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to provide investment results
that, before expenses, correspond to the total return (i.e., the combination of
capital changes and income) of the Standard & Poor's (Registered Trademark)
500 Composite Stock Price Index (the "S&P 500 Index"). The objective is a
fundamental policy of the Fund and may not be changed without a vote of a
majority of the outstanding voting securities of the Fund. There is no
assurance that the objective will be achieved. The following policies may be
changed by the Board of Trustees without shareholder approval.
7
<PAGE>
The Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of its total assets in common stocks included in
the S&P 500 Index in approximately the same weightings as the Index. The Fund
intends to invest in substantially all of the stocks that comprise the S&P 500
Index in approximately the same weightings as they are represented in the
Index. The Fund operates as a "straight" index fund and will not be actively
managed; as such, adverse performance of a security will ordinarily not result
in the elimination of the security from the Fund's portfolio. The Fund will
remain invested in common stocks even when stock prices are generally falling.
Ordinarily, portfolio securities will not be sold except to reflect additions
or deletions of the stocks that comprise the S&P 500 Index, including mergers,
reorganizations and similar transactions, or as may be necessary to satisfy
redemption requests.
Over the long term, the Investment Manager seeks a correlation between
the performance of the Fund, before expenses, and that of the S&P 500 Index of
0.95 or better. A figure of 1.00 would indicate perfect correlation. The Fund's
ability to correlate its performance, before expenses, with the S&P 500 Index
may be affected by, among other things, changes in securities markets, the
manner in which the S&P 500 Index is calculated and the timing of purchases and
redemptions. The Fund's ability to correlate its performance to the Index also
depends to some extent on the size of the Fund's portfolio and the size of cash
flows into and out of the Fund. To accomodate these cash flows, investment
changes may be made to maintain the similarity of the Fund's portfolio to the
S&P 500 Index to the maximum practicable extent. The Investment Manager
regularly monitors the correlation and, in the event the desired correlation is
not achieved, the Investment Manager will determine what additional investment
changes may need to be made.
Stock Index Futures Contracts. The Fund may purchase and sell stock
index futures contracts ("futures contracts") that are traded on U.S. commodity
exchanges on the S&P 500 Index ("stock index" futures). As a futures contract
purchaser, the Fund incurs an obligation to take delivery of a specified amount
of the obligation underlying the contract at a specified time in the future for
a specified price. As a seller of a futures contract, the Fund incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price. The Fund will purchase or
sell stock index futures contracts for the following reasons: to simulate full
investment in the S&P 500 Index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transaction costs or to
seek higher investment returns when a futures contract is priced more
attractively than stocks comprising the S&P 500 Index. The Fund may enter into
such instruments provided that not more than 5% of its assets are required as
an initial margin deposit and provided that the contract prices of the stock
index futures contracts do not exceed 20% of its total assets. While such
instruments can be used as leveraged investments, the Fund may not use them to
leverage its assets.
Additional Information Concerning the S&P 500 Index. The S&P 500 Index
is a well-known stock market index that includes common stocks of 500 companies
from several industrial sectors representing a significant portion of the
market value of all common stocks publicly traded in the United States, most of
which are listed on the New York Stock Exchange Inc. (the "NYSE"). Stocks in
the S&P 500 Index are weighted according to their market capitalization (i.e.,
the number of shares outstanding multiplied by the stock's current price). The
Investment Manager believes that the performance of the S&P 500 Index is
representative of the performance of publicly traded common stocks in general.
The composition of the S&P 500 Index is determined by S&P and is based on such
factors as the market capitalization and trading activity of each stock and its
adequacy as a representation of stocks in a particular industry group, and may
be changed from time to time.
"Standard & Poor's (Registered Trademark) ," "S&P (Registered
Trademark)," "S&P 500 (Registered Trademark) ," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been
8
<PAGE>
licensed for use by the Fund. The Fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's, a division of The McGraw Hill Companies, Inc.
("Standard & Poor's") and Standard & Poor's makes no representation regarding
the advisability of investing in the Fund.
The Fund may also invest in Standard & Poor's Depositary Receipts,
repurchase agreements and zero coupon securities and may lend its portfolio
securities, as discussed under "Risk Considerations and Investment Practices"
below.
The Fund reserves the right to seek to achieve its investment objective
by converting to a "master/ feeder" fund structure (see "Additional
Information").
RISK CONSIDERATIONS AND INVESTMENT PRACTICES
The net asset value of the Fund's shares will fluctuate with changes in
the market value of the Fund's portfolio securities. The market value of the
Fund's portfolio securities will increase or decrease due to a variety of
economic, market or political factors which cannot be predicted.
Risks of Futures Transactions. The Fund may close out its position as a
buyer or seller of a futures contract only if a liquid secondary market exists
for futures contracts of that series. There is no assurance that such a market
will exist. Also, exchanges may limit the amount by which the price of many
futures contracts may move on any day. If the price moves equal the daily limit
on successive days, then it may prove impossible to liquidate a futures
position until the daily limit moves have ceased.
The extent to which the Fund may enter into transactions involving
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."
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of the
securities which are the subject of the contract. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the securities and futures markets could result.
Cash Flows; Expenses. The ability of the Fund to meet its investment
objective depends to some extent on the Investment Manager's ability to manage
cash flows (primarily from purchases and redemptions and distributions from the
Fund's portfolio investments). Generally, the Investment Manager will employ
stock index futures to provide liquidity necessary to meet anticipated
redemptions or for day-to-day operating purposes. In addition, if considered
appropriate in the opinion of the Investment Manager, a portion of a Fund's
assets not exceeding 20% of its total assets may be invested in money market
instruments. The Investment Manager will also make investment changes to the
Fund's portfolio to accommodate cash flows while continuing to seek to
replicate the total return of the S&P 500 Index. Investors should also be aware
that the investment performance of the S&P 500 Index is a hypothetical number
which does not take into account brokerage commissions and other transaction
costs, custody and other costs of investing, which will be borne by the Fund,
and any incremental operating costs (e.g., transfer agency, accounting) borne
by the Fund. Finally, since the Fund seeks to provide investment results that,
before expenses, correspond to the total return of the S&P 500 Index. S&P 500
Index, the Investment Manager will generally not attempt to judge the merits of
any particular security as an investment.
Temporary Investments. A portion of the Fund's assets, not exceeding 20%
of its total assets, may be invested temporarily in money market instruments
under any one or more of the following circumstances: (a) pending investment of
proceeds of sale of shares of the Fund; (b) pending settlement of purchases of
portfolio securities; or (c) to maintain liquidity for the purposes of meeting
anticipated redemptions. The money market instruments in which the Fund may
invest are certificates of deposit of U.S. domestic banks with assets of $1
billion or more; bankers' acceptances; time deposits; U.S.
9
<PAGE>
Government and U.S. Government agency securities; or commercial paper rated
within the two highest grades by S&P or Moody's Investors Service, Inc., or, if
not rated, are of comparable quality as determined by the Trustees, and which
mature within one year from the date of purchase.
Foreign Securities. The Fund may purchase common stocks, including
American Depository Receipts, of foreign corporations represented in the S&P
500 Index (such securities are listed on the New York Stock Exchange, the
American Stock Exchange or the NASDAQ Market System). Investments in foreign
securities may be affected by changes in governmental administration or
economic policy (in the United States and abroad) or changed circumstances in
dealings between nations. Foreign companies may be subject to less governmental
regulation than U.S. companies. Securities of foreign companies may be more
volatile than securities of U.S. companies. As noted above, the Fund's
investment in common stock of foreign corporations represented in the S&P 500
Index may also be in the form of American Depository Receipts (ADRs). ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying securities and are designed for use in the U.S.
securities markets.
Standard & Poor's Depositary Receipts ("SPDRs"). The Fund may purchase
interests in a unit investment trust holding a portfolio of securities linked
to the S&P 500 Index. SPDRs closely track the underlying portfolio of
securities, trade like a share of common stock and pay periodic dividends
proportionate to those paid by the portfolio of stocks that comprise the S&P
500 Index. The Fund may invest up to 10% of its total assets in the aggregate
in SPDRs and up to 5% of its total assets in SPDRs issued by a single unit
investment trust. As a holder of interests in a unit investment trust, the Fund
would indirectly bear its ratable share of that unit investment trust's
expenses. At the same time the Fund would continue to pay its own management
and advisory fees and other expenses, as a result of which the Fund and its
shareholders in effect will be absorbing duplicate levels of fees with respect
to investments in such unit investment trusts. The liquidity of small holdings
of SPDRs will depend upon the existence and liquidity of a secondary market.
See the Statement of Additional Information for a further discussion of SPDRs.
Repurchase Agreements. The Fund may enter into repurchase agreements,
which may be viewed as a type of secured lending by the Fund, and which
typically involve the acquisition by the Fund of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying security
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. While repurchase agreements involve
certain risks not associated with direct investments in debt securities,
including the risks of default or bankruptcy of the selling financial
institution, the Fund follows procedures designed to minimize such risks. These
procedures include effecting repurchase transactions only with large, well-
capitalized and well-established financial institutions and maintaining
adequate collateralization.
Zero Coupon Securities. A portion of the money market instruments in
which the Fund may invest 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
10
<PAGE>
shareholders. In addition, zero coupon securities are subject to substantially
greater price fluctuationsduring periods of changing prevailing interest rates
than are comparable securities which pay interest on a current basis. Current
federal tax law requires that a holder (such as the Fund) of a zero coupon
security accrue a portion of the discount at which the security was purchased
as income each year even though the Fund receives no interest payments in cash
on the security during the year.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at any
time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account pursuant
to applicable regulations and that are equal to at least the market value,
determined daily, of the loaned securities. As with any extensions of credit,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans of portfolio securities will only be made to firms deemed by the
Investment Manager to be creditworthy and when the income which can be earned
from such loans justifies the attendant risks. For additional risk disclosure,
please refer to the "Investment Objective and Policies" section of the
Prospectus and to the "Investment Practices and Policies" section of the
Statement of Additional Information.
Except as specifically noted, all investment policies and practices
discussed above are not fundamental policies of the Fund and, as such, may be
changed without shareholder approval.
Year 2000. The investment management services provided to the Fund by
the Investment Manager and the services provided to shareholders by the
Distributor and the Transfer Agent depend on the smooth functioning of their
computer systems. Many computer software systems in use today cannot recognize
the year 2000, but revert to 1900 or some other date, due to the manner in
which dates were encoded and calculated. That failure could have a negative
impact on the handling of securities trades, pricing and account services. The
Investment Manager, the Distributor and the Transfer Agent have been actively
working on necessary changes to their own computer systems to prepare for the
year 2000 and expect that their systems will be adapted before that date, but
there can be no assurance that they will be successful, or that interaction
with other non-complying computer systems will not impair their services at
that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S. and
foreign financial statements. Accordingly, the Fund's investments may be
adversely affected.
PORTFOLIO MANAGEMENT
The Fund's portfolio is managed by the Investment Manager with a view to
achieving the Fund's investment objective. The assets of the Fund are managed
within MSDW Advisors' Growth Group, which manages 31 equity funds and fund
portfolios with approximately $11 billion in assets as of September 30, 1998.
Kenton J. Hinchliffe, Senior Vice President of MSDW Advisors and a member of
MSDW Advisor's Growth Group, is the primary portfolio manager of the Fund. Mr.
Hinchliffe has been a portfolio manager at MSDW Advisors for over 5 years.
Kevin Jung, Vice President of MSDW Advisors and Assistant Vice President of the
Fund will assist the primary portfolio manager.
Orders for transactions in portfolio securities and commodities are
placed for the Fund with a number of brokers and dealers, including Dean Witter
Reynolds Inc., Morgan Stanley & Co. Incor-
11
<PAGE>
porated and other brokers and dealers that are affiliates of MSDW Advisors. The
Fund may incur brokerage commissions on transactions conducted through such
affiliates. 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. It is not anticipated that the portfolio trading will
result in the Fund's portfolio turnover rate exceeding 100% in any one year.
Ordinarily, securities will be sold from the portfolio only to reflect certain
administrative changes in the S&P 500 Index or to accommodate cash flows into
or out of the Fund while maintaining the similarity of the Fund to the S&P 500
Index. The Fund will incur brokerage costs commensurate with its portfolio
turnover rate. See "Dividends, Distributions and Taxes" for a discussion of the
tax implications of the Fund's trading policy.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions
which have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. For purposes
of the following limitations: (i) all percentage limitations apply immediately
after a purchase or initial investment; and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
The Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value
of its total assets in the securities of any one issuer (other than
obligations issued, or guaranteed by, the United States Government, its
agencies or instrumentalities), except that the Fund may invest all or
substantially all of its assets in another registered investment company
having the same investment objective and policies and substantially the
same investment restrictions as the Fund (a "Qualifying Portfolio").
2. As to 75% of its total assets, purchase more than 10% of all
outstanding voting securities or any class of securities of any one
issuer, except that the Fund may invest all or substantially all of its
assets in a Qualifying Portfolio.
3. Invest 25% or more of the value of its total assets in securities
of issuers in any one industry. This restriction does not apply to
obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities.
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 which 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
12
<PAGE>
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-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 S&P 500 Index 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(service mark),
an automatic purchase plan (see "Shareholder Services"), is $100, provided that
the schedule of automatic investments will result in investments totalling at
least $1,000 within the first twelve months. The minimum initial purchase in
the case of an "Education IRA" is $500, if the Distributor has reason to
believe that additional investments will increase the investment in the account
to $1,000 within three years. In the case of investments pursuant to (i)
Systematic Payroll Deduction Plans (including Individual Retirement Plans),
(ii) the MSDW Advisors mutual fund asset allocation program and (iii) fee-based
programs approved by the Distributor, pursuant to which participants pay an
asset based fee for services in the nature of investment advisory,
administrative and/or brokerage services, the Fund, in its discretion, may
accept investments without regard to any minimum amounts which would otherwise
be required, provided, in the case of Systematic Payroll Deduction Plans, that
the Distributor has reason to believe that additional investments will increase
the investment in all accounts under such Plans to at least $1,000.
Certificates for shares purchased will not be issued unless a request is made
by the shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since DWR
and other Selected
13
<PAGE>
Broker-Dealers forward investors' funds on settlement date, they will benefit
from the temporary use of the funds if payment is made prior thereto. As noted
above, orders placed directly with the Transfer Agent must be accompanied by
payment. Investors will be entitled to receive income dividends and capital
gains distributions if their order is received by the close of business on the
day prior to the record date for such dividends and distributions. Sales
personnel of a Selected Broker-Dealer are compensated for selling shares of the
Fund by the Distributor and/or the Selected Broker-Dealer. In addition, some
sales personnel of the Selected Broker-Dealer will receive various types of
non-cash compensation as special sales incentives, including trips, educational
and/or business seminars and merchandise. The Fund and the Distributor reserve
the right to reject any purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to
provide them with the flexibility of selecting an investment best suited to
their needs. The general public is offered three Classes of shares: Class A
shares, Class B shares and Class C shares, which differ principally in terms of
sales charges and rate of expenses to which they are subject. A fourth Class of
shares, Class D shares, is offered only to limited categories of investors (see
"No Load Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents
an identical interest in the investment portfolio of the Fund except that Class
A, Class B and Class C shares bear the expenses of the ongoing shareholder
service fees, Class B and Class C shares bear the expenses of the ongoing
distribution fees and Class A, Class B and Class C shares which are redeemed
subject to a CDSC bear the expense of the additional incremental distribution
costs resulting from the CDSC applicable to shares of those Classes. The
ongoing distribution fees that are imposed on Class A, Class B and Class C
shares will be imposed directly against those Classes and not against all
assets of the Fund and, accordingly, such charges against one Class will not
affect the net asset value of any other Class or have any impact on investors
choosing another sales charge option. See "Plan of Distribution" and
"Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and
the factors an investor 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 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."
14
<PAGE>
Class C Shares. Class C shares are sold at net asset value with no
initial sales charge but are subject to a CDSC of 1.0% on redemptions made
within one year after purchase. This CDSC may be waived for certain
redemptions. They are subject to an annual 12b-1 fee of up to 1.0% of the
average daily net assets of the Class C shares. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A or Class D shares. See "Level Load Alternative--Class C
Shares."
Class D Shares. Class D shares are available only to limited categories
of investors (see "No Load Alternative--Class D Shares" below). Class D shares
are sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
Selecting a Particular Class. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an
investor depends on the amount and intended length of his or her investment.
Investors who prefer an initial sales charge alternative may elect to purchase
Class A shares. Investors qualifying for significantly reduced or, in the case
of purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment 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.
15
<PAGE>
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
- -----------------------------------------------------------------------------
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
- -----------------------------------------------------------------------------
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% 1.0% B shares convert
CDSC during the first to A shares
year decreasing automatically after
to 0 after six years approximately
ten years
- -----------------------------------------------------------------------------
C 1.0% CDSC during 1.0% No
first year
- -----------------------------------------------------------------------------
D None None No
- -----------------------------------------------------------------------------
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge.
In some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case of
Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets
of the Class.
The offering price of Class A shares will be the net asset value per
share next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
SALES CHARGE
------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
----------- ----- ---------------
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
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
16
<PAGE>
Revenue Code of a single employer or of employers who are "affiliated persons"
of each other within the meaning of Section 2(a)(3)(c) of the Act; and for
investments in Individual Retirement Accounts of employees of a single employer
through Systematic Payroll Deduction plans; or (g) any other organized group of
persons, whether incorporated or not, provided the organization has been in
existence for at least six months and has some purpose other than the purchase
of redeemable securities of a registered investment company at a discount.
Combined Purchase Privilege. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other Morgan Stanley Dean Witter Multi-Class Funds and shares of FSC
Funds. The sales charge payable on the purchase of the Class A shares of the
Fund, the Class A shares of the other Morgan Stanley Dean Witter Multi-Class
Funds and the shares of the FSC Funds will be at their respective rates
applicable to the total amount of the combined concurrent purchases of such
shares.
Right of Accumulation. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other Morgan Stanley Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Morgan Stanley Dean Witter Funds acquired in
exchange for those shares, and including in each case shares acquired through
reinvestment of dividends and distributions), which are held at the time of
such transaction, amounts to $25,000 or more. If such investor has a cumulative
net asset value of shares of FSC Funds and Class A and Class D shares that,
together with the current 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, man-
17
<PAGE>
datory redemption upon termination and such other circumstances as specified in
the programs' agreements, and restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section
401(a) of the Internal Revenue Code ("Qualified Retirement Plans") with at
least 200 eligible employees and for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees;
(5) investors who are clients of a Morgan Stanley Dean Witter Financial
Advisor who joined Morgan Stanley Dean Witter from another investment firm
within six months prior to the date of purchase of Fund shares by such
investors, if the shares are being purchased with the proceeds from a
redemption of shares of an open-end proprietary mutual fund of the Financial
Advisor's previous firm which imposed either a front-end or deferred sales
charge, provided such purchase was made within sixty days after the redemption
and the proceeds of the redemption had been maintained in the interim in cash
or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
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 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 by Qualified Retirement Plans
for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written
18
<PAGE>
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject
to any CDSC upon redemption. However, shares redeemed earlier than three years
after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
<S> <C>
First ................................................. 2.0%
Second ................................................ 2.0%
Third ................................................. 1.0%
Fourth and thereafter ................................. None
</TABLE>
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption; and (iii) the current
net asset value of shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of FSC Funds or of
other 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;
(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; and
(4) certain redemptions pursuant to the Fund's Systematic Withdrawal
Plan (see "Shareholder Services--Systematic Withdrawal Plan").
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. 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
19
<PAGE>
approximately ten (10) years after the date of the original purchase. The ten
year period is calculated from the last day of the month in which the shares
were purchased or, in the case of Class B shares acquired through an exchange
or a series of exchanges, from the last day of the month in which the original
Class B shares were purchased, provided that shares acquired in exchange for
shares of another fund 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
20
<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) employee benefit plans maintained by Morgan Stanley Dean Witter
& Co. or any of its subsidiaries for the benefit of certain employees of Morgan
Stanley Dean Witter & Co. and its subsidiaries; (iv) certain Unit Investment
Trusts sponsored by DWR; (v) certain other open-end investment companies whose
shares are distributed by the Distributor; (vi) investors who were shareholders
of Dean Witter Retirement Series on September 11, 1998 (with respect to
additional purchases for their former Dean Witter Retirement Series accounts);
and (vii) 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 average daily net assets of
Class B. The fee is treated by the Fund as an expense in the year it is
accrued. In the case of Class A shares, the entire amount of the fee currently
represents a service fee within the meaning of the NASD guidelines. In the case
of Class B and Class C shares, a portion of the fee payable pursuant to the
Plan, equal to 0.25% of the average daily net assets of each of these Classes,
is currently characterized as a service fee. A service fee is a payment made
for personal service and/or the maintenance of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class
C shares are paid to the Distributor for services provided and the expenses
borne by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of Morgan Stanley Dean
Witter Financial Advisors and others who engage in or support distribution of
shares or who service shareholder
21
<PAGE>
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 period September 26, 1997 (commencement of operations)
through August 31, 1998, Class A, Class B and Class C shares of the Fund
accrued payments under the Plan amounting to $45,470, $3,648,993, and $258,271,
respectively, which amounts on an annualized basis are equal to 0.25%, 1.0% and
1.0% of the average daily net assets of Class A, Class B 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 $23,605,509 at August 31, 1998, which was equal to 4.40% 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, this excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made to
the Distributor under the Plan, and the proceeds of CDSCs paid by investors
upon redemption of shares, if for any reason the Plan is terminated the
Trustees will consider at that time the manner in which to treat such expenses.
Any cumulative expenses incurred, but not yet recovered through distribution
fees or CDSCs, may or may not be recovered through future distribution fees or
CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales commission credited to Morgan Stanley Dean Witter Financial
Advisors and other Selected Broker-Dealer representatives at the time of sale
may be reimbursed in the subsequent calendar year. The Distributor has advised
the Fund that unreimbursed expenses representing a gross sales commission
credited to Morgan Stanley Dean Witter Financial Advisors and other Selected
Broker-Dealer representatives at the time of sale totalled $145,457 in the case
of Class C at December 31, 1997, which amount was equal to 0.76% of the net
assets of Class C on such date, and that there were no such expenses that may
be reimbursed in the subsequent year in the case of Class A on such date. No
interest or other financing charges will be incurred on any Class A or Class C
distribution expenses incurred by the Distributor under the Plan or on any
unreimbursed expenses due to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time, 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 each Class, however, will be
determined separately by subtracting each Class's accrued expenses and
22
<PAGE>
liabilities. The net asset value per share will not be determined on Good
Friday and on such other federal and non-federal holidays as are observed by
the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity
portfolio security listed or traded on the New York or American Stock Exchange
or other stock exchange is valued at its latest sale price on that exchange
prior to the time assets are valued; if there were no sales that day, the
security is valued at the latest bid price (in cases where a security is traded
on more than one exchange, the security is valued on the exchange designated as
the primary market pursuant to procedures adopted by the Trustees); (2) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest bid price; (3) when market
quotations are not readily available, including circumstances under which it is
determined by the Investment Manager that sale or bid prices are not reflective
of a security's market value, portfolio securities are valued at their fair
value as determined in good faith under procedures established by and under the
general supervision of the Fund's Trustees (valuation of debt securities for
which market quotations are not readily available may be based upon current
market prices of securities which are comparable in coupon, rating and maturity
or an appropriate matrix utilizing similar factors); (4) the value of
short-term debt securities which mature at a date less than sixty days
subsequent to valuation date will be determined on an amortized cost or
amortized value basis; and (5) the value of other assets will be determined in
good faith at fair value under procedures established by and under the general
supervision of the Fund's Trustees. Dividends receivable are accrued as of the
ex-dividend date. Interest income is accrued daily. Certain securities in the
Fund's portfolio may be valued by an outside pricing service approved by the
Fund's 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),
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").
EasyInvest(service mark). Shareholders may subscribe to EasyInvest,
an automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption").
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 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").
Systematic Withdrawal Plan. A systematic withdrawal plan (the
"Withdrawal Plan") is available for shareholders whose shares of Morgan Stanley
Dean Witter Funds have an aggregate value of $10,000 or more. Shares of any
Fund from which redemptions will be made pursuant to the Plan must have a value
of $1,000 or more (referred to as a "SWP Fund"). The required share values are
determined on the date the shareholder establishes the Withdrawal Plan. The
Withdrawal Plan provides for
23
<PAGE>
monthly, quarterly, semi-annual or annual payments in any amount not less than
$25, or in any whole percentage of the value of the SWP Funds' shares, on an
annualized basis. Any applicable CDSC will be imposed on shares redeemed under
the Withdrawal Plan (see "Purchase of Fund Shares"), except that the CDSC, if
any, will be waived on redemptions under the Withdrawal Plan of up to 12%
annually of the value of each SWP Fund account, based on the share values next
determined after the shareholder establishes the Withdrawal Plan. Redemptions
for which this CDSC waiver policy applies may be in amounts up to 1% per month,
3% per quarter, 6% semi-annually or 12% annually. Under this CDSC waiver
policy, amounts withdrawn each period will be paid by first redeeming shares
not subject to a CDSC because the shares were purchased by the reinvestment of
dividends or capital gains distributions, the CDSC period has elapsed or some
other waiver of the CDSC applies. If shares subject to a CDSC must be redeemed,
shares held for the longest period of time will be redeemed first and
continuing with shares held the next longest period of time until shares held
the shortest period of time are redeemed. 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, quarterly, semi-annual or annual amount.
A shareholder may suspend or terminate participation in the Withdrawal
Plan at any time. A shareholder who has suspended participation may resume
payments under the Withdrawal Plan, without requiring a new determination of
the account value for the 12% CDSC waiver. The Withdrawal Plan may be
terminated or revised at any time by the Fund.
Prior to adding an additional SWP Fund to an existing Withdrawal Plan,
the required $10,000/ $1,000 share values must be met, to be calculated on the
date the shareholder adds the additional SWP Fund. However, the addition of a
new SWP Fund will not change the account value for the 12% CDSC waiver for the
SWP Funds already participating in the Withdrawal Plan.
Withdrawal Plan payments should not be considered 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 advisor.
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 Morgan Stanley Dean Witter Funds which are money
market funds (the "Exchange Funds"). Class A shares may also be exchanged for
shares of Morgan Stanley Dean Witter Multi-State Municipal Series Trust and
Morgan Stanley Dean Witter Hawaii Municipal Trust, which are Morgan Stanley
Dean Witter Funds sold with a front-end sales charge ("FSC Funds"). Exchanges
may be made after the shares of the Fund
24
<PAGE>
acquired by purchase (not by exchange or dividend reinvestment) have been held
for thirty days. There is no waiting period for exchanges of shares acquired by
exchange or dividend reinvestment.
An exchange to another Morgan Stanley Dean Witter Multi-Class Fund, any
FSC Fund or any Exchange Fund that is not a money market fund is on the basis
of the next calculated net asset value per share of each fund after the
exchange order is received. When exchanging into a money market fund from the
Fund, shares of the Fund are redeemed out of the Fund at their next calculated
net asset value and the proceeds of the redemption are used to purchase shares
of the money market fund at their net asset value determined the following
business day. Subsequent exchanges between any of the money market funds and
any of the Morgan Stanley Dean Witter Multi-Class Funds, FSC Funds or any
Exchange Fund that is not a money market fund can be effected on the same
basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains invested 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, 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 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 (see
"Purchase of Fund Shares"). In the case of exchanges of Class A shares which
are subject to a CDSC, the holding period also includes the time (calculated as
described above) the shareholder was invested in shares of a FSC Fund. In the
case of shares exchanged into an Exchange Fund on or after April 23, 1990, upon
a redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the Exchange
Fund 12b-1 distribution fees, if any, incurred on or after that date which are
attributable to those shares. (Exchange Fund 12b-1 distribution fees are
described in the prospectus for those funds.) Class B shares of the Fund
acquired in exchange for Class B shares of another Morgan Stanley Dean Witter
Multi-Class Fund having a different CDSC schedule than that of this Fund will
be subject to the higher CDSC schedule, even if such shares are subsequently
re-exchanged for shares of the fund with the lower CDSC schedule.
Additional Information Regarding Exchanges. Purchases and exchanges
should be made for investment purposes only. A pattern of frequent exchanges
may be deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional purchases
and/or exchanges from the investor. Although the Fund does not have any
specific definition of what constitutes a pattern of frequent exchanges, and
will consider all relevant factors in determining whether a particular
situation is abusive and contrary to the best interests of the Fund and its
other shareholders, investors should be aware that the Fund and each of the
other Morgan Stanley Dean Witter Funds may in their discretion limit or
otherwise restrict the number of times this Exchange Privilege may be exercised
by any investor. Any such restriction will be made by the Fund on a prospective
basis only, upon notice to the shareholder not later than ten days following
such shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such Morgan Stanley
Dean Witter Funds for which shares of the Fund have been exchanged, upon such
notice as may be required by applicable regulatory agencies. Shareholders
maintaining margin accounts with DWR or another Selected Broker-Dealer are
referred to their Morgan Stanley Dean Witter Financial Advisor or other
Selected Broker-Dealer representative regarding restrictions on exchange of
shares of the Fund pledged in the margin account.
25
<PAGE>
The current prospectus for each fund describes its investment
objective(s) and policies, and shareholders should obtain a copy and read 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 has realized 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 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 of the other Morgan Stanley Dean Witter Funds in
the past.
For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisor or other
Selected Broker-Dealer representative or the Transfer Agent.
26
<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 to the Fund's
Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption, along with
any additional documentation required by the Transfer Agent.
Repurchase. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic or telegraphic request of the shareholder. The repurchase
price is the net asset value per share next determined (see "Purchase of Fund
Shares") after such repurchase order is received by DWR or other Selected
Broker-Dealer, reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed 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 the 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, upon
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 Board of Trustees or, in the case of an account opened through
EasyInvest, if after twelve months the shareholder has invested less than
$1,000 in the account. However, before the Fund redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the value
of the shares is less than the applicable
27
<PAGE>
amount and allow the shareholder to make an additional investment in an amount
which will increase the value of the account to at least the applicable amount
before the redemption is processed. No CDSC will be imposed on any involuntary
redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions. The Fund declares dividends separately for
each Class of shares and intends to distribute substantially all of the Fund's
net investment income and net realized short-term and long-term capital gains,
if there are any, at least once each year. The Fund may, however, determine
either to distribute or to retain all or part of any net long-term capital
gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in
additional shares of the same Class and automatically credited to the
shareholder's account without issuance of a share certificate unless the
shareholder requests in writing that all dividends be paid in cash. Shares
acquired by dividend and distribution reinvestments will not be subject to any
front-end sales charge or CDSC. Class B shares acquired through dividend and
distribution reinvestments will become eligible for conversion to Class A
shares on a pro rata basis. Distributions paid on Class A and Class D shares
will be higher than for Class B and Class C shares because distribution fees
paid by Class B and Class C shares are higher. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions.")
Taxes. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise remain
qualified as a regulated investment company under Subchapter M of the Internal
Revenue Code, it is not expected that the Fund will be required to pay any
federal income tax. Shareholders who are required to pay taxes on their income
will normally have to pay federal income taxes, and any state and 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 dividend income regardless of whether the shareholder receives such
distributions in additional shares or in cash. Any dividends declared in the
last quarter of any calendar year which are paid in the following year prior to
February 1 will be deemed, for tax purposes, to have been received by the
shareholder in the prior year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction.
The Fund may at times make payments from sources other than income or
net capital gains. Payments from such sources will, in effect, represent a
return of a portion of each shareholder's investment. All, or a portion, of
such payments will not be taxable to shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes. Shareholders will also be notified of their proportionate share of
long-term capital gains distributions that are eligible for a reduced rate of
tax under the Taxpayer Relief Act of 1997. To avoid being subject to a 31%
federal backup withholding tax on taxable dividends, capital gains
distributions and the proceeds of redemptions and repurchases, shareholders'
taxpayer identification numbers must be furnished and certified as to their
accuracy.
Shareholders should consult their tax advisors as to the applicability
of the foregoing to their current situation.
28
<PAGE>
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. Total return and average annual total return reflect all income
earned by the Fund, any appreciation or depreciation of the Fund's assets and
all expenses incurred by the applicable Class and all sales charges which 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,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each
Class of shares of the Fund. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (e.g., mutual fund performance rankings of Lipper
Analytical Services, Inc.; S&P 500 stock index; Dow Jones and Company, Inc.
Industrial Average).
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of the Fund are of
$0.01 par value and are equal as to earnings, assets and voting privileges
except that each Class will have exclusive voting privileges with respect to
matters relating to distribution expenses borne solely by such Class or any
other matter in which the interests of one Class differ from the interests of
any other Class. In addition, Class B shareholders will have the right to vote
on any proposed material increase in Class A's expenses, if such proposal is
submitted separately to Class A shareholders. Also, as discussed herein, Class
A, Class B and Class C bear the expenses related to the distribution of their
respective shares.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by the
Shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund,
requires that notice of such Fund obligations include such disclaimer, and
provides for indemnification out of the Fund's property for any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
Code of Ethics. Directors, officers and employees of MSDW Advisors, MSDW
Services and MSDW
29
<PAGE>
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.
Master/Feeder Conversion. The Fund reserves the right to seek to
achieve its investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same investment
objective and policies and substantially the same investment restrictions as
those applicable to the Fund.
Shareholder Inquiries. All inquiries regarding the Fund should be
directed to the Fund at the telephone numbers or address set forth on the front
cover of this Prospectus.
30
<PAGE>
Morgan Stanley Dean Witter
S&P 500 Index 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
Kenton J. Hinchliffe
Vice President
Kevin Jung
Assistant Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Morgan Stanley
Dean Witter
S&P 500 Index Fund
PROSPECTUS -- OCTOBER 30, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION MORGAN STANLEY DEAN WITTER
S&P 500 INDEX FUND
October 30, 1998
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter S&P 500 Index Fund (the "Fund") is an open-end,
diversified management investment company whose investment objective is to
provide investment results that, before expenses, correspond to the total
return (i.e., the combination of capital changes and income) of the S&P 500
Composite Stock Price Index (the "S&P 500 Index"). The Fund seeks to meet its
investment objective by investing, under normal circumstances, at least 80% of
the value of its total assets in equity securities included in the S&P 500
Index in approximately the same weightings as the Index. (See "Investment
Practices and Policies.")
A Prospectus for the Fund dated October 30, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at its address or telephone numbers listed below
or from the Fund's Distributor, Morgan Stanley Dean Witter Distributors Inc.,
or from Dean Witter Reynolds Inc, at any of its branch offices. This Statement
of Additional Information is not a Prospectus. It contains information in
addition to and more detailed than that set forth in the Prospectus. It is
intended to provide additional information regarding the activities and
operations of the Fund, and should be read in conjunction with the Prospectus.
Morgan Stanley Dean Witter S&P 500 Index Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
The Fund and its Management ................................................. 3
Trustees and Officers ....................................................... 7
Investment Practices and Policies ........................................... 13
Investment Restrictions ..................................................... 17
Portfolio Transactions and Brokerage ........................................ 18
The Distributor ............................................................. 20
Determination of Net Asset Value ............................................ 23
Purchase of Fund Shares ..................................................... 24
Shareholder Services ........................................................ 27
Redemptions and Repurchases ................................................. 32
Dividends, Distributions and Taxes .......................................... 33
Performance Information ..................................................... 34
Shares of the Fund .......................................................... 35
Custodian and Transfer Agent ................................................ 36
Independent Accountants ..................................................... 36
Reports to Shareholders ..................................................... 36
Legal Counsel ............................................................... 36
Experts ..................................................................... 37
Registration Statement ...................................................... 37
Financial Statements as at August 31, 1998 .................................. 38
Report of Independent Accountants ........................................... 57
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 June 18, 1997 under the name Dean Witter S&P 500 Index 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 S&P 500 Index Fund.
THE INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc. (the "Investment Manager" or
"MSDW Advisors"), a Delaware corporation, whose address is Two World Trade
Center, New York, New York 10048, is the Fund's Investment Manager. MSDW
Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
("MSDW"), a Delaware corporation. The daily management of the Fund and research
relating to the Fund's portfolio are conducted by or under the direction of
officers of the Fund and of the Investment Manager, subject to review by the
Fund's Board of Trustees. Information as to these Trustees and officers is
contained under the caption "Trustees and Officers."
MSDW Advisors is the investment manager or investment advisor of the
following investment companies, which are collectively referred to as the
"Morgan Stanley Dean Witter Funds":
OPEN-END FUNDS
1 Active Assets California Tax-Free Trust
2 Active Assets Government Securities Trust
3 Active Assets Money Trust
4 Active Assets Tax-Free Trust
5 Morgan Stanley Dean Witter American Value Fund
6 Morgan Stanley Dean Witter Balanced Growth Fund
7 Morgan Stanley Dean Witter Balanced Income Fund
8 Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
9 Morgan Stanley Dean Witter California Tax-Free Income Fund
10 Morgan Stanley Dean Witter Capital Appreciation Fund
11 Morgan Stanley Dean Witter Capital Growth Securities
12 Morgan Stanley Dean Witter Competitive Edge Fund, "Best Ideas" Portfolio
13 Morgan Stanley Dean Witter Convertible Securities Trust
14 Morgan Stanley Dean Witter Developing Growth Securities Trust
15 Morgan Stanley Dean Witter Diversified Income Trust
16 Morgan Stanley Dean Witter Dividend Growth Securities Inc.
17 Morgan Stanley Dean Witter Equity Fund
18 Morgan Stanley Dean Witter European Growth Fund Inc.
19 Morgan Stanley Dean Witter Federal Securities Trust
20 Morgan Stanley Dean Witter Financial Services Trust
21 Morgan Stanley Dean Witter Fund of Funds
22 Morgan Stanley Dean Witter Global Dividend Growth Securities
23 Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
24 Morgan Stanley Dean Witter Global Utilities Fund
25 Morgan Stanley Dean Witter Growth Fund
26 Morgan Stanley Dean Witter Hawaii Municipal Trust
27 Morgan Stanley Dean Witter Health Sciences Trust
28 Morgan Stanley Dean Witter High Yield Securities Inc.
29 Morgan Stanley Dean Witter Income Builder Fund
30 Morgan Stanley Dean Witter Information Fund
31 Morgan Stanley Dean Witter Intermediate Income Securities
32 Morgan Stanley Dean Witter International SmallCap Fund
33 Morgan Stanley Dean Witter Japan Fund
34 Morgan Stanley Dean Witter Limited Term Municipal Trust
35 Morgan Stanley Dean Witter Liquid Asset Fund Inc.
36 Morgan Stanley Dean Witter Market Leader Trust
3
<PAGE>
37 Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
38 Morgan Stanley Dean Witter Mid-Cap Growth Fund
39 Morgan Stanley Dean Witter Multi-State Municipal Series Trust
40 Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
41 Morgan Stanley Dean Witter New York Municipal Money Market Trust
42 Morgan Stanley Dean Witter New York Tax-Free Income Fund
43 Morgan Stanley Dean Witter Pacific Growth Fund Inc.
44 Morgan Stanley Dean Witter Precious Metals and Minerals Trust
45 Morgan Stanley Dean Witter Select Dimensions Investment Series
46 Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
47 Morgan Stanley Dean Witter Short-Term Bond Fund
48 Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
49 Morgan Stanley Dean Witter Special Value Fund
50 Morgan Stanley Dean Witter S&P 500 Index Fund
51 Morgan Stanley Dean Witter S&P 500 Select Fund
52 Morgan Stanley Dean Witter Strategist Fund
53 Morgan Stanley Dean Witter Tax-Exempt Securities Trust
54 Morgan Stanley Dean Witter Tax-Free Daily Income Trust
55 Morgan Stanley Dean Witter U.S. Government Money Market Trust
56 Morgan Stanley Dean Witter U.S. Government Securities Trust
57 Morgan Stanley Dean Witter Utilities Fund
58 Morgan Stanley Dean Witter Value 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
CLOSED-END FUNDS
1 InterCapital California Insured Municipal Income Trust
2 InterCapital California Quality Municipal Securities
3 Dean Witter Government Income Trust
4 High Income Advantage Trust
5 High Income Advantage Trust II
6 High Income Advantage Trust III
7 InterCapital Income Securities Inc.
8 InterCapital Insured California Municipal Securities
9 InterCapital Insured Municipal Bond Trust
10 InterCapital Insured Municipal Income Trust
11 InterCapital Insured Municipal Securities
12 InterCapital Insured Municipal Trust
13 Municipal Income Opportunities Trust
14 Municipal Income Opportunities Trust II
15 Municipal Income Opportunities Trust III
16 Municipal Income Trust
17 Municipal Income Trust II
18 Municipal Income Trust III
19 Municipal Premium Income Trust
20 InterCapital New York Quality Municipal Securities
21 Morgan Stanley Dean Witter Prime Income Trust
22 InterCapital Quality Municipal Income Trust
23 InterCapital Quality Municipal Investment Trust
24 InterCapital Quality Municipal Securities
4
<PAGE>
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"):
OPEN-END FUNDS
1 TCW/DW Emerging MarketsOpportunities Trust
2 TCW/DW Global Telecom Trust
3 TCW/DW Income and Growth Fund
4 TCW/DW Latin American Growth Fund
5 TCW/DW Mid-Cap Equity Trust
6 TCW/DW North American Government Income Trust
7 TCW/DW Small Cap Growth Fund
8 TCW/DW Total Return Trust
CLOSED-END FUNDS
1 TCW/DW Term Trust 2000
2 TCW/DW Term Trust 2002
3 TCW/DW Term Trust 2003
MSDW Advisors also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company; (ii) sub-administrator of
Templeton Global Governments Income Trust, a closed-end investment company; and
(iii) investment advisor of Offshore Dividend Growth Fund and Offshore Money
Market Fund, mutual funds established under the laws of the Cayman Islands and
available only to investors who are participants in the International Active
Assets Account program and are neither citizens nor residents of the United
States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective. Under the terms of the Agreement, in addition to managing
the Fund's investments, the Investment Manager maintains certain of the Fund's
books and records and furnishes, at its own expense, such office space,
facilities, equipment, clerical help and bookkeeping and 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 provide its administrative
services under the Agreement.
Expenses not expressly assumed by the Investment Manager under the
Agreement or by the Distributor of the Fund's shares, Morgan Stanley Dean
Witter Distributors Inc. ("MSDW Distributors" or "the Distributor") will be
paid by the Fund. These expenses will be allocated among the four classes of
shares of the Fund (each, a "Class") pro rata based on the net assets of the
Fund attributable to each Class, except as described below. Such expenses
include, but are not limited to: expenses of the Plan of Distribution pursuant
to Rule 12b-1 (the "12b-1 fee") (see "The Distributor"); charges and expenses
of any registrar; custodian, stock transfer and dividend disbursing agent;
brokerage commissions; taxes; engraving and printing of share certificates;
registration costs of the Fund and its shares under federal and state
securities laws; the cost and expense of printing, including typesetting, and
distributing Prospectuses and Statements of Additional Information of the Fund
and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees of
the Investment Manager or any
5
<PAGE>
corporate affiliate of the Investment Manager; all expenses incident to any
dividend, withdrawal or redemption options; charges and expenses of any outside
service used for pricing of the Fund's shares; fees and expenses of legal
counsel, including counsel to the Trustees who are not interested persons of
the Fund or of the Investment Manager (not including compensation or expenses
of attorneys who are employees of the Investment Manager) and independent
accountants; membership dues of industry associations; interest on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Trustees) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification relating thereto); and all other costs
of the Fund's operation. The 12b-1 fees relating to a particular Class will be
allocated directly to that Class. In addition, other expenses associated with a
particular Class (except advisory or custodial fees) may be allocated directly
to that Class, provided that such expenses are reasonably identified as
specifically attributable to that Class and the direct allocation to that Class
is approved by the Trustees.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the annual
rate of 0.40% to the Fund's daily net assets. The management fee is allocated
among the Classes pro rata based on the net assets of the Fund attributable to
each Class. The Investment Manager has agreed on a permanent basis to assume
all expenses (except for brokerage and 12b-1 fees) and to waive the
compensation provided for in its Management Agreement to the extent that such
expenses and compensation on an annualized basis exceed 0.50% of the daily net
assets of the Fund. During the period September 26, 1997 (commencement of
operations) through August 31, 1998, the Fund accrued total compensation to the
Investment Manager under the Management Agreement in the amount of $1,676,190,
$583,981 of which was waived by the Investment Manager pursuant to the
undertaking described above.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors. The Agreement in no way restricts the Investment
Manager from acting as investment manager or advisor to others.
The Investment Manager paid the organizational expenses of the Fund
incurred prior to the offering of the Fund's shares. The Fund has agreed to
bear and reimburse the Investment Manager for such expenses, which totalled
approximately $68,000. The organizational expenses of the Fund are being
deferred by the Fund and are being amortized on the straight line method over a
period not to exceed five years from the date of commencement of the Fund's
operations.
The Agreement was initially approved by the Trustees on July 23, 1997 and
by MSDW Advisors, as the then sole shareholder, on July 28, 1997. The Agreement
may be terminated at any time, without penalty, on thirty days' notice by the
Trustees of the Fund, by the holders of a majority of the outstanding shares of
the Fund, as defined in the Investment Company Act of 1940, as amended (the
"Act"), or by the Investment Manager. The Agreement will automatically
terminate in the event of its assignment (as defined in the Act).
Under its terms, the Agreement has an initial term ending April 30, 1999
and will continue from year to year thereafter, provided continuance of the
Agreement is approved at least annually by the vote of the holders of a
majority of the outstanding shares of the Fund, as defined in the Act, or by
the Trustees of the Fund; provided that in either event such continuance is
approved annually by the vote of a majority of the Trustees of the Fund who are
not parties to the Agreement or "interested persons" (as defined in the Act) of
any such party (the "Independent Trustees"), which vote must be cast in person
at a meeting called for the purpose of voting on such approval.
The following persons owned 5% or more of the outstanding shares of Class
A of the Fund on October 12, 1998: RPM007 TRI CO Orthopedic Surgeons,
Retirement Savings Plan, Mutual Fund-Portfolio #6, 1413 Harbor Dr., N.W.,
Canton, OH 44708-3098 -- 5.293%; RPM007 Stark CO Women's Clinic, Retirement
Savings Plan, Main Holding fund #6/ Attn: B. Kindig, 5000 Higbee Ave, N.W.,
Canton,
6
<PAGE>
OH 44718-2522-5.788%; Morgan Stanley Dean Witter Trust FSB, Trustee of
Primavera Systems Inc., 401K & Profit Sharing Plan, P.O. Box 957, Jersey City,
NJ 07311-3977-8.450%. The following persons owned 5% or more of the outstanding
shares of Class D of the Fund on October 12, 1998: Morgan Stanley Dean Witter
Trust FSB, as Trustee, Pizzagalli Construction, P.O. Box 957, Jersey City, NJ
07303-0957-72.184%; Hare & Co., c/o The Bank of New York, P.O. Box 11203, New
York, NY 10286-1203-7.419%.
The Fund has acknowledged that the name "Morgan Stanley Dean Witter" is a
property right of MSDW. The Fund has agreed that MSDW, or any corporate
affiliate of MSDW, may use, or at any time permit others to use, the name
"Morgan Stanley Dean Witter." The Fund has also agreed that in the event the
Agreement is terminated, or if the affiliation between MSDW Advisors and its
parent company is terminated, the Fund will eliminate the name "Morgan Stanley
Dean Witter" from its name if MSDW, or any corporate affiliate of MSDW, shall
so request.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
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 85 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 (since November, 1995); Director or
c/o Levitz Furniture Corporation Trustee of the Morgan Stanley Dean Witter Funds;
7887 N. Federal Highway formerly President and Chief Executive Officer of
Boca Raton, Florida Hills Department Stores (May, 1991-July, 1995);
formerly variously Chairman, Chief Executive
Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of
Sears, Roebuck and Co.; Director of Eaglemark
Financial Services, Inc. and Weirton Steel
Corporation.
Charles A. Fiumefreddo* (65) .............. Chairman, Director or Trustee, President and Chief
Chairman, President, Executive Officer of the Morgan Stanley Dean
Chief 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>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- -----------------------------------------------------
<S> <C>
Edwin J. Garn (66) ........................ 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
500 Huntsman Way Banking Committee (1980-1986); formerly Mayor
Salt Lake City, Utah of Salt Lake City, Utah (1972-1974); formerly
Astronaut, Space Shuttle Discovery (April 12-19,
1985); Vice Chairman, Huntsman Corporation;
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
New York, New York the 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 adviser (1964-1978).
Wayne E. Hedien (64) ...................... Retired; Director or Trustee of the Morgan Stanley
Trustee Dean Witter Funds; Director of The PMI Group,
c/o Gordon Altman Butowsky Inc. (private mortgage insurance); Trustee and
Weitzen Shalov & Wein Vice Chairman of The Field Museum of Natural
Counsel to the Independent Trustees History; formerly associated with the Allstate
114 West 47th Street Companies (1966-1994), most recently as
New York, New York Chairman of The Allstate Corporation (March,
1993-December, 1994) and Chairman and Chief
Executive Officer of its wholly-owned subsidiary,
Allstate Insurance Company (July, 1989-December,
1994); director of various other business and
charitable organizations.
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 International, Inc. the Group of Seven Council (G7C), an international
1133 Connecticut Avenue, N.W. economic commission; Director or Trustee of the
Washington, DC Morgan Stanley Dean Witter Funds; Trustee of the
TCW/DW Funds; Director of NASDAQ (since June,
1995); Director of Greenwich Capital Markets, Inc.
(broker-dealer) and NVR, Inc. (home construction);
Chairman and Trustee of the Financial Accounting
Foundation (oversight organization for 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).
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- -----------------------------------------------------
<S> <C>
Michael E. Nugent (62) .................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Director or Trustee of the
c/o 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.
Philip J. Purcell* (55) ................... Chairman of the Board of Directors and Chief
Trustee Executive Officer of MSDW, DWR and Novus
1585 Broadway Credit 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 (68) .................... 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 Trustees Officer of the Home Insurance Company (August,
114 West 47th Street 1991-September, 1995).
New York, New York
Barry Fink (43) ........................... Senior Vice President (since March, 1997),
Vice President, Secretary and General Counsel (since February,
Secretary and General Counsel 1997) and Director (since July, 1998) of MSDW
Two World Trade Center Advisors and MSDW Services; Senior Vice
New York, New York President (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.
Kenton J. Hinchliffe (54) ................. Senior Vice President of MSDW Advisors; Vice
Vice President President of various Morgan Stanley Dean Witter
Two World Trade Center Funds.
New York, New York
Kevin Jung (32) ........................... Vice President of MSDW Advisors.
Assistant Vice President
Two World Trade Center
New York, New York
Thomas F. Caloia (52) ..................... First Vice President and Assistant Treasurer of
Treasurer MSDW Advisors and MSDW Services; Treasurer
Two World Trade Center of the Morgan Stanley Dean Witter Funds and the
New York, New York TCW/DW Funds.
</TABLE>
- ----------
* Denotes Trustees who are "interested persons" of the Fund, as defined
in the Act.
9
<PAGE>
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 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, Ronald E. Robison, Executive Vice
President and Chief Administrative Officer of MSDW Advisors and MSDW Services
and Alice Weiss, Vice President of MSDW Advisors are Vice Presidents of the
Fund. 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 85
Morgan Stanley Dean Witter Funds, comprised of 121 portfolios. As of September
30, 1998, the Morgan Stanley Dean Witter Funds had total net assets of
approximately $105.3 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. In addition,
three of the Trustees, including two Independent Trustees, serve as members of
the Insurance 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
10
<PAGE>
of such services; and reviewing the independence of the independent
accountants; considering the range of audit and non-audit fees; reviewing the
adequacy of the Fund's system of internal controls.
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.
Finally, the Board of each Fund has formed an Insurance Committee to
review and monitor the insurance coverage maintained by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Morgan Stanley Dean Witter Funds
avoids the duplication of effort that would arise from having different groups
of individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and
enhances their ability to negotiate on behalf of each Fund with the Fund's
service providers. This arrangement also precludes the possibility of separate
groups of Independent Trustees arriving at conflicting decisions regarding
operations and management of the Funds and avoids the cost and confusion that
would likely ensue. Finally, having the same Independent Trustees serve on all
Fund Boards enhances the ability of each Fund to obtain, at modest cost to each
separate Fund, the services of Independent Trustees of the caliber, experience
and business acumen of the individuals who serve as Independent Trustees of the
Morgan Stanley Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund intends to pay 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 intends to pay 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 will be paid a single meeting fee by the Fund. The Fund will also
reimburse 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 will receive no compensation or expense reimbursement from the Fund for
their services as Trustee. The Fund commenced operations on September 26, 1997
and paid no compensation to the Independent Trustees for the fiscal period
ended August 31, 1998. Payments will commence as of the time the Fund begins
paying management fees, which, pursuant to an undertaking by the Investment
Manager, will be at such time as the Fund has $50 million of net assets or six
months from the date of commencement of the Fund's operations, whichever occurs
first. Mr. Haire currently serves as Chairman of the Audit Committee.
At such time as the Fund has been in operation, and has paid fees to the
Independent Trustees, for a full fiscal year, and assuming that during such
fiscal year the Fund holds the same number of meetings of the Board, the
Independent Trustees and the Committees as were held by the other Morgan
Stanley Dean Witter Funds during the calendar year ended December 31, 1997, it
is estimated that the compensation paid to each Independent Trustee during such
fiscal year will be the amount shown in the following table:
FUND COMPENSATION (ESTIMATED)
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- -------------
<S> <C>
Michael Bozic ................................................. $1,600
Edwin J. Garn ................................................. 1,600
John R. Haire ................................................. 2,350
Wayne E. Hedien ............................................... 1,600
Dr. Manuel H. Johnson ......................................... 1,600
Michael E. Nugent ............................................. 1,600
John L. Schroeder ............................................. 1,600
</TABLE>
11
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for services
to the 84 Morgan Stanley Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were in operation at
December 31, 1997. Mr. Haire serves as Chairman of the Audit Committee of each
Morgan Stanley Dean Witter Fund and each TCW/DW Fund and, prior to June 1,
1998, also served as Chairman of the Independent Directors or Trustees of those
Funds. With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW
Funds are included solely because of a limited exchange privilege between those
Funds and five Morgan Stanley Dean Witter Money Market Funds. Mr. Hedien's term
as Director or Trustee of each Morgan Stanley Dean Witter Fund commenced on
September 1, 1997.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF
INDEPENDENT
DIRECTORS/ FOR SERVICE AS TOTAL CASH
FOR SERVICE TRUSTEES AND CHAIRMAN OF COMPENSATION
AS DIRECTOR OR FOR SERVICE AS AUDIT INDEPENDENT FOR SERVICES TO 84
TRUSTEE AND TRUSTEE AND COMMITTEES OF 84 TRUSTEES MORGAN STANLEY
COMMITTEE MEMBER COMMITTEE MEMBER MORGAN STANLEY AND AUDIT DEAN WITTER
NAME OF OF 84 MORGAN STANLEY OF 14 TCW/DW DEAN WITTER COMMITTEES OF 14 FUNDS AND 14
INDEPENDENT TRUSTEE DEAN WITTER FUNDS 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 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.
- ----------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement.
The amount estimated to be payable under this method, through the
remainder of the later of the lives of such Eligible Trustee and spouse,
will be the actuarial equivalent of the Regular Benefit. In addition, the
Eligible Trustee may elect that the surviving spouse's periodic payment
of benefits will be equal to either 50% or 100% of the previous periodic
amount, an election that, respectively, increases or decreases the
previous periodic amount so that the resulting payments will be the
actuarial equivalent of the Regular Benefit.
12
<PAGE>
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 57 Morgan Stanley Dean Witter Funds (not
including the Fund) for the year ended December 31, 1997, and the estimated
retirement benefits for the Fund's Independent Trustees, to commence upon their
retirement, from the 57 Morgan Stanley Dean Witter Funds as of December 31,
1997.
RETIREMENT BENEFITS FROM ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
ESTIMATED BENEFITS BENEFITS
CREDITED ACCRUED AS UPON
YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
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>
- ----------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until May 1, 1999.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION CONCERNING THE S&P 500 INDEX
As set forth above, the Fund's investment objective is to provide
investment results that, before expenses, correspond to the total return of the
S&P 500 Index.
The Fund is not sponsored, endorsed, sold or promoted by Standard &
Poor's. Standard & Poor's makes no representation or warranty, express or
implied, to the owners of shares of the Fund or any member of the public
regarding the advisability of investing in securities generally or in the Fund
particularly or the ability of the S&P 500 Index to track general stock market
performance. Standard & Poor's only relationship to the Fund is the licensing
of certain trademarks and trade names of Standard & Poor's and of the S&P 500
Index which is determined, composed and calculated by Standard & Poor's without
regard to the Fund. Standard & Poor's has no obligation to take the needs of
the Fund or the owners of shares of the Fund into consideration in determining,
composing or calculating the S&P 500 Index. Standard & Poor's is not
responsible for and has not participated in the determination of the prices and
amount of the Fund or the timing of the issuance of sale of shares of the Fund.
Standard & Poor's has no obligation or liability in connection with the
administration, marketing or trading of the Fund.
Standard & Poor's does not guarantee the accuracy and/or the completeness
of the S&P 500 Index or any data included therein and Standard & Poor's shall
have no liability for any errors, omissions, or interruptions therein. Standard
& Poor's makes no warranty, express or implied, as to results to be obtained by
the Fund, owners of shares of the Fund, or any other person or entity from the
use of the S&P 500 Index or any data included therein. Standard & Poor's makes
no express or implied warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
S&P 500 Index or any data included therein. Without limiting any of the
foregoing, in no
13
<PAGE>
event shall Standard & Poor's have any liability for any special, punitive,
indirect, or consequential damages (including lost profits), even if notified
of the possibility of such damages.
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 the collateral 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 of any such investment, which together
with any other illiquid assets held by the Fund, amounts to more than 15% of
its net assets.
STANDARD & POOR'S DEPOSITORY RECEIPTS ("SPDRS")
SPDRs are interests in a unit investment trust ("UIT") that may be
obtained from the UIT or purchased in the secondary market as SPDRs listed on
the American Stock Exchange.
The UIT will issue SPDRs in aggregations of 50,000 known as "Creation
Units" in exchange for a "Portfolio Deposit" consisting of (a) a portfolio of
securities substantially similar to the component securities ("Index
Securities") of the S&P 500 Index, (b) a cash payment equal to a pro rata
portion of the dividends accrued on the UIT's portfolio securities since the
last dividend payment by the UIT, net of expenses and liabilities, and (c) a
cash payment or credit ("Balancing Amount") designed to equalize the net asset
value of the S&P 500 Index and the net asset value of a Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the UIT.
To redeem, the Fund must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the Fund
will receive Index Securities and cash identical to the Portfolio Deposit
required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held by
the UIT. Accordingly, the level of risk involved in the purchase or sale of a
SPDR is similar to the risk involved in the purchase or sale of traditional
common stock, with the exception that the pricing mechanism for SPDRs is based
on a basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Fund could result in losses on SPDRs.
14
<PAGE>
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 more than
20% 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 loan 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.
Stock Index Futures Contracts. As discussed in the Prospectus, the Fund
may invest in stock index futures contracts. An index futures contract sale
creates an obligation by the Fund, as seller, to deliver cash at a specified
future time. An index futures contract purchase would create an obligation by
the Fund, as purchaser, to take delivery of cash at a specified future time.
Futures contracts on indexes do not require the physical delivery of
securities, but provide for a final cash settlement on the expiration date
which reflects accumulated profits and losses credited or debited to each
party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in the
form of variation margin payments. The Fund may be required to make additional
margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
Stock index futures contracts provide for the delivery of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value at the open or close of the last trading day of the contract and
the futures contract price. A futures contract sale is closed out by effecting
a futures contract purchase for the same aggregate amount of the specific type
of equity security and the same delivery date. If the sales price exceeds the
offsetting purchase price, the seller would be paid the difference and would
realize a gain. If the offsetting purchase price exceeds the sale price, the
seller would pay the difference and would realize a loss. Similarly, a futures
contract purchase is closed out by effecting a futures contract sale for the
same aggregate amount of the specific type of security and the
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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.
Limitations on Futures Contracts. The Fund may not enter into futures
contracts if, immediately thereafter, the amount committed to initial margin
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.
However, there is no overall limitation on the percentage of the Fund's assets
which may be subject to a hedge position. Except as described above and in the
Prospectus, there are no other limitations on the use of futures and options
thereon by the Fund.
Risks of Transactions in Futures Contracts. The Fund may sell a futures
contract to protect against the decline in the value of securities held by the
Fund. However, it is possible that the futures market may advance and the value
of securities held in the portfolio of the Fund may decline. If this occurred,
the Fund would lose money on the futures contract and also experience a decline
in value of its portfolio securities. However, while this could occur for a
very brief period or to a very small degree, over time the value of a
diversified portfolio will tend to move in the same direction as the futures
contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Investment Manager may determine not to invest in the
securities as planned and will realize a loss on the futures contract that is
not offset by a reduction in the price of the securities.
If the Fund maintains a short position in a futures contract, it will
cover this position by holding, in a segregated account maintained at its
Custodian, cash, U.S. Government securities or other liquid portfolio
securities equal in value (when added to any initial or variation margin on
deposit) to the market value of the securities 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 sock
index futures contract a portfolio of securities substantially replicating the
index).
In addition, if the Fund holds a long position in a futures contract, it
will hold cash, U.S. Government securities or other liquid portfolio securities
equal to the purchase price of the contract or the exercise price of the put
option (less the amount of initial or variation margin on deposit) in a
segregated account maintained for the Fund by its Custodian. Alternatively, the
Fund could cover its long position by purchasing a put option on the same
futures contract with an exercise price as high or higher than the price of the
contract held by the Fund.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition,
the Fund may be required to take or make delivery of the instruments underlying
interest rate futures contracts it holds at a time when it is disadvantageous
to do so. The inability to close out options and futures positions could also
have an adverse impact on the Fund's ability to effectively hedge its
portfolio.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Transactions are
entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Investment Manager.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of the
securities which are the subject of the contract. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the securities and futures markets could result.
Price distortions could also result if investors in
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<PAGE>
futures contracts opt to make or take delivery of underlying securities rather
than engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, due to the fact that, from the
point of view of speculators, the deposit requirements in the futures markets
are less onerous than margin requirements in the cash market, increased
participation by speculators in the futures market could cause temporary price
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the prices of
securities and movements in the prices of futures contracts, a correct forecast
of stock price or interest rate trends by the Investment Manager may still not
result in a successful hedging transaction.
There is no assurance that a liquid secondary market will exist for
futures contracts 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.
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. For
the period September 26, 1997 (commencement of operations) through August 31,
1998, the portfolio turnover rate was approximately 1.00%.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of Shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund. For purposes of the following restrictions: (i)
all percentage limitations apply immediately after a purchase or initial
investment; and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
The Fund may not:
1. Purchase or sell real estate or interests therein (including
limited partnership interests), although the Fund may purchase securities
of issuers which engage in real estate operations and securities secured
by real estate or interests therein.
2. Purchase or sell commodities or commodities contracts except that
the Fund may purchase or sell index futures contracts.
3. 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.
4. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).
5. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(6).
6. Issue senior securities as defined in the Act except insofar as
the Fund may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase agreement; (b)
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<PAGE>
purchasing or selling futures contracts or options; (c) borrowing
money in accordance with restrictions described above; (d) purchasing any
securities on a when-issued or delayed delivery basis; or (e) lending
portfolio securities.
7. Make loans of money or securities, except: (a) by the purchase of
debt obligations in which the Fund may invest consistent with its
investment objective and policies; (b) by investment in repurchase
agreements; or (c) by lending its portfolio securities.
8. Make short sales of securities.
9. 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 is not considered the purchase of a
security on margin.
10. Invest more than 15% of its total assets in "illiquid securities"
(securities for which market quotations are not readily available),
restricted securities and repurchase agreements which have a maturity of
longer than seven days.
11. 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.
12. Invest for the purpose of exercising control or management of any
other issuer, except that the Fund may invest all or substantially all of
its assets in another registered investment company having the same
investment objective and policies and substantially the same investment
restrictions as the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to the general supervision of the Board of Trustees, the
Investment Manager is responsible for decisions to buy and sell securities for
the Fund, the selection of brokers and dealers to effect the transactions, and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a stock exchange are effected through brokers who charge a
commission for their services. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their
own accounts without a stated commission, although the price of the security
usually includes a profit to the dealer. The Fund also expects that securities
will be purchased at times in underwritten offerings where the price includes a
fixed amount of compensation, generally referred to as the underwriter's
concession or discount. Futures transactions are usually effected through a
broker and a commission will be charged. On occasion, the Fund may also
purchase certain money market instruments directly from an issuer, in which
case no commissions or discounts are paid. During the period September 26, 1997
(commencement of operations) through August 31, 1998, the Fund paid a total of
$94,540 in brokerage commissions.
The Investment Manager currently serves as investment manager to a number
of clients, including other investment companies, and may in the future act as
investment manager or adviser to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, various
factors may be considered, including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts. In the case of certain
initial and secondary public offerings, the Investment Manager utilizes a
pro-rata allocation process based on the size of the Morgan Stanley Dean Witter
Funds involved and the number of shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid
in all circumstances. The Fund believes that a
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<PAGE>
requirement always to seek the lowest possible commission cost could impede
effective portfolio management and preclude the Fund and the Investment Manager
from obtaining a high quality of brokerage and research services. In seeking to
determine the reasonableness of brokerage commissions paid in any transaction,
the Investment Manager relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
In seeking to implement the Fund's policies, the Investment Manager
effects transactions with those brokers and dealers who the Investment Manager
believes provide the most favorable prices and are capable of providing
efficient executions. If the Investment Manager believes such prices and
executions are obtainable from more than one broker or dealer, it may give
consideration to placing portfolio transactions with those brokers and dealers
who also furnish research and other services to the Fund or the Investment
Manager. Such services may include, but are not limited to, any one or more of
the following: information as to the availability of securities for purchase or
sale; statistical or factual information or opinions pertaining to investments;
wire services; and appraisals or evaluations of portfolio securities. During
the fiscal period ended August 31, 1998, the Fund did not pay any brokerage
commissions because of research services provided.
The information and services received by the Investment Manager from
brokers and dealers may be of benefit to the Investment Manager in the
management of accounts of some of its other clients and may not in all cases
benefit the Fund directly. While the receipt of such information and services
is useful in varying degrees and would generally reduce the amount of research
or services otherwise performed by the Investment Manager and thereby reduce
its expenses, it is of indeterminable value and the management fee paid to the
Investment Manager is not reduced by any amount that may be attributable to the
value of such services.
During the fiscal period September 26, 1997 (commencement of operations)
through August 31, 1998 the Fund purchased common stock issued by The Bank of
New York, Merrill Lynch, Pierce, Fenner & Smith, Bancamerica Corp. and Chase
Manhattan Corp. At August 31, 1998, the Fund held common stock issued by The
Bank of New York, Merrill Lynch, Pierce, Fenner & Smith, Bancamerica Corp. and
Chase Manhattan Corp. with market values of $1,394,603, $1,751,376, $3,354,248
and $3,469,115, respectively. These issuers were among the ten brokers or the
ten dealers which executed transactions for or with the Fund in the largest
dollar amounts during the fiscal period ended August 31, 1998.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR, Morgan Stanley & Co. Incorporated ("MS & Co.") and
other affiliated brokers and dealers. In order for an affiliated broker or
dealer to effect any portfolio transactions for the Fund, the commissions, fees
or other remuneration received by the affiliated broker or dealer must be
reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time. This standard would allow the affiliated broker or dealer to
receive no more than the remuneration which would be expected to be received by
an unaffiliated broker in a commensurate arm's-length transaction. Furthermore,
the Board of Trustees of the Fund, including a majority of the Trustees who are
not "interested" persons of the Fund, as defined in the Act, have adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to an affiliated broker or dealer are consistent
with the foregoing standard. The Fund does not reduce the management fee it
pays to the Investment Manager by any amount of the brokerage commissions it
may pay to an affiliated broker or dealer. During the period September 26, 1997
(commencement of operations) through August 31, 1998, the Fund paid no
brokerage commissions to DWR. During the period September 26, 1997
(commencement of operations) through August 31, 1998, the Fund did not pay any
brokerage commissions to MS & Co.
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<PAGE>
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 selected dealer agreement with DWR, which
through its own sales organization sells shares of the Fund. In addition, the
Distributor may enter into selected dealer agreements with other selected
broker-dealers. The Distributor, a Delaware corporation, is a wholly-owned
subsidiary of MSDW. The Trustees of the Fund including a majority of the
Trustees who are not, and were not at the time they voted, interested persons
of the Fund, as defined in the Act ( the "Independent Trustees"), approved, at
their meeting held on July 22, 1998, a Distribution Agreement appointing the
Distributor as exclusive distributor of the Fund's shares and providing for the
Distributor to bear distribution expenses not borne by the Fund. By its terms,
the Distribution Agreement has an initial term ending April 30, 1998, and
provides that it will remain in effect from year to year thereafter if approved
by the Board. At their meeting held on April 30, 1998, the Trustees of the
Fund, including a majority of the Independent Trustees, approved the
continuation of the Distribution Agreement until April 30, 1999.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to Morgan
Stanley Dean Witter Financial Advisors and other selected broker-dealer
representatives. The Distributor also pays certain expenses in connection with
the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears the
costs of initial typesetting, printing and distribution of prospectuses and
supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal securities laws and pays
filing fees in accordance with state securities laws. The Fund and the
Distributor have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan") pursuant to which each Class, other than Class D, pays the
Distributor compensation accrued daily and payable monthly at the annual rate
of 0.25% of the average daily net assets of Class A and 1.0% of the average
daily net assets of each of Class B and Class C. 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 for the fiscal period
ended August 31, 1998 it and/or DWR received (a) approximately $17,842,
$689,099 and $24,054 in contingent deferred sales charges from Class A, Class B
and Class C, respectively, and (b) approximately $297,370 in front-end sales
charges from Class A, 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 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 majority vote of the Trustees, including all of
the Trustees who are not "interested persons" of the Fund (as defined in the
Act) and who had or have no direct or indirect financial interest in the
operation of the Plan (the "Independent 12b-1 Trustees"), cast in person at a
meeting
20
<PAGE>
called for the purpose of voting on the Plan, on July 23, 1997. 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 then sole shareholder of the Fund, approved the Plan on
July 28, 1997, whereupon the Plan went into effect.
Under the Plan and as required by Rule 12b-1, the Trustees will receive
and review promptly after the end of each fiscal quarter a written report
provided by the Distributor of the amounts expended by the Distributor under
the Plan and the purpose for which such expenditures were made. Class B shares
of the Fund accrued amounts payable to the Distributor under the Plan, during
the period September 26, 1997 (commencement of operations) through August 31,
1998, of $3,648,993. This amount is equal to 1.00% of the average daily net
assets of Class B for the fiscal period. This amount is treated by the Fund as
an expense in the year it is accrued. For the fiscal period September 26, 1997
(commencement of operations) through August 31, 1998, Class A and Class C
shares of the Fund accrued payments under the Plan amounting to $45,470 and
$258,271 which amounts are equal to 0.25% and 1.00% of the average daily net
assets of Class A and Class C, respectively, for the fiscal 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 of the respective
accounts for which they are the account executives of record in all cases. In
the case of Class B shares purchased by Qualified Retirement Plans for which
MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves as
recordkeeper pursuant to a written Recordkeeping Services Agreement, DWR
compensates its Financial Advisors by paying them, from its own funds, a gross
sales credit of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value of
the respective accounts for which they are the Financial Advisors of record.
With respect to Class D shares other than shares held by participants in
the MSDW Advisors mutual fund asset allocation program, the Investment Manager
compensates DWR's Financial Advisors by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of
up to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid
if the Class D shares are redeemed in the first year and a chargeback of 50% of
the amount paid if the Class D shares are redeemed in the second year after
purchase. The Investment Manager also compensates DWR's Financial Advisors by
paying them, from its own funds, an annual residual commission, currently a
residual of up to 0.10% of the current value of the respective accounts for
which they are the Financial Advisors of record (not including accounts of
participants in the MSDW Advisors mutual fund asset allocation program).
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<PAGE>
The gross sales credit is a charge which reflects commissions paid by DWR
to its MSDW 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 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 shares sales. Payments may also
be made with respect to distribution expenses incurred in connection with the
distribution of shares, including personal services to shareholders with
respect to holdings of such shares, of an investment company whose assets are
acquired by the Fund in a tax-free reorganization. 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 period September 26, 1997 (commencement of
operations) through August 31, 1998 to the Distributor. The Distributor and DWR
estimate that they have spent, pursuant to the Plan, $27,944,927 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) 5.13% ($1,433,421)--advertising
and promotional expenses; (ii) 0.61% ($171,332)--printing of prospectuses for
distribution to other than current shareholders; and (iii) 94.26%
($26,340,174)--other expenses, including the gross sales credit and the
carrying charge, of which 2.78% ($732,389) represents carrying charges, 39.76%
($10,473,584) represents commission credits to DWR branch offices for payments
of commissions to Financial Advisors and 57.46% ($15,134,201) represents
overhead and other branch office distribution-related expenses. The amounts
accrued by Class A and Class C for distribution during the fiscal period were
for expenses which relate to compensation of sales personnel and associated
overhead expenses.
22
<PAGE>
In the case of Class B shares, at any given time, the expenses in
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
The Distributor has advised the Fund that in the case of Class B shares the
excess distribution expenses including the carrying charge designed to
approximate the opportunity costs incurred by DWR which arise from it having
advanced monies without having received the amount of any sales charges imposed
at the time of sale of the Fund's Class B shares, totaled $23,605,509 as of
August 31, 1998. Because there is no requirement under the Plan that the
Distributor be reimbursed for all expenses for all 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, 1998 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 Trustees of the Fund, including a majority of the Independent
12b-1 Trustees, at a meeting of the Trustees held on April 30, 1998. Prior to
approving the continuation of the Plan, the Trustees requested and received
from the Distributor and reviewed all 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 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) or 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 12b-1 Trustees shall be
committed to the discretion of the Independent 12b-1 Trustees.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
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
23
<PAGE>
as they reach a remaining maturity of sixty days, whereupon they will be valued
at amortized cost using their value on the 61st day unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. All other securities and other assets are valued at their fair value
as determined in good faith under procedures established by and under the
supervision of the Trustees.
Generally, trading in foreign securities, as well as corporate bonds,
United States government securities and money market instruments, is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. The values of such securities used in computing the net
asset value of the Fund's shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of the
New York Stock Exchange. Occasionally, events which may affect the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the New York Stock Exchange and will
therefore not be reflected in the computation of the Fund's net asset value. If
events that may affect the value of such securities occur during such period,
then these securities may be valued at their fair value as determined in good
faith under procedures established by and under the supervision of the
Trustees.
The net asset value per share for each Class of shares of the Fund is
determined once daily at 4:00 p.m. New York time (or, on days when the New York
Stock Exchange closes prior to 4:00 p.m., at such earlier time), on each day
that the New York Stock Exchange is open. The New York Stock Exchange currently
observes the following holidays: New Year's Day, Reverend Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
Right of Accumulation. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, 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.
24
<PAGE>
A Letter of Intent permits an investor to establish a total investment
goal to be achieved by any number of purchases over a thirteen-month period.
Each purchase of Class A shares made during the period will receive the reduced
sales commission applicable to the amount represented by the goal, as if it
were a single purchase. A number of shares equal in value to 5% of the dollar
amount of the Letter of Intent will be held in escrow by the Transfer Agent, in
the name of the shareholder. The initial purchase under a Letter of Intent must
be equal to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level,
the sales charge on the entire amount of the purchase that results in passing
that level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation,"
but there will be no retroactive reduction of sales charges on previous
purchases. For the purpose of determining whether the investor is entitled to a
further reduced sales charge applicable to purchases at or above a sales charge
level which exceeds the stated goal of a Letter of Intent, the cumulative
current net asset value of any shares owned by the investor in any other Morgan
Stanley Dean Witter Funds held by the shareholder which were previously
purchased at a price including a front-end sales charge (including shares of
the Fund and other Morgan Stanley Dean Witter Funds acquired in exchange for
those shares, and including in each case shares acquired through reinvestment
of dividends and distributions) will be added to the cost or net asset value of
shares of the Fund owned by the investor. However, shares of "Exchange Funds"
(see "Shareholder Services--Exchange Privilege") and the purchase of shares of
other Morgan Stanley Dean Witter Funds will not be included in determining
whether the stated goal of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction.
The 5% escrow and minimum purchase requirements will be applicable to the new
stated goal. Investors electing to purchase shares of the Fund pursuant to a
Letter of Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to
a CDSC payable upon most redemptions within six years after purchase. As stated
in the Prospectus, a CDSC will be imposed on any 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
25
<PAGE>
Plans, three years) will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the investor's shares
purchased more than six (three) years prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in exchange for shares of Morgan Stanley Dean Witter front-end sales
charge funds, or for shares of other Morgan Stanley Dean Witter Funds for which
shares of front-end sales charge funds have been exchanged. A portion of the
amount redeemed which exceeds an amount which represents both such increase in
value and the value of shares purchased more than six years (or, in the case of
shares held by certain Qualified Retirement Plans, three years) prior to the
redemption and/or shares purchased through reinvestment of dividends or
distributions and/or shares acquired in the above-described exchanges will be
subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number
of years from the time of any payment for the purchase of shares, all payments
made during a month will be aggregated and deemed to have been made on the last
day of the month. The following table sets forth the rates of the CDSC
applicable to most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
<S> <C>
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 by Qualified Retirement Plans for which MSDW Trust serves as
Trustee or DWR's Retirement Plan Services serves as recordkeeper pursuant to a
written Recordkeeping Services Agreement:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
<S> <C>
First .................................................... 2.0%
Second ................................................... 2.0%
Third .................................................... 1.0%
Fourth and thereafter .................................... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
of purchase which are in excess of these amounts and which redemptions do not
qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC
of 1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
26
<PAGE>
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account
is opened for the investor on the books of the Fund and maintained by the
Transfer Agent. This is an open account in which shares owned by the investor
are credited by the Transfer Agent in lieu of issuance of a share certificate.
If a share certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares and may be
redeposited in the account at any time. There is no charge to the investor for
issuance of a certificate. Whenever a shareholder instituted transaction takes
place in the Shareholder Investment Account, the shareholder will be mailed a
confirmation of the transaction from the Fund or from DWR or other selected
broker-dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of the
Fund, unless the shareholder requests that they be paid in cash. Each purchase
of shares of the Fund is made upon the condition that the Transfer Agent is
thereby automatically appointed as agent of the investor to receive all
dividends and capital gains distributions on shares owned by the investor. Such
dividends and distributions will be paid, at the net asset value per share, in
shares of the applicable Class of the Fund (or in cash if the shareholder so
requests) as of the close of business on the record date. At any time an
investor may request the Transfer Agent, in writing, to have subsequent
dividends and/or capital gains distributions paid to him or her in cash rather
than shares. To assure sufficient time to process the change, such request
should be received by the Transfer Agent at least five business days prior to
the record date of the dividend or distribution. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payments will be made to DWR or other selected
broker-dealer, and will be forwarded to the shareholder, 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 DividendsSM. In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an open-end Morgan Stanley
Dean Witter Fund other than Morgan Stanley Dean Witter S&P 500 Index Fund or in
another Class of Morgan Stanley Dean Witter S&P 500 Index Fund. Such investment
will be made as described above for automatic investment in shares of the
applicable Class of the Fund, at the net asset value per share of the selected
Morgan Stanley Dean Witter Fund as of the close of business on the payment date
of the dividend or distribution and will begin to earn dividends, if any, in
the selected Morgan Stanley Dean Witter Fund the next business day. To
participate in the Targeted Dividends program, shareholders should contact
their Morgan Stanley Dean Witter Financial Advisor or other selected
broker-dealer representative or the Transfer Agent. Shareholders of the Fund
must be shareholders of the selected Class of the Morgan Stanley Dean Witter
Fund targeted to receive investments from dividends at the time they enter the
Targeted Dividends program. Investors should review the prospectus of the
targeted Morgan Stanley Dean Witter Fund before entering the program.
EasyInvestSM. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund. Shares purchased through EasyInvest will be added to the
shareholder's existing account at the net asset value calculated the same
business day the transfer of funds is effected (subject to any applicable sales
charges). Shares of the Morgan Stanley Dean Witter money market funds redeemed
in connection with EasyInvest are redeemed on the business day preceding the
transfer of funds. For further information or to subscribe to EasyInvest,
shareholders should contact their Morgan Stanley Dean Witter Financial Advisor
or other selected broker-dealer representative or the Transfer Agent.
Investment of Dividends or Distributions Received in Cash. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares of
the applicable Class at net asset value, without the imposition of a
27
<PAGE>
CDSC upon redemption, by returning the check or the proceeds to the Transfer
Agent within thirty days after the payment date. If the shareholder returns the
proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset
value per share next determined after receipt of the check or proceeds by the
Transfer Agent.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders whose
shares of Morgan Stanley Dean Witter Funds have an aggregate value of $10,000
or more. Shares of any Fund from which redemptions will be made pursuant to the
Plan must have a value of $1,000 or more (referred to as a "SWP Fund"). The
required share values are determined on the date the shareholder establishes
the Withdrawal Plan. The Withdrawal Plan provides for monthly, quarterly,
semi-annual or annual payments in any amount not less than $25, or in any whole
percentage of the value of the SWP Funds' shares, on an annualized basis. Any
applicable Contingent Deferred Sales Charge ("CDSC") will be imposed on shares
redeemed under the Withdrawal Plan (see "Purchase of Fund Shares"), except that
the CDSC, if any, will be waived on redemptions under the Withdrawal Plan of up
to 12% annually of the value of each SWP Fund account, based on the share
values next determined after the shareholder establishes the Withdrawal Plan.
Redemptions for which this CDSC waiver policy applies may be in amounts up to
1% per month, 3% per quarter, 6% semi-annually or 12% annually. Under this CDSC
waiver policy, amounts withdrawn each period will be paid by first redeeming
shares not subject to a CDSC because the shares were purchased by the
reinvestment of dividends or capital gains distributions, the CDSC period has
elapsed or some other waiver of the CDSC applies. If shares subject to a CDSC
must be redeemed, shares held for the longest period of time will be redeemed
first and continuing with shares held the next longest period of time until
shares held the shortest period of time are redeemed. 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, quarterly, semi-annual or annual
amount.
A shareholder may suspend or terminate participation in the Withdrawal
Plan at any time. A shareholder who has suspended participation may resume
payments under the Withdrawal Plan, without requiring a new determination of
the account value for the 12% CDSC waiver. The Withdrawal Plan may be
terminated or revised at any time by the Fund.
Prior to adding an additional SWP Fund to an existing Withdrawal Plan, the
required $10,000/$1,000 share values must be met, to be calculated on the date
the shareholder adds the additional SWP Fund. However, the addition of a new
SWP Fund will not change the account value for the 12% CDSC waiver for the SWP
Funds already participating in the Withdrawal Plan.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of
the relevant month, quarter, or semi-annual or annual period and normally a
check for the proceeds will be mailed by the Transfer Agent, or amounts
credited to a shareholder's Dean Witter Reynolds Inc. or other selected
broker-dealer brokerage account, or amounts deposited electronically into the
shareholder's bank account via the Automated Clearing House, within five
business days after the date of redemption.
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 a shareholder may make additional
investments while participating in the Withdrawal Plan, withdrawals made
concurrently with purchases of additional shares are inadvisable because of
sales charges applicable to purchases or redemptions of shares (see "Purchase
of Fund Shares" in the Prospectus).
28
<PAGE>
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her Morgan Stanley Dean Witter Financial Advisor or other selected
broker-dealer representative or by written notification to the Transfer Agent.
In addition, the party and/or the address to which checks are mailed may be
changed by written notification to the Transfer Agent, with signature
guarantees required in the manner described above. The shareholder may also
terminate the Withdrawal Plan at any time by written notice to the Transfer
Agent. In the event of such termination, the account will be continued as a
regular Shareholder Investment Account. The shareholder may also redeem all or
part of the shares held in the Withdrawal Plan account (see "Redemptions and
Repurchases" in the Prospectus) at any time.
Direct Investments through Transfer Agent. As discussed in the Prospectus,
shareholders may make additional investments in any Class of shares of the Fund
for which they qualify at any time by sending a check in any amount, not less
than $100, payable to Morgan Stanley Dean Witter S&P 500 Index Fund, and
indicating the selected Class, directly to the Fund's Transfer Agent. In the
case of Class A shares, after deduction of any applicable sales charge, the
balance will be applied to the purchase of Fund shares, and, in the case of
shares of the other Classes, the entire amount will be applied to the purchase
of Fund shares, at the net asset value per share next computed after receipt of
the check or purchase payment by the Transfer Agent. The shares so purchased
will be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of each Class of shares
of the Fund may exchange their shares for shares of the same Class of shares of
any other Morgan Stanley Dean Witter Multi-Class Fund without the imposition of
any exchange fee. Shares may also be exchanged for share 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"). 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 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
29
<PAGE>
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.
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
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 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. In the case of exchanges of Class A shares which are subject to a CDSC,
the holding period also includes the time (calculated as described above) the
shareholder was invested in a FSC Fund.
When shares initially purchased in a Morgan Stanley Dean Witter
Multi-Class Fund are exchanged for shares of a Morgan Stanley Dean Witter
Multi-Class Fund, 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,
30
<PAGE>
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,
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 of as low as $5,000.
The minimum initial investment for the Exchange Privilege account of each Class
is $5,000 for Morgan Stanley Dean Witter Special Value Fund. The minimum
initial investment for the Exchange Privilege account of each Class 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.
31
<PAGE>
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC. If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption. The share certificate, or
an accompanying stock power, and the request for redemption, must be signed by
the shareholder or shareholders exactly as the shares are registered. Each
request for redemption, whether or not accompanied by a share certificate, must
be sent to the Fund's Transfer Agent, which will redeem the shares at their net
asset value next computed (see "Purchase of Fund Shares") 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 Transfer Agent. If redemption is requested by a
corporation, partnership, trust or fiduciary, the Transfer Agent may require
that written evidence of authority acceptable to the Transfer Agent be
submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other
than the Distributor or a selected broker-dealer for the account of the
shareholder), partnership, trust or fiduciary, or sent to the shareholder at an
address other than the registered address, signatures must be guaranteed by an
eligible guarantor acceptable to the Transfer Agent (shareholders should
contact the Transfer Agent for a determination as to whether a particular
institution is such an eligible guarantor). A stock power may be obtained from
any dealer or commercial bank. The Fund may change the signature guarantee
requirements from time to time upon notice to shareholders, which may be by
means of a supplement to the prospectus.
Repurchase. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by
DWR and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares of any Class presented for repurchase or
redemption will be made by check within seven days after receipt by the
Transfer Agent of the certificate and/or written request in good order. Such
payment may be postponed or the right of redemption suspended at times (a) when
the New York Stock Exchange is closed for other than customary weekends and
holidays, (b) when trading on that Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or (d) during any other
period when the Securities and Exchange Commission by order so permits;
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist. If the shares to be redeemed have recently been purchased by check,
payment of the redemption proceeds may be delayed for the minimum time needed
to verify that the check used for investment has been honored (not more than
fifteen days from the time of receipt of the check by the Transfer Agent). It
has been and remains the Fund's policy and practice that, if checks for
redemption proceeds remain uncashed, no interest will accrue on amounts
represented by such uncashed checks. Shareholders maintaining margin accounts
with DWR or another selected broker-dealer are referred to their Morgan Stanley
Dean Witter Financial Advisor or other selected broker-dealer representative
regarding restrictions on redemption of shares of the Fund pledged in the
margin account.
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
32
<PAGE>
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus under "Dividends, Distributions and Taxes,"
the Fund will determine either to distribute or to retain all or part of any
net long-term capital gains in any year for reinvestment. If any such gains are
retained, the Fund will pay federal income tax thereon, and shareholders at
year-end will be able to claim their share of the tax paid by the Fund as a
credit against their individual federal income tax. Shareholders will increase
their tax basis of Fund shares owned by an amount equal, under current law, to
65% of the amount of undistributed capital gains.
Because the Fund intends to distribute substantially all of its net
investment income and net 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. 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 income taxes, on the dividends and
distributions they receive from the Fund. Such dividends and distributions, to
the extent that they are derived from the net investment income or net
short-term capital gains, are taxable to the shareholder as ordinary income
regardless of whether the shareholder receives such payments in additional
shares or in cash. Any dividends declared in the last quarter of any calendar
year which are paid in the following year prior to February 1 will be deemed
received by the shareholder in the prior calendar year. 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.
Gains or losses on sales of securities by the Fund will be long-term
capital gains or losses if the securities have a tax holding period of more
than twelve months. Gains or losses on the sale of securities with a tax
holding period of twelve months or less will be short-term capital gains or
losses. The Taxpayer Relief Act reduced the maximum tax 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
33
<PAGE>
for the lower capital gain rate to more than twelve months for transactions
occuring 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 5 years and that are acquired after December 31,
2000 is 18%.
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 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. Gains or losses on the Fund's
transactions in certain listed options on securities and on futures and options
on futures generally are treated as 60% long-term gain or loss and 40%
short-term gain or loss. When the Fund engages in options and futures
transactions, various tax regulations applicable to the Fund may have the
effect of causing the Fund to recognize a gain or loss for tax purposes before
that gain or loss is realized, or to defer recognition of a realized loss for
tax purposes. Recognition, for tax purposes, of an unrealized loss may result
in a lesser amount of the Fund's realized net gains being available for
distribution.
Under current federal tax law, the Fund will receive net investment income
in the form of interest by virtue of holding Treasury bills, notes and bonds,
and will recognize income attributable to it from holding zero coupon Treasury
securities. Current federal tax law requires that a holder (such as the Fund)
of a zero coupon security accrue a portion of the discount at which the
security was purchased as income each year even though the Fund receives no
interest payment in cash on the security during the year. As an investment
company, the Fund must pay out substantially all of its net investment income
each year. Accordingly, the Fund, to the extent it invests in zero coupon
Treasury securities, may be required to pay out as an income distribution each
year an amount which is greater than the total amount of cash receipts of
interest the Fund actually received. Such distributions will be made from the
available cash of the Fund or by liquidation of portfolio securities if
necessary. If a distribution of cash necessitates the liquidation of portfolio
securities, the Investment Manager will select which securities to sell. The
Fund may realize a gain or loss from such sales. In the event the Fund realizes
net capital gains from such transactions, its shareholders may receive a larger
capital gain distribution, if any, than they would in the absence of such
transactions.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and some
portion of the dividends are subject to federal income taxes. If the net asset
value of the shares should be reduced below a shareholder's cost as a result of
the payment of dividends or the distribution of realized long-term capital
gains, such payment or distribution would be in part a return of capital but
nonetheless would be taxable to the shareholder. Therefore, an investor should
consider the tax implications of purchasing Fund shares immediately prior to a
distribution record date.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital
loss to the extent of any distributions of net long-term capital gains during
the six-month period.
Shareholders are urged to consult their attorneys or tax advisors
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
34
<PAGE>
will result in the ending redeemable value of a hypothetical $1,000 investment
made at the beginning of a one, five or ten year period, or for the period from
the date of commencement of the Fund's operations, if shorter than any of the
foregoing.
For 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 Class for specified periods by determining the aggregate
percentage rate which will result in the ending value of a hypothetical $1,000
investment made at the beginning of the period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing aggregate total return involves a percentage obtained
by dividing the ending value 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 September 26, 1997 (commencement of operations) through August 31, 1998
were --3.31%, --3.62%, 0.37% and 2.30% for Class A, Class B, Class C and Class
D, respectively. During this period the Investment Manager assumed certain
expenses of the Fund. Had the Fund borne these expenses for the stated period,
the total returns for Class A, Class B, Class C and Class D of the Fund would
have been --3.40%, --3.72%, 0.27% and 2.20%, 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 quotes. For example, the total return
of the Fund may be calculated in the manner described above, but without
deduction of any applicable sales charge. Based on this calculation, the total
returns for each Class for the period September 26, 1997 (commencement of
operations) through August 31, 1998 were 2.05%, 1.38%, 1.37% and 2.30% for
Class A, Class B, Class C and Class D, 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 each Class at inception of the Class would have grown
(or declined) to the following amounts at 1998:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION ----------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ----- ----- ------- ------- --------
<S> <C> <C> <C> <C>
Class A .................... 9/26/97 $9,669 $48,984 $98,989
Class B .................... 9/26/97 10,138 50,690 101,380
Class C .................... 9/26/97 10,137 50,685 101,370
Class D .................... 9/26/97 10,230 51,150 102,300
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
SHARES OF THE FUND
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share of beneficial interest held. The Fund is authorized to issue an unlimited
number of shares of beneficial interest. The Trustees themselves have the power
to alter the number and the terms of office of the Trustees (as provided for in
the Declaration of Trust), and they may at any time lengthen or shorten their
own terms or make their terms of unlimited duration and appoint their own
successors, provided that always at least a majority of the Trustees has been
elected by the shareholders of the Fund. Under certain circumstances the
Trustees may be removed by action of the Trustees. The shareholders also have
the right under certain circumstances to remove the Trustees. The voting rights
of shareholders are not cumulative, so that holders of more than 50 percent of
the shares voting can, if they choose, elect all Trustees being selected, while
the holders of the remaining shares would be unable to elect any Trustees.
35
<PAGE>
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series. The Trustees have not presently authorized any such
additional series or classes of shares other than as set forth in the
Prospectus.
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor is
any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise
from his/her or its own bad faith, willful misfeasance, gross negligence or
reckless disregard of his/her or its duties. It also provides that all third
persons shall look solely to the Fund property for satisfaction of claims
arising in connection with the affairs of the Fund. With the exceptions stated,
the Declaration of Trust provides that a Trustee, officer, employee or agent is
entitled to be indemnified against all liability in connection with the affairs
of the Fund.
The Fund is authorized to issue an unlimited number of shares of
beneficial interest. The Fund shall be of unlimited duration subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or the Trustees.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, NY 10286, is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), Harborside Financial
Center, Plaza Two, Jersey City, New Jersey 07311 is the Transfer Agent of the
Fund's shares and Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various
investment plans described herein. MSDW Trust is an affiliate of Morgan Stanley
Dean Witter Advisors Inc., the Fund's Investment Manager, and Morgan Stanley
Dean Witter Distributors Inc., the Fund's Distributor. As Transfer Agent and
Dividend Disbursing Agent, MSDW Trust's responsibilities include maintaining
shareholder accounts, disbursing cash dividends and reinvesting dividends,
processing account registration changes, handling purchase and redemption
transactions, mailing prospectuses and reports, mailing and tabulating proxies,
processing share certificate transactions, and maintaining shareholder records
and lists. For these services MSDW Trust receives a per shareholder account fee
from the Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP serves as the independent accountants of the
Fund. The independent accountants are responsible for auditing the annual
financial statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports
showing the Fund's portfolio and other information. An annual report,
containing financial statements audited by independent account- ants, will be
sent to shareholders each year.
The Fund's fiscal year ends on August 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.
36
<PAGE>
EXPERTS
- --------------------------------------------------------------------------------
The Financial Statements of the Fund for the period ended August 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.
37
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (94.6%)
Accident & Health
Insurance (0.2%)
10,378 Provident Companies, Inc. ... $ 373,608
10,758 Torchmark Corp. ............. 384,598
10,605 UNUM Corp. .................. 466,620
------------
1,224,826
------------
Advertising (0.2%)
9,539 Interpublic Group of
Companies, Inc. ............ 543,723
13,056 Omnicom Group, Inc. ......... 621,792
------------
1,165,515
------------
Aerospace (0.9%)
77,489 Boeing Co. .................. 2,397,316
14,996 Lockheed Martin Corp. ....... 1,311,213
5,191 Northrop Grumman Corp. ...... 328,980
17,602 United Technologies Corp. ... 1,277,245
------------
5,314,754
------------
Air Freight/Delivery
Services (0.1%)
11,284 FDX Corp.*................... 564,905
------------
Airlines (0.4%)
13,985 AMR Corp.*................... 762,183
5,809 Delta Air Lines, Inc. ....... 592,518
25,673 Southwest Airlines Co. ...... 457,291
7,737 US Airways Group Inc.*....... 450,680
------------
2,262,672
------------
Alcoholic Beverages (0.5%)
37,268 Anheuser-Busch Companies,
Inc. ....................... 1,718,986
5,279 Brown-Forman Corp. (Class B). 316,740
2,781 Coors (Adolph) Co. (Class B). 114,369
13,265 Fortune Brands, Inc. ........ 365,617
26,559 Seagram Co. Ltd. (Canada).... 820,009
------------
3,335,721
------------
Aluminum (0.2%)
17,444 Alcan Aluminium Ltd. (Canada) 331,436
14,322 Aluminum Co. of America...... 857,530
5,522 Reynolds Metals Co. ......... 264,711
------------
1,453,677
------------
Apparel (0.1%)
5,517 Fruit of the Loom, Inc.
(Class A)*.................. 123,788
5,065 Liz Claiborne, Inc. ......... 144,352
2,786 Russell Corp. ............... 88,107
9,332 VF Corp. .................... 353,449
------------
709,696
------------
Auto Parts - Original
Equipment (0.2%)
12,646 Dana Corp. .................. 495,565
5,476 Eaton Corp. ................. 320,688
6,490 Johnson Controls, Inc. ...... 277,853
9,406 TRW, Inc. ................... 403,282
------------
1,497,388
------------
Automotive Aftermarket (0.2%)
6,041 Cooper Tire & Rubber Co. .... 96,656
13,727 Genuine Parts Co. ........... 429,827
12,059 Goodyear Tire & Rubber Co. .. 590,891
------------
1,117,374
------------
Banks - Commercial (0.1%)
16,378 Regions Financial Corp. ..... 562,994
------------
Banks - North East (0.1%)
13,615 Summit Bancorp. ............. 464,612
------------
Biotechnology (0.2%)
6,629 ALZA Corp. (Class A)*........ 238,644
19,486 Amgen Inc.*.................. 1,188,646
------------
1,427,290
------------
Books/Magazine (0.1%)
5,434 Harcourt General, Inc. ...... 263,889
4,049 Meredith Corp. .............. 135,895
------------
399,784
------------
Broadcasting (0.7%)
55,076 CBS Corp. ................... 1,431,976
19,015 Clear Channel Communications,
Inc.*....................... 855,675
46,699 MediaOne Group Inc.*......... 1,914,659
------------
4,202,310
------------
Building Materials (0.0%)
4,139 Owens Corning................ 145,124
------------
Building Materials Chains (0.9%)
112,707 Home Depot, Inc. ............ 4,339,219
26,827 Lowe's Companies, Inc. ...... 940,622
------------
5,279,841
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C> <C>
Building Products (0.2%)
3,070 Armstrong World Industries
Inc. ....................... $ 147,360
7,041 Georgia-Pacific Corp. ....... 301,883
26,074 Masco Corp. ................. 599,702
------------
1,048,945
------------
Cable Television (0.4%)
28,283 Comcast Corp. (Class A
Special).................... 1,072,986
38,899 Tele-Communications, Inc.
(Class A)*.................. 1,283,667
------------
2,356,653
------------
Casino/Gambling (0.1%)
7,754 Harrah's Entertainment,
Inc.*....................... 111,948
18,928 Hilton Hotels Corp. ......... 392,756
13,769 Mirage Resorts, Inc.*........ 204,814
------------
709,518
------------
Cellular Telephone (0.5%)
43,902 AirTouch Communications,
Inc.*....................... 2,469,487
20,958 Nextel Communications, Inc.
(Class A)*.................. 377,244
------------
2,846,731
------------
Clothing/Shoe/Accessory
Chains (0.5%)
30,152 Gap, Inc. (The).............. 1,539,636
17,410 Limited (The), Inc. ......... 363,434
11,697 Nordstrom, Inc. ............. 350,179
24,496 TJX Companies, Inc. ......... 546,567
10,349 Venator Group, Inc.*......... 93,788
------------
2,893,604
------------
Computer Software (3.5%)
5,110 Adobe Systems, Inc. ......... 134,137
3,586 Autodesk, Inc. .............. 83,823
41,879 Computer Associates
International, Inc. ........ 1,130,733
188,981 Microsoft Corp. ............. 18,130,365
26,967 Novell, Inc.*................ 256,186
74,660 Oracle Corp.*................ 1,488,534
20,750 Parametric Technology
Corp.*...................... 212,687
------------
21,436,465
------------
Computer/Video Chains (0.1%)
7,573 Circuit City Stores, Inc. ... 233,816
7,767 Tandy Corp. ................. 423,787
------------
657,603
------------
Computers Communications (1.2%)
27,274 3Com Corp.*.................. 646,053
14,790 Ascend Communications, Inc.*. 519,499
12,134 Cabletron Systems, Inc.*..... 84,938
78,457 Cisco Systems, Inc.*......... 6,423,667
------------
7,674,157
------------
Construction/Ag Equip
/Trucks (0.4%)
5,465 Case Corp. .................. 147,555
28,117 Caterpillar, Inc. ........... 1,186,186
2,556 Cummins Engine Co., Inc. .... 103,997
19,025 Deere & Co. ................. 626,636
626 NACCO Industries, Inc.
(Class A)................... 59,626
5,292 Navistar International
Corp.*...................... 111,132
5,991 PACCAR, Inc. ................ 244,882
------------
2,480,014
------------
Consumer Electric
/Appliances (0.1%)
7,215 Maytag Corp. ................ 311,147
5,794 Whirlpool Corp. ............. 287,527
------------
598,674
------------
Consumer Specialities (0.0%)
2,838 Jostens, Inc. ............... 56,405
------------
Consumer Sundries (0.0%)
5,583 American Greetings Corp.
(Class A)................... 204,477
------------
Containers/Packaging (0.2%)
2,329 Ball Corp. .................. 87,046
4,093 Bemis Company, Inc. ......... 146,836
9,543 Crown Cork & Seal Co., Inc. . 312,533
11,831 Owens-Illinois, Inc.*........ 368,979
6,405 Sealed Air Corp.*............ 230,580
8,031 Stone Container Corp. ....... 83,824
4,299 Temple-Inland, Inc. ......... 192,649
------------
1,422,447
------------
Contract Drilling (0.0%)
3,857 Helmerich & Payne, Inc. ..... 62,676
6,663 Rowan Companies, Inc.*....... 61,633
------------
124,309
------------
Crude Products (0.1%)
7,562 Apache Corp. ................ 172,981
28,172 Occidental Petroleum Corp. .. 521,182
------------
694,163
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C> <C>
Department Stores (0.8%)
8,256 Dillard's, Inc. (Class A).... $ 238,392
16,152 Federated Department
Stores, Inc.*............... 703,621
12,110 Kohl's Corp.*................ 550,248
17,706 May Department Stores Co. ... 995,962
19,251 Penney (J.C.) Co., Inc. ..... 954,128
29,992 Sears, Roebuck & Co. ........ 1,362,761
------------
4,805,112
------------
Discount Chains (2.1%)
8,262 Consolidated Stores Corp.*... 260,253
16,540 Costco Companies, Inc.*...... 778,414
33,524 Dayton Hudson Corp. ......... 1,206,864
11,040 Dollar General Corp. ........ 296,700
37,421 Kmart Corp.*................. 477,118
172,248 Wal-Mart Stores, Inc.**...... 10,119,570
------------
13,138,919
------------
Diversified Electronic Products (0.1%)
6,135 Harris Corp. ................ 195,553
15,072 Rockwell International Corp.. 546,360
------------
741,913
------------
Diversified Financial
Services (1.2%)
35,367 American Express Co. ........ 2,758,626
7,292 Providian Financial Corp. ... 468,055
4,827 Transamerica Corp. .......... 495,069
88,203 Travelers Group, Inc. ....... 3,914,008
------------
7,635,758
------------
Diversified Manufacturing (4.6%)
15,080 Allegheny Teledyne Inc. ..... 227,142
43,357 AlliedSignal, Inc. .......... 1,487,687
9,259 Cooper Industries, Inc. ..... 394,086
17,102 Dover Corp. ................. 466,029
13,459 Dresser Industries, Inc. .... 344,046
2,660 FMC Corp.*................... 137,655
249,873 General Electric Co.**....... 19,989,840
9,674 Honeywell, Inc. ............. 604,625
9,083 ITT Industries, Inc. ........ 273,625
31,025 Minnesota Mining &
Manufacturing Co. .......... 2,125,212
12,220 Thermo Electron Corp.*....... 198,575
44,720 Tyco International Ltd. ..... 2,481,960
------------
28,730,482
------------
Drug Store Chain (0.5%)
29,479 CVS Corp. ................... 1,072,299
2,962 Longs Drug Stores Corp. ..... 101,078
19,774 Rite Aid Corp. .............. 715,572
38,092 Walgreen Co. ................ 1,466,542
------------
3,355,491
------------
E.D.P. Peripherals (0.3%)
38,169 EMC Corp.*................... 1,724,762
18,641 Seagate Technology, Inc.*.... 326,217
------------
2,050,979
------------
E.D.P. Services (0.7%)
23,087 Automatic Data Processing,
Inc. ....................... 1,471,796
5,570 Ceridian Corp.*.............. 270,145
11,957 Computer Sciences Corp.*..... 676,318
37,695 Electronic Data Systems
Corp. ...................... 1,262,782
34,243 First Data Corp. ............ 708,402
------------
4,389,443
------------
Electric Utilities:
Central (0.5%)
14,605 American Electric Power Co. . 660,876
12,099 CINergy Corp. ............... 420,440
11,127 DTE Energy Co. .............. 468,725
17,687 FirstEnergy Corp. ........... 510,712
11,561 Northern States Power Co. ... 306,366
16,635 Unicom Corp. ................ 592,622
------------
2,959,741
------------
Electric Utilities: East (0.5%)
11,341 Baltimore Gas & Electric Co.. 349,445
18,060 Consolidated Edison, Inc. ... 854,464
9,808 GPU, Inc. ................... 368,413
14,366 Niagara Mohawk Power Corp.*.. 222,673
17,069 PECO Energy Co. ............. 584,613
12,852 PP&L Resources, Inc. ........ 302,825
17,790 Public Service Enterprise
Group, Inc. ................ 651,559
------------
3,333,992
------------
Electric Utilities: South (1.3%)
11,607 Carolina Power & Light Co. .. 499,826
16,282 Central & South West Corp. .. 25,367
15,004 Dominion Resources, Inc. .... 625,479
27,642 Duke Power Co. .............. 1,724,170
18,897 Entergy Corp. ............... 544,470
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C> <C>
13,919 FPL Group, Inc. ............. $ 926,483
22,679 Houston Industries, Inc. .... 653,439
53,486 Southern Co. ................ 1,504,294
21,436 Texas Utilities Co. ......... 911,030
------------
7,814,558
------------
Electric Utilities: West (0.4%)
27,780 Edison International......... 789,994
22,797 PacifiCorp................... 514,357
29,257 PG & E Corp. ................ 939,881
------------
2,244,232
------------
Electrical Products (0.4%)
33,954 Emerson Electric Co. ........ 1,935,378
6,429 Raychem Corp. ............... 186,441
4,238 Thomas & Betts Corp. ........ 144,357
------------
2,266,176
------------
Electronic Components (0.1%)
16,828 AMP, Inc. ................... 600,549
------------
Electronic Data Processing (3.7%)
10,204 Apple Computer, Inc.*........ 318,237
126,755 COMPAQ Computer Corp. ....... 3,541,218
3,768 Data General Corp.*.......... 28,260
49,392 Dell Computer Corp.*......... 4,936,113
11,934 Gateway 2000, Inc.*.......... 564,627
79,443 Hewlett-Packard Co. ......... 3,857,951
72,316 International Business
Machines Corp. ............. 8,144,589
14,480 Silicon Graphics, Inc.*...... 131,225
29,052 Sun Microsystems, Inc.*...... 1,147,554
19,281 Unisys Corp.*................ 345,853
------------
23,015,627
------------
Electronic Production
Equipment (0.1%)
28,091 Applied Materials, Inc.*..... 689,985
6,663 KLA-Tencor Corp.*............ 141,589
------------
831,574
------------
Engineering & Construction (0.0%)
6,294 Fluor Corp. ................. 249,006
3,124 Foster Wheeler Corp. ........ 38,464
------------
287,470
------------
Environmental Services (0.4%)
14,124 Browning-Ferris
Industries, Inc. ........... 459,030
43,328 Waste Management, Inc.*...... 1,911,848
------------
2,370,878
------------
Farming/Seeds/Milling (0.2%)
45,946 Archer-Daniels-Midland Co. .. 689,188
18,732 Pioneer Hi-Bred
International, Inc. ........ 632,205
------------
1,321,393
------------
Finance Companies (1.9%)
26,576 Associates First Capital
Corp. (Class A)............. 1,571,306
5,029 Capital One Financial Corp. . 440,037
8,325 Countrywide Credit
Industries, Inc. ........... 311,667
79,524 Fannie Mae................... 4,517,957
52,046 Freddie Mac.................. 2,055,817
37,560 Household International,
Inc. ....................... 1,387,372
38,438 MBNA Corp. .................. 903,293
13,039 SLM Holding Corp. ........... 467,774
------------
11,655,223
------------
Financial Publishing
/Services (0.3%)
7,144 Dow Jones & Co., Inc. ....... 355,860
13,166 Dun & Bradstreet Corp. ...... 309,401
11,342 Equifax, Inc. ............... 404,059
7,631 McGraw-Hill, Inc. ........... 581,864
------------
1,651,184
------------
Fluid Controls (0.1%)
8,480 Parker-Hannifin Corp. ....... 245,920
------------
Food Chains (0.6%)
18,853 Albertson's, Inc. ........... 953,255
20,962 American Stores Co. ......... 607,898
11,731 Fred Meyer, Inc.*............ 461,175
2,933 Great Atlantic & Pacific Tea
Co., Inc. .................. 69,842
19,638 Kroger Co.*.................. 883,710
11,392 Winn-Dixie Stores, Inc. ..... 424,352
------------
3,400,232
------------
Food Distributors (0.1%)
9,220 Supervalu, Inc. ............. 187,281
25,891 Sysco Corp. ................. 522,675
------------
709,956
------------
Forest Products (0.1%)
8,423 Louisiana-Pacific Corp. ..... 158,984
15,261 Weyerhaeuser Co. ............ 573,241
------------
732,225
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C> <C>
Health Care Diversified (0.0%)
4,361 Alberto-Culver Co. (Class B). $ 87,220
------------
Home Building (0.1%)
4,562 Centex Corp. ................ 161,381
2,806 Fleetwood Enterprises,
Inc. ....................... 93,826
3,008 Kaufman & Broad Home Corp. .. 64,296
3,270 Pulte Corp. ................. 94,421
------------
413,924
------------
Home Furnishings (0.2%)
12,220 Newell Co. .................. 583,505
11,490 Rubbermaid, Inc. ............ 292,277
4,783 Tupperware Corp. ............ 90,279
------------
966,061
------------
Hospital/Nursing
Management (0.3%)
49,355 Columbia/HCA Healthcare Corp. ,113,572
4,883 Manor Care, Inc. ............ 117,192
23,642 Tenet Healthcare Corp.*...... 610,259
------------
1,841,023
------------
Hotels/Resorts (0.1%)
19,593 Marriott International, Inc. 549,829
------------
Industrial Machinery
/Components (0.3%)
3,031 Cincinnati Milacron, Inc. ... 58,726
3,346 General Signal Corp. ........ 122,965
3,666 Harnischfeger Industries,
Inc. ....................... 58,885
19,166 Illinois Tool Works Inc. .... 928,353
12,694 Ingersoll-Rand Co. .......... 504,586
------------
1,673,515
------------
Industrial Specialties (0.2%)
17,799 Corning, Inc. ............... 438,300
9,875 Ecolab, Inc. ................ 274,648
3,360 Millipore Corp. ............. 72,870
9,517 Pall Corp. .................. 195,098
------------
980,916
------------
Insurance Brokers/Services (0.3%)
12,935 AON Corp. ................... 809,246
19,683 Marsh & McLennan Companies,
Inc. ....................... 954,625
------------
1,763,871
------------
Integrated Oil Companies (5.8%)
7,009 Amerada Hess Corp. .......... 344,317
73,599 Amoco Corp. ................. 3,334,955
24,610 Atlantic Richfield Co. ...... 1,427,380
50,162 Chevron Corp. ............... 3,715,123
187,656 Exxon Corp.**................ 12,279,739
3,661 Kerr-McGee Corp. ............ 141,406
59,928 Mobil Corp. ................. 4,142,523
3,657 Pennzoil Co. ................ 130,738
20,022 Phillips Petroleum Co. ...... 817,148
164,455 Royal Dutch Petroleum Co.
(ADR) (Netherlands)......... 6,537,086
41,501 Texaco, Inc. ................ 2,305,899
18,512 Unocal Corp. ................ 579,657
------------
35,755,971
------------
Investment Bankers/Brokers/
Services (0.9%)
8,724 Bear Stearns Companies, Inc.. 322,243
9,091 Lehman Brothers Holdings,
Inc. ....................... 357,958
26,536 Merrill Lynch & Co., Inc. ... 1,751,376
46,017 Morgan Stanley Dean Witter &
Co. (Note 4)................ 2,671,862
20,471 Schwab (Charles) Corp. ...... 611,571
------------
5,715,010
------------
Investment Managers (0.1%)
19,401 Franklin Resources, Inc. .... 625,682
------------
Life Insurance (0.5%)
19,456 American General Corp. ...... 1,250,048
23,759 Conseco, Inc. ............... 656,342
8,159 Jefferson-Pilot Corp. ....... 463,023
14,986 SunAmerica Inc. ............. 928,195
------------
3,297,608
------------
Major Banks (6.8%)
53,824 Banc One Corp. .............. 2,045,312
57,658 Bank of New York Co., Inc. .. 1,394,603
52,359 BankAmerica Corp. ........... 3,354,248
22,526 BankBoston Corp. ............ 803,897
7,515 Bankers Trust New York Corp.. 558,458
21,658 BB&T Corp. .................. 610,485
65,455 Chase Manhattan Corp. ....... 3,469,115
34,629 Citicorp..................... 3,744,261
12,012 Comerica, Inc. .............. 627,627
22,025 First Chicago NBD Corp. ..... 1,395,834
74,320 First Union Corp. ........... 3,604,520
21,794 Fleet Financial Group, Inc. . 1,428,869
16,226 Huntington Bancshares, Inc. . 369,141
33,751 KeyCorp...................... 860,650
19,957 Mellon Bank Corp. ........... 1,037,764
13,684 Morgan (J.P.) & Co., Inc. ... 1,272,612
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C> <C>
25,172 National City Corp. ......... $ 1,478,855
73,465 NationsBank Corp. ........... 4,187,505
58,041 Norwest Corp. ............... 1,726,720
23,070 PNC Bank Corp. .............. 992,010
8,284 Republic New York Corp. ..... 341,715
12,365 State Street Corp. .......... 643,753
16,191 SunTrust Banks, Inc. ........ 906,696
56,977 U.S. Bancorp................. 1,944,340
15,809 Wachovia Corp. .............. 1,158,997
6,545 Wells Fargo & Co. ........... 1,844,872
------------
41,802,859
------------
Major Chemicals (1.6%)
17,265 Dow Chemical Co. ............ 1,346,670
86,550 Du Pont (E.I.) de Nemours
& Co., Inc. ................ 4,992,853
6,068 Eastman Chemical Co. ........ 312,881
7,278 Hercules, Inc. .............. 186,044
45,935 Monsanto Co. ................ 2,512,070
4,653 Rohm & Haas Co. ............. 401,612
10,445 Union Carbide Corp. ......... 419,758
------------
10,171,888
------------
Major Pharmaceuticals (9.9%)
118,385 Abbott Laboratories.......... 4,557,823
100,670 American Home Products
Corp. ...................... 5,046,084
21,554 Baxter International, Inc. .. 1,147,751
76,334 Bristol-Myers Squibb Co. .... 7,471,190
103,129 Johnson & Johnson............ 7,115,901
84,934 Lilly (Eli) & Co. ........... 5,563,177
91,669 Merck & Co., Inc.**.......... 10,627,875
100,134 Pfizer, Inc. ................ 9,312,462
38,960 Pharmacia & Upjohn, Inc. .... 1,619,275
56,269 Schering-Plough Corp. ....... 4,839,134
62,851 Warner-Lambert Co. .......... 4,101,028
------------
61,401,700
------------
Major US
Telecommunications (6.7%)
21,025 ALLTEL Corp. ................ 948,753
84,402 Ameritech Corp. ............. 3,977,444
138,974 AT&T Corp. .................. 6,966,072
119,060 Bell Atlantic Corp. ......... 5,253,523
75,934 BellSouth Corp. ............. 5,206,225
73,826 GTE Corp. ................... 3,691,300
55,556 MCI Communications Corp. .... 2,777,800
141,030 SBC Communications, Inc. .... 5,359,140
33,020 Sprint Corp. ................ 2,214,404
38,469 U.S. West, Inc. ............. 2,000,388
79,155 WorldCom, Inc.*.............. 3,235,461
------------
41,630,510
------------
Managed Health Care (0.1%)
11,157 Aetna Inc. .................. 671,512
12,765 Humana, Inc.*................ 165,945
------------
837,457
------------
Manufacturing - Diversified
Industries (0.0%)
2,162 Aeroquip-Vickers, Inc. ...... 87,156
------------
Meat/Poultry/Fish (0.2%)
36,845 ConAgra, Inc. ............... 911,914
------------
Medical Electronics (0.3%)
36,009 Medtronic, Inc. ............. 1,849,962
------------
Medical Specialties (0.6%)
4,356 Bard (C.R.), Inc. ........... 142,659
4,266 Bausch & Lomb, Inc. ......... 180,505
18,882 Becton, Dickinson & Co. ..... 629,007
8,586 Biomet, Inc. ................ 230,749
14,909 Boston Scientific Corp.*..... 1,032,448
11,566 Guidant Corp. ............... 714,201
5,611 Mallinckrodt Group, Inc. .... 128,352
6,443 St. Jude Medical, Inc.*...... 142,149
5,879 United States Surgical
Corp. ...................... 234,793
------------
3,434,863
------------
Medical/Dental
Distributors (0.2%)
10,234 Cardinal Health, Inc. ....... 895,475
------------
Medical/Nursing Services (0.1%)
32,291 HEALTHSOUTH Corp.*........... 611,511
------------
Metals Fabrications (0.0%)
4,764 Timken Co. .................. 86,645
------------
Mid-Sized Banks (0.4%)
20,162 Fifth Third Bancorp.......... 1,072,366
11,626 Mercantile Bancorporation,
Inc. ....................... 510,817
8,553 Northern Trust Corp. ........ 476,830
20,174 Synovus Financial Corp. ..... 366,915
------------
2,426,928
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C> <C>
Military/Gov't/Technical (0.3%)
3,483 EG & G, Inc. ................ $ 81,633
9,693 General Dynamics Corp. ...... 461,023
25,985 Raytheon Co. (Class B)....... 1,185,566
------------
1,728,222
------------
Motor Vehicles (1.5%)
49,506 Chrysler Corp. .............. 2,209,205
93,030 Ford Motor Co. .............. 4,093,320
51,261 General Motors Corp. ........ 2,960,323
------------
9,262,848
------------
Movies/Entertainment (1.5%)
5,608 King World Productions
Inc.*....................... 117,768
45,312 Time Warner, Inc. ........... 3,641,952
27,351 Viacom, Inc. (Class B)*...... 1,357,293
156,855 Walt Disney Co. ............. 4,303,709
------------
9,420,722
------------
Multi-line Insurance (1.9%)
64,395 Allstate Corp. .............. 2,414,813
80,488 American International Group,
Inc. ....................... 6,222,729
16,517 CIGNA Corp. ................. 961,083
18,076 Hartford Financial Services
Group Inc. ................. 808,901
7,704 Lincoln National Corp. ...... 662,544
10,829 Safeco Corp. ................ 438,575
------------
11,508,645
------------
Multi-Sector Companies (0.4%)
3,507 Crane Co. ................... 141,157
8,820 Loews Corp. ................. 744,188
4,630 McDermott International,
Inc. ....................... 92,889
3,254 National Service Industries,
Inc. ....................... 121,212
13,011 Tenneco, Inc. ............... 412,286
12,549 Textron, Inc. ............... 787,450
------------
2,299,182
------------
Natural Gas - Distribution (0.2%)
7,348 Consolidated Natural Gas
Co. ........................ 321,934
1,566 Eastern Enterprises.......... 61,955
3,679 Nicor Inc. .................. 142,791
2,421 ONEOK, Inc. ................. 72,781
2,708 Peoples Energy Corp. ........ 89,703
18,351 Sempra Energy*............... 466,804
------------
1,155,968
------------
Newspapers (0.5%)
21,814 Gannett Co., Inc. ........... 1,287,026
6,018 Knight-Ridder, Inc. ......... 286,607
14,699 New York Times Co. (Class
A).......................... 426,271
6,805 Times Mirror Co. (Class A)... 389,161
9,364 Tribune Co. ................. 603,393
------------
2,992,458
------------
Office Equipment & Supplies (0.6%)
8,995 Avery Dennison Corp. ........ 482,919
20,981 Pitney Bowes, Inc. .......... 1,041,182
25,174 Xerox Corp. ................. 2,210,592
------------
3,734,693
------------
Oil & Gas Production (0.2%)
9,206 Anardarko Petroleum Corp. ... 264,673
13,582 Burlington Resources,
Inc. ....................... 401,518
8,141 Oryx Energy Co.*............. 101,254
19,256 Union Pacific Resources
Group, Inc. ................ 164,880
------------
932,325
------------
Oil Refining/Marketing (0.2%)
5,827 Ashland, Inc. ............... 265,493
7,194 Sun Co., Inc. ............... 237,852
22,181 USX-Marathon Group........... 576,706
------------
1,080,051
------------
Oil/Gas Transmission (0.4%)
16,294 Coastal Corp. ............... 423,644
6,387 Columbia Gas System, Inc. ... 317,753
25,193 Enron Corp. ................. 1,065,979
8,441 Sonat, Inc. ................. 228,435
32,516 Williams Companies, Inc. .... 747,868
------------
2,783,679
------------
Oilfield Services/Equipment (0.4%)
24,363 Baker Hughes, Inc. .......... 444,625
20,170 Halliburton Co. ............. 535,766
38,255 Schlumberger, Ltd. .......... 1,676,047
------------
2,656,438
------------
Other Consumer Services (0.3%)
8,038 Block (H.&R.), Inc. ......... 314,487
65,286 Cendant Corp.*............... 754,869
19,633 Service Corp.
International............... 665,068
------------
1,734,424
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C> <C>
Other Metals/Minerals (0.1%)
3,042 ASARCO, Inc. ................ $ 48,482
7,183 Cyprus Amax Minerals Co. .... 65,994
11,086 Engelhard Corp. ............. 203,705
13,875 Freeport-McMoran Copper &
Gold, Inc. (Class B)........ 161,297
12,733 Inco Ltd. (Canada)........... 106,639
4,499 Phelps Dodge Corp. .......... 201,330
------------
787,447
------------
Other Pharmaceuticals (0.0%)
5,041 Allergan, Inc. .............. 238,187
------------
Other Specialty Stores (0.1%)
11,700 AutoZone, Inc.*.............. 303,469
4,868 Pep Boys-Manny, Moe & Jack... 71,499
21,400 Toys 'R' Us, Inc.*........... 397,238
------------
772,206
------------
Other Transportation (0.0%)
25,207 Laidlaw, Inc. (Canada)....... 217,410
------------
Package Goods/Cosmetics (2.6%)
10,103 Avon Products, Inc. ......... 635,226
7,967 Clorox Co. .................. 768,318
22,711 Colgate-Palmolive Co. ....... 1,638,031
86,160 Gillette Co. ................ 3,543,330
8,265 International Flavors &
Fragrances Inc. ............ 320,269
42,729 Kimberly-Clark Corp. ........ 1,629,043
102,845 Procter & Gamble Co. ........ 7,867,643
------------
16,401,860
------------
Packaged Foods (1.9%)
22,148 Bestfoods.................... 1,111,553
34,830 Campbell Soup Co. ........... 1,754,561
12,136 General Mills, Inc. ......... 794,150
28,046 Heinz (H.J.) Co. ............ 1,495,202
31,383 Kellogg Co. ................. 957,182
10,627 Quaker Oats Company (The).... 564,559
24,297 Ralston-Ralston Purina
Corp. ...................... 639,315
35,823 Sara Lee Corp. .............. 1,620,991
49,097 Unilever N.V.
(Netherlands)............... 3,111,522
------------
12,049,035
------------
Paints/Coatings (0.2%)
13,603 PPG Industries, Inc. ........ 691,202
13,306 Sherwin-Williams Co. ........ 317,681
------------
1,008,883
------------
Paper (0.4%)
4,319 Boise Cascade Corp. ......... $ 105,546
7,378 Champion International
Corp. ...................... 243,474
16,904 Fort James Corp. ............ 492,329
23,582 International Paper Co. ..... 872,534
7,981 Mead Corp. .................. 218,480
2,225 Potlatch Corp. .............. 73,147
5,314 Union Camp Corp. ............ 196,950
7,781 Westvaco Corp. .............. 163,401
8,543 Willamette Industries,
Inc. ....................... 210,371
------------
2,576,232
------------
Photographic Products (0.3%)
24,749 Eastman Kodak Co. ........... 1,933,516
3,402 Polaroid Corp. .............. 95,681
------------
2,029,197
------------
Precious Metals (0.1%)
28,607 Barrick Gold Corp.
(Canada).................... 371,891
17,624 Battle Mountain Gold Co. .... 53,974
16,195 Homestake Mining Co. ........ 143,731
12,004 Newmont Mining Corp. ........ 164,305
19,174 Placer Dome Inc. (Canada).... 154,590
------------
888,491
------------
Precision Instruments (0.0%)
3,767 Perkin-Elmer Corp. .......... 218,015
3,875 Tektronix, Inc. ............. 58,852
------------
276,867
------------
Printing Forms (0.1%)
6,199 Deluxe Corp. ................ 179,771
10,882 Donnelley (R.R.) & Sons
Co. ........................ 394,473
6,784 Moore Corp. Ltd. (Canada).... 64,872
------------
639,116
------------
Private Issues (0.1%)
13,131 Frontier Corp. .............. 398,854
------------
Property - Casualty Insurance (0.6%)
12,892 Chubb Corp. ................. 805,750
12,790 Cincinnati Financial
Corp. ...................... 430,064
5,868 General Re Corp. ............ 1,217,610
5,561 Progressive Corp. ........... 541,850
17,991 St. Paul Companies, Inc. .... 549,850
------------
3,545,124
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C> <C>
Railroads (0.5%)
12,086 Burlington Northern Santa Fe
Corp. ...................... $ 1,124,753
16,803 CSX Corp. ................... 634,313
29,048 Norfolk Southern Corp. ...... 818,791
18,966 Union Pacific Corp. ......... 755,084
------------
3,332,941
------------
Recreational Products/Toys (0.2%)
7,627 Brunswick Corp. ............. 113,928
10,189 Hasbro, Inc. ................ 319,043
22,511 Mattel, Inc. ................ 728,794
------------
1,161,765
------------
Rental/Leasing Companies (0.0%)
5,700 Ryder System, Inc. .......... 134,306
------------
Restaurants (0.6%)
10,948 Darden Restaurants, Inc. .... 169,694
52,721 McDonald's Corp. ............ 2,955,671
11,680 TRICON Global Restaurants,
Inc.*....................... 432,890
10,069 Wendy's International,
Inc. ....................... 202,009
------------
3,760,264
------------
Savings & Loan Associations (0.3%)
8,417 Ahmanson (H.F.) & Co. ....... 448,731
4,393 Golden West Financial
Corp. ...................... 334,417
29,687 Washington Mutual, Inc. ..... 949,984
------------
1,733,132
------------
Semiconductors (1.8%)
10,995 Advanced Micro Devices,
Inc.*....................... 144,997
130,077 Intel Corp. ................. 9,259,856
10,795 LSI Logic Corp.*............. 132,239
16,316 Micron Technology, Inc.*..... 371,189
12,596 National Semiconductor
Corp.*...................... 114,939
29,951 Texas Instruments, Inc. ..... 1,428,288
------------
11,451,508
------------
Services to the Health Industry (0.3%)
32,953 HBO & Co. ................... 700,251
12,490 IMS Health Inc. ............. 686,950
2,018 Shared Medical Systems
Corp. ...................... 107,711
14,779 United Healthcare Corp. ..... 533,891
------------
2,028,803
------------
Shoe Manufacturing (0.1%)
22,067 Nike, Inc. (Class B)......... 765,449
4,320 Reebok International Ltd.
(United Kingdom)*........... 69,930
------------
835,379
------------
Soft Drinks (2.5%)
189,386 Coca Cola Co.**.............. 12,333,763
114,353 PepsiCo, Inc. ............... 3,166,149
------------
15,499,912
------------
Specialty Chemicals (0.3%)
17,964 Air Products & Chemicals,
Inc. ....................... 549,025
5,592 Goodrich (B.F.) Co. ......... 151,334
5,821 Grace (W. R.) & Co. ......... 74,945
4,528 Great Lakes Chemical
Corp. ...................... 177,158
9,998 Morton International,
Inc. ....................... 222,456
5,077 Nalco Chemical Co. .......... 146,916
12,103 Praxair, Inc. ............... 434,195
7,713 Sigma-Aldrich Corp. ......... 214,036
------------
1,970,065
------------
Specialty Foods/Candy (0.2%)
10,978 Hershey Foods Corp. ......... 768,460
8,913 Wrigley (Wm.) Jr. Co.
(Class A)................... 690,758
------------
1,459,218
------------
Specialty Insurers (0.1%)
7,488 MBIA, Inc. .................. 420,264
8,750 MGIC Investment Corp. ....... 363,125
------------
783,389
------------
Specialty Steel (0.0%)
6,753 Nucor Corp. ................. 242,686
------------
Steel/Iron Ore (0.1%)
8,271 Armco, Inc.*................. 34,118
9,839 Bethlehem Steel Corp.*....... 70,718
6,659 USX-U.S. Steel Group,
Inc. ....................... 139,423
7,419 Worthington Industries,
Inc. ....................... 96,447
------------
340,706
------------
Telecommunication
Equipment (2.0%)
6,791 Andrew Corp.*................ 100,592
11,514 General Instrument Corp.*.... 228,841
100,621 Lucent Technologies Inc. .... 7,131,513
45,838 Motorola, Inc. .............. 1,973,899
50,131 Northern Telecom Ltd.
(Canada).................... 2,393,765
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C> <C>
6,046 Scientific-Atlanta, Inc. .... $ 106,939
14,832 Tellabs, Inc.*............... 626,652
------------
12,562,201
------------
Textiles (0.0%)
1,463 Springs Industries, Inc.
(Class A)................... 48,370
------------
Tobacco (1.3%)
186,320 Philip Morris Companies,
Inc. ....................... 7,743,925
14,237 UST, Inc. ................... 371,942
------------
8,115,867
------------
Tools/Hardware (0.1%)
7,286 Black & Decker Corp. ........ 303,280
1,842 Briggs & Stratton Corp. ..... 67,809
4,540 Snap-On, Inc. ............... 119,175
6,807 Stanley Works................ 268,026
------------
758,290
------------
Utilities - Electric (0.1%)
10,524 Ameren Corp. ................ 416,356
------------
Wholesale Distributor (0.1%)
7,496 Grainger (W.W.), Inc. ....... 293,750
10,385 IKON Office Solutions,
Inc. ....................... 57,767
------------
351,517
------------
TOTAL COMMON STOCKS
(Identified Cost
$617,607,234)............... 586,546,412
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.0%)
U.S. GOVERNMENT AGENCIES (a) (5.0%)
$ 30,800 Federal Home Loan Mortgage
Corp. 5.70% due 09/01/98
(Identified Cost
$30,800,000)................ 30,800,000
------------
REPURCHASE AGREEMENT (0.0%)
245 The Bank of New York 5.75%
due 09/01/98 (dated
08/31/98; proceeds
$245,222)(b)
(Identified Cost
$245,182)................... $ 245,182
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost
$31,045,182)................ 31,045,182
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $648,652,416)
(c)............................. 99.6% $617,591,594
OTHER ASSETS IN EXCESS OF
LIABILITIES..................... 0.4 2,391,806
---- ------------
NET ASSETS...................... 100.0% $619,983,400
====== ============
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
** Some or all of these securities are segregated in connection with open
futures contracts.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $191,295 U.S. Treasury Bond 7.875% due 02/15/21 valued
at $250,086.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $34,245,812 and the
aggregate gross unrealized depreciation is $65,306,634, resulting in net
unrealized depreciation of $31,060,822.
FUTURES CONTRACTS OPEN AT AUGUST 31, 1998:
<TABLE>
<CAPTION>
UNDERLYING
DESCRIPTION, FACE
NUMBER OF DELIVERY YEAR, AMOUNT UNREALIZED
CONTRACTS AND MONTH AT VALUE GAIN/LOSS
- -----------------------------------------------------
<S> <C> <C> <C>
128 S&P 500 Index $30,528,000 $(3,976,852)
Sept/1998
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1998
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value
(identified cost $648,652,416).......... $617,591,594
Receivable for:
Shares of beneficial interest sold... 9,108,591
Dividends............................ 980,846
Investments sold..................... 419,109
Receivable from affiliate................ 93,948
Deferred organizational expenses......... 55,635
Prepaid expenses and other assets........ 151,145
------------
TOTAL ASSETS......................... 628,400,868
------------
LIABILITIES:
Payable for:
Shares of beneficial interest
repurchased......................... 4,029,393
Variation margin on futures
contracts........................... 2,385,313
Investments purchased................ 947,494
Plan of distribution fee............. 539,486
Investment management fee............ 134,751
Accrued expenses and other payables...... 381,031
------------
TOTAL LIABILITIES.................... 8,417,468
------------
NET ASSETS........................... $619,983,400
============
COMPOSITION OF NET ASSETS:
Paid-in-capital.......................... $654,925,631
Net unrealized depreciation.............. (35,037,674)
Undistributed net investment income...... 825,469
Net realized loss........................ (730,026)
------------
NET ASSETS........................... $619,983,400
============
CLASS A SHARES:
Net Assets............................... $28,718,548
Shares Outstanding (unlimited authorized,
$.01 par value)......................... 2,820,351
NET ASSET VALUE PER SHARE............ $10.18
===========
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net
asset value)........................ $10.74
===========
CLASS B SHARES:
Net Assets............................... $536,348,884
Shares Outstanding (unlimited authorized,
$.01 par value)......................... 52,958,394
NET ASSET VALUE PER SHARE............ $10.13
===========
CLASS C SHARES:
Net Assets............................... $40,730,073
Shares Outstanding (unlimited authorized,
$.01 par value)......................... 4,021,274
NET ASSET VALUE PER SHARE............ $10.13
===========
CLASS D SHARES:
Net Assets............................... $14,185,895
Shares Outstanding (unlimited authorized,
$.01 par value)......................... 1,390,503
NET ASSET VALUE PER SHARE............ $10.20
===========
</TABLE>
STATEMENT OF OPERATIONS
For the period September 26, 1997* through August 31, 1998
<TABLE>
<CAPTION>
NET INVESTMENT INCOME:INCOME
<S> <C>
Dividends (net of $29,061 foreign
withholding tax)........................ $ 6,069,179
Interest................................. 870,606
-----------
TOTAL INCOME......................... 6,939,785
-----------
EXPENSES
Plan of distribution fee (Class A
shares)................................. 45,470
Plan of distribution fee (Class B
shares)................................. 3,648,993
Plan of distribution fee (Class C
shares)................................. 258,271
Investment management fee................ 1,676,190
Transfer agent fees and expenses......... 429,209
Registration fees........................ 295,214
Custodian fees........................... 132,521
Professional fees........................ 42,058
S&P license fees......................... 41,905
Shareholder reports and notices.......... 31,176
Organizational expenses.................. 12,726
Trustees' fees and expenses.............. 11,479
Other.................................... 6,740
-----------
TOTAL EXPENSES....................... 6,631,952
Less: amounts waived/reimbursed.......... (583,981)
-----------
NET EXPENSES......................... 6,047,971
-----------
NET INVESTMENT INCOME................ 891,814
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain/loss on:
Investments.......................... 68,639
Futures contracts.................... (798,665)
-----------
NET LOSS............................. (730,026)
-----------
Net unrealized depreciation on:
Investments.......................... (31,060,822)
Futures contracts.................... (3,976,852)
-----------
NET DEPRECIATION..................... (35,037,674)
-----------
NET LOSS............................. (35,767,700)
-----------
NET DECREASE............................. ($34,875,886)
===========
</TABLE>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 26, 1997*
THROUGH
AUGUST 31, 1998
- ---------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................... $ 891,814
Net realized loss....................................... (730,026)
Net unrealized depreciation............................. (35,037,674)
-----------
NET DECREASE........................................ (34,875,886)
-----------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares.......................................... (32,194)
Class B shares.......................................... (218,934)
Class C shares.......................................... (12,314)
Class D shares.......................................... (36,579)
-----------
TOTAL DIVIDENDS..................................... (300,021)
-----------
Net increase from transactions in shares of beneficial
interest............................................... 655,059,307
-----------
NET INCREASE........................................ 619,883,400
NET ASSETS:
Beginning of period..................................... 100,000
-----------
END OF PERIOD
(Including undistributed net investment income of
$825,469)........................................... $619,983,400
===========
</TABLE>
- ---------------------
* Commencement of operations.
See Notes to Financial Statements
49
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter S&P 500 Index Fund (the "Fund"), formerly Dean
Witter S&P 500 Index Fund, is registered under the Investment Company Act of
1940, as amended (the "Act"), as a diversified, open-end management investment
company. The Fund's investment objective is to provide investment results that,
before expenses, correspond to the total return of the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500 Index"). The Fund seeks to achieve
its objective by investing at least 80% of its total assets in common stocks
included in the S&P 500 Index in approximately the same weighting as the Index.
The Fund was organized as a Massachusetts business trust on June 18, 1997 and
had no other operations other than those relating to organizational matters and
the issuance 2,500 shares of beneficial interest by each class for $25,000 of
each class to Morgan Stanley Dean Witter Advisors Inc. (The "Investment
Manager"), formerly Dean Witter InterCapital Inc., to effect the Fund's initial
capitalization. The Fund commenced operations on September 26, 1997.
The Fund offers four classes of shares. Class A shares, Class B shares, Class C
shares and Class D shares. The four classes are substantially the same except
that most Class A shares are subject to a sales charge imposed at the time of
purchase and some Class A shares, and most Class B shares and Class C shares
are subject to a contingent deferred sales charge imposed on shares redeemed
within one year, six years and one year, respectively. Class D shares are not
subject to a sales charge. Additionally, Class A shares, Class B shares and
Class C shares incur distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price
(in cases where a security is traded on more than one exchange, the security is
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (2) 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 the Investment Manager that sale or bid prices are not reflective
of a security's market value, portfolio securities are valued at their
50
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998, CONTINUED
fair value as determined in good faith under procedures established by and
under the general supervision of the Trustees; and (4) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a market-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.
Discounts are accreted over the respective life of the 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. FUTURES CONTRACTS -- A futures contract is an agreement between two parties
to buy and sell financial instruments at a set price on a future date. Upon
entering into such a contract, the Fund is required to pledge to the broker
cash, U.S. Government securities or other liquid portfolio securities equal to
the minimum initial margin requirements of the applicable futures exchange.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contract
which is known as variation margin. Such receipts or payments are recorded by
the Fund as unrealized gains or losses. Upon closing of the contract, the Fund
realizes a gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
E. 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.
F. 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
51
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998, CONTINUED
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.
G. ORGANIZATIONAL EXPENSES -- The Investment Manager incurred the
organizational expenses of the Fund in the amount of approximately $68,000 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 AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.40% to the net assets of the Fund determined as of the close
of each business day.
Under the terms of the 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.
The Investment Manager has agreed to assume all operating expenses (except for
Plan of Distribution fees) and to waive the compensation provided for in its
Investment Management Agreement to the extent that such expenses and
compensation on an annualized basis exceed 0.50% of the daily net assets of the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 1.0% of
the average daily net assets of Class B; and
52
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998, CONTINUED
(iii) Class C -- up to 1.0% of the average daily net assets of Class C. In the
case of Class A shares, amounts paid under the Plan are paid to the Distributor
for services provided. In the case of Class B and Class C shares, amounts paid
under the Plan are paid to the Distributor for services provided and the
expenses borne by it and others in the distribution of the shares of these
Classes, including the payment of commissions for sales of these Classes and
incentive compensation to, and expenses of, Morgan Stanley Dean Witter
Financial Advisors 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 $23,605,509 at August 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 August 31, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the period ended August 31,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $17,842,
$689,099 and $24,054, respectively and received $297,370 in
53
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998, CONTINUED
front-end sales charges from sales of the Fund's Class A shares. The respective
shareholders pay such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the period ended August 31, 1998
aggregated $621,244,544 and $3,705,941, respectively. Included in the
aforementioned are purchases of U.S. Government securities of $6,481,356 and
purchases of common stock of Morgan Stanley Dean Witter & Co., an affiliate of
the Investment Manager, of $2,970,358.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 26, 1997*
THROUGH
AUGUST 31, 1998
-------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C>
CLASS A SHARES
Sold........................................................ 4,387,871 $ 48,070,798
Reinvestment of dividends................................... 2,992 30,640
Redeemed.................................................... (1,573,012) (17,786,190)
---------- ------------
Net increase - Class A...................................... 2,817,851 30,315,248
---------- ------------
CLASS B SHARES
Sold........................................................ 59,465,374 638,937,231
Reinvestment of dividends................................... 19,651 201,231
Redeemed.................................................... (6,529,131) (73,134,069)
---------- ------------
Net increase - Class B...................................... 52,955,894 566,004,393
---------- ------------
CLASS C SHARES
Sold........................................................ 4,702,373 51,244,820
Reinvestment of dividends................................... 1,134 11,618
Redeemed.................................................... (684,733) (7,711,458)
---------- ------------
Net increase - Class C...................................... 4,018,774 43,544,980
---------- ------------
CLASS D SHARES
Sold........................................................ 2,826,399 30,380,237
Reinvestment of dividends................................... 190 1,940
Redeemed.................................................... (1,438,586) (15,187,491)
---------- ------------
Net increase - Class D...................................... 1,388,003 15,194,686
---------- ------------
Net increase in Fund........................................ 61,180,522 $655,059,307
========== ============
</TABLE>
- ------------
* Commencement of operations.
54
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998, CONTINUED
6. FEDERAL INCOME TAX STATUS
At August 31, 1998, the Fund had a net capital loss carryover of approximately
$289,000 which will be available through August 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 $4,325,000 during the fiscal 1998.
At August 31, 1998, the Fund had temporary book/tax differences primarily
attributable to post-October losses and the mark-to-market of open futures
contracts and permanent book/tax differences attributable to nondeductible
expenses. To reflect reclassifications arising from the permanent differences,
paid-in-capital was charged and undistributed net investment income was
credited $233,676.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may purchase and sell stock index futures ("futures contracts") for
the following reasons: to simulate full investment in the S&P 500 Index while
retaining a cash balance for fund management purposes; to facilitate trading;
to reduce transaction costs; or to seek higher investment returns when a
futures contract is priced more attractively than stocks comprising the S&P 500
Index.
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Fund bears the risk
of an unfavorable change in the value of the underlying securities.
At August 31, 1998, the Fund had outstanding futures contracts.
55
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE PERIOD SEPTEMBER 26, 1997*
THROUGH AUGUST 31, 1998++
-------------------------------------
CLASS A CLASS B CLASS C CLASS D
SHARES SHARES SHARES SHARES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $10.00 $10.00 $10.00 $10.00
------ ------- ------ ------
Net investment income....................................... 0.10 0.02 0.02 0.12
Net realized and unrealized gain............................ 0.11 0.12 0.12 0.11
------ ------- ------ ------
Total from investment operations............................ 0.21 0.14 0.14 0.23
------ ------- ------ ------
Less dividends from net investment income................... (0.03) (0.01) (0.01) (0.03)
------ ------- ------ ------
Net asset value, end of period.............................. $10.18 $10.13 $10.13 $10.20
====== ======= ====== ======
TOTAL INVESTMENT RETURN+(1)................................. 2.05% 1.38% 1.37% 2.30%
RATIOS TO AVERAGE NET ASSETS(2)(3)(4):
Expenses.................................................... 0.75% 1.50% 1.50% 0.50%
Net investment income....................................... 0.91% 0.16% 0.16% 1.16%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $28,719 $536,349 $40,730 $14,186
Portfolio turnover rate (1)................................. 1% 1% 1% 1%
</TABLE>
- ---------------------
* Commencement of operations.
++ The per share amounts were computed using an average number of shares
outstanding.
+ Does not reflect the deduction of sales charge. Calculated
based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were
reimbursed or waived by the Investment Manager, the
annualized expense and the net investment income ratios
would have been 0.89% and 0.77%, respectively, for Class A
shares, 1.64% and 0.02%, respectively, for Class B shares,
1.64% and 0.02%, respectively, for Class C shares and 0.64%
and 1.02%, respectively, for Class D shares.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
56
<PAGE>
MORGAN STANLEY DEAN WITTER S&P 500 INDEX FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER S&P 500 INDEX 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 S&P 500
Index Fund (the "Fund"), formerly Dean Witter S&P 500 Index Fund, at August 31,
1998, and the results of its operations, the changes in its net assets and the
financial highlights for the period September 26, 1997 (commencement of
operations) through August 31, 1998 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 audit. We conducted our audit 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 audit, which included
confirmation of securities at August 31, 1998 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
October 12, 1998
1998 FEDERAL TAX NOTICE (unaudited)
During the fiscal year ended August 31, 1998, 100% of the income
dividends qualified for the dividends received deduction available to
corporations.
57
